literature review of general banking activities

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• Published: 03 September 2022

A literature review of risk, regulation, and profitability of banks using a scientometric study

• Shailesh Rastogi 1 ,
• Arpita Sharma 1 ,
• Geetanjali Pinto 2 &
• Venkata Mrudula Bhimavarapu   ORCID: orcid.org/0000-0002-9757-1904 1 , 3  

Future Business Journal volume  8 , Article number:  28 ( 2022 ) Cite this article

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This study presents a systematic literature review of regulation, profitability, and risk in the banking industry and explores the relationship between them. It proposes a policy initiative using a model that offers guidelines to establish the right mix among these variables. This is a systematic literature review study. Firstly, the necessary data are extracted using the relevant keywords from the Scopus database. The initial search results are then narrowed down, and the refined results are stored in a file. This file is finally used for data analysis. Data analysis is done using scientometrics tools, such as Table2net and Sciences cape software, and Gephi to conduct network, citation analysis, and page rank analysis. Additionally, content analysis of the relevant literature is done to construct a theoretical framework. The study identifies the prominent authors, keywords, and journals that researchers can use to understand the publication pattern in banking and the link between bank regulation, performance, and risk. It also finds that concentration banking, market power, large banks, and less competition significantly affect banks’ financial stability, profitability, and risk. Ownership structure and its impact on the performance of banks need to be investigated but have been inadequately explored in this study. This is an organized literature review exploring the relationship between regulation and bank performance. The limitations of the regulations and the importance of concentration banking are part of the findings.

Introduction

Globally, banks are under extreme pressure to enhance their performance and risk management. The financial industry still recalls the ignoble 2008 World Financial Crisis (WFC) as the worst economic disaster after the Great Depression of 1929. The regulatory mechanism before 2008 (mainly Basel II) was strongly criticized for its failure to address banks’ risks [ 47 , 87 ]. Thus, it is essential to investigate the regulation of banks [ 75 ]. This study systematically reviews the relevant literature on banks’ performance and risk management and proposes a probable solution.

Issues of performance and risk management of banks

Banks have always been hailed as engines of economic growth and have been the axis of the development of financial systems [ 70 , 85 ]. A vital parameter of a bank’s financial health is the volume of its non-performing assets (NPAs) on its balance sheet. NPAs are advances that delay in payment of interest or principal beyond a few quarters [ 108 , 118 ]. According to Ghosh [ 51 ], NPAs negatively affect the liquidity and profitability of banks, thus affecting credit growth and leading to financial instability in the economy. Hence, healthy banks translate into a healthy economy.

Despite regulations, such as high capital buffers and liquidity ratio requirements, during the second decade of the twenty-first century, the Indian banking sector still witnessed a substantial increase in NPAs. A recent report by the Indian central bank indicates that the gross NPA ratio reached an all-time peak of 11% in March 2018 and 12.2% in March 2019 [ 49 ]. Basel II has been criticized for several reasons [ 98 ]. Schwerter [ 116 ] and Pakravan [ 98 ] highlighted the systemic risk and gaps in Basel II, which could not address the systemic risk of WFC 2008. Basel III was designed to close the gaps in Basel II. However, Schwerter [ 116 ] criticized Basel III and suggested that more focus should have been on active risk management practices to avoid any impending financial crisis. Basel III was proposed to solve these issues, but it could not [ 3 , 116 ]. Samitas and Polyzos [ 113 ] found that Basel III had made banking challenging since it had reduced liquidity and failed to shield the contagion effect. Therefore, exploring some solutions to establish the right balance between regulation, performance, and risk management of banks is vital.

Keeley [ 67 ] introduced the idea of a balance among banks’ profitability, regulation, and NPA (risk-taking). This study presents the balancing act of profitability, regulation, and NPA (risk-taking) of banks as a probable solution to the issues of bank performance and risk management and calls it a triad . Figure  1 illustrates the concept of a triad. Several authors have discussed the triad in parts [ 32 , 96 , 110 , 112 ]. Triad was empirically tested in different countries by Agoraki et al. [ 1 ]. Though the idea of a triad is quite old, it is relevant in the current scenario. The spirit of the triad strongly and collectively admonishes the Basel Accord and exhibits new and exhaustive measures to take up and solve the issue of performance and risk management in banks [ 16 , 98 ]. The 2008 WFC may have caused an imbalance among profitability, regulation, and risk-taking of banks [ 57 ]. Less regulation , more competition (less profitability ), and incentive to take the risk were the cornerstones of the 2008 WFC [ 56 ]. Achieving a balance among the three elements of a triad is a real challenge for banks’ performance and risk management, which this study addresses.

Triad of Profitability, regulation, and NPA (risk-taking). Note The triad [ 131 ] of profitability, regulation, and NPA (risk-taking) is shown in Fig.  1

Triki et al. [ 130 ] revealed that a bank’s performance is a trade-off between the elements of the triad. Reduction in competition increases the profitability of banks. However, in the long run, reduction in competition leads to either the success or failure of banks. Flexible but well-expressed regulation and less competition add value to a bank’s performance. The current review paper is an attempt to explore the literature on this triad of bank performance, regulation, and risk management. This paper has the following objectives:

To systematically explore the existing literature on the triad: performance, regulation, and risk management of banks; and

To propose a model for effective bank performance and risk management of banks.

Literature is replete with discussion across the world on the triad. However, there is a lack of acceptance of the triad as a solution to the woes of bank performance and risk management. Therefore, the findings of the current papers significantly contribute to this regard. This paper collates all the previous studies on the triad systematically and presents a curated view to facilitate the policy makers and stakeholders to make more informed decisions on the issue of bank performance and risk management. This paper also contributes significantly by proposing a DBS (differential banking system) model to solve the problem of banks (Fig.  7 ). This paper examines studies worldwide and therefore ensures the wider applicability of its findings. Applicability of the DBS model is not only limited to one nation but can also be implemented worldwide. To the best of the authors’ knowledge, this is the first study to systematically evaluate the publication pattern in banking using a blend of scientometrics analysis tools, network analysis tools, and content analysis to understand the link between bank regulation, performance, and risk.

This paper is divided into five sections. “ Data and research methods ” section discusses the research methodology used for the study. The data analysis for this study is presented in two parts. “ Bibliometric and network analysis ” section presents the results obtained using bibliometric and network analysis tools, followed by “ Content Analysis ” section, which presents the content analysis of the selected literature. “ Discussion of the findings ” section discusses the results and explains the study’s conclusion, followed by limitations and scope for further research.

Data and research methods

A literature review is a systematic, reproducible, and explicit way of identifying, evaluating, and synthesizing relevant research produced and published by researchers [ 50 , 100 ]. Analyzing existing literature helps researchers generate new themes and ideas to justify the contribution made to literature. The knowledge obtained through evidence-based research also improves decision-making leading to better practical implementation in the real corporate world [ 100 , 129 ].

As Kumar et al. [ 77 , 78 ] and Rowley and Slack [ 111 ] recommended conducting an SLR, this study also employs a three-step approach to understand the publication pattern in the banking area and establish a link between bank performance, regulation, and risk.

Determining the appropriate keywords for exploring the data

Many databases such as Google Scholar, Web of Science, and Scopus are available to extract the relevant data. The quality of a publication is associated with listing a journal in a database. Scopus is a quality database as it has a wider coverage of data [ 100 , 137 ]. Hence, this study uses the Scopus database to extract the relevant data.

For conducting an SLR, there is a need to determine the most appropriate keywords to be used in the database search engine [ 26 ]. Since this study seeks to explore a link between regulation, performance, and risk management of banks, the keywords used were “risk,” “regulation,” “profitability,” “bank,” and “banking.”

Initial search results and limiting criteria

Using the keywords identified in step 1, the search for relevant literature was conducted in December 2020 in the Scopus database. This resulted in the search of 4525 documents from inception till December 2020. Further, we limited our search to include “article” publications only and included subject areas: “Economics, Econometrics and Finance,” “Business, Management and Accounting,” and “Social sciences” only. This resulted in a final search result of 3457 articles. These results were stored in a.csv file which is then used as an input to conduct the SLR.

Data analysis tools and techniques

This study uses bibliometric and network analysis tools to understand the publication pattern in the area of research [ 13 , 48 , 100 , 122 , 129 , 134 ]. Some sub-analyses of network analysis are keyword word, author, citation, and page rank analysis. Author analysis explains the author’s contribution to literature or research collaboration, national and international [ 59 , 99 ]. Citation analysis focuses on many researchers’ most cited research articles [ 100 , 102 , 131 ].

The.csv file consists of all bibliometric data for 3457 articles. Gephi and other scientometrics tools, such as Table2net and ScienceScape software, were used for the network analysis. This.csv file is directly used as an input for this software to obtain network diagrams for better data visualization [ 77 ]. To ensure the study’s quality, the articles with 50 or more citations (216 in number) are selected for content analysis [ 53 , 102 ]. The contents of these 216 articles are analyzed to develop a conceptual model of banks’ triad of risk, regulation, and profitability. Figure  2 explains the data retrieval process for SLR.

Data retrieval process for SLR. Note Stepwise SLR process and corresponding results obtained

Bibliometric and network analysis

Figure  3 [ 58 ] depicts the total number of studies that have been published on “risk,” “regulation,” “profitability,” “bank,” and “banking.” Figure  3 also depicts the pattern of the quality of the publications from the beginning till 2020. It undoubtedly shows an increasing trend in the number of articles published in the area of the triad: “risk” regulation” and “profitability.” Moreover, out of the 3457 articles published in the said area, 2098 were published recently in the last five years and contribute to 61% of total publications in this area.

Articles published from 1976 till 2020 . Note The graph shows the number of documents published from 1976 till 2020 obtained from the Scopus database

Source of publications

A total of 160 journals have contributed to the publication of 3457 articles extracted from Scopus on the triad of risk, regulation, and profitability. Table 1 shows the top 10 sources of the publications based on the citation measure. Table 1 considers two sets of data. One data set is the universe of 3457 articles, and another is the set of 216 articles used for content analysis along with their corresponding citations. The global citations are considered for the study from the Scopus dataset, and the local citations are considered for the articles in the nodes [ 53 , 135 ]. The top 10 journals with 50 or more citations resulted in 96 articles. This is almost 45% of the literature used for content analysis ( n  = 216). Table 1 also shows that the Journal of Banking and Finance is the most prominent in terms of the number of publications and citations. It has 46 articles published, which is about 21% of the literature used for content analysis. Table 1 also shows these core journals’ SCImago Journal Rank indicator and H index. SCImago Journal Rank indicator reflects the impact and prestige of the Journal. This indicator is calculated as the previous three years’ weighted average of the number of citations in the Journal since the year that the article was published. The h index is the number of articles (h) published in a journal and received at least h. The number explains the scientific impact and the scientific productivity of the Journal. Table 1 also explains the time span of the journals covering articles in the area of the triad of risk, regulation, and profitability [ 7 ].

Figure  4 depicts the network analysis, where the connections between the authors and source title (journals) are made. The network has 674 nodes and 911 edges. The network between the author and Journal is classified into 36 modularities. Sections of the graph with dense connections indicate high modularity. A modularity algorithm is a design that measures how strong the divided networks are grouped into modules; this means how well the nodes are connected through a denser route relative to other networks.

Network analysis between authors and journals. Note A node size explains the more linked authors to a journal

The size of the nodes is based on the rank of the degree. The degree explains the number of connections or edges linked to a node. In the current graph, a node represents the name of the Journal and authors; they are connected through the edges. Therefore, the more the authors are associated with the Journal, the higher the degree. The algorithm used for the layout is Yifan Hu’s.

Many authors are associated with the Journal of Banking and Finance, Journal of Accounting and Economics, Journal of Financial Economics, Journal of Financial Services Research, and Journal of Business Ethics. Therefore, they are the most relevant journals on banks’ risk, regulation, and profitability.

Location and affiliation analysis

Affiliation analysis helps to identify the top contributing countries and universities. Figure  5 shows the countries across the globe where articles have been published in the triad. The size of the circle in the map indicates the number of articles published in that country. Table 2 provides the details of the top contributing organizations.

Location of articles published on Triad of profitability, regulation, and risk

Figure  5 shows that the most significant number of articles is published in the USA, followed by the UK. Malaysia and China have also contributed many articles in this area. Table 2 shows that the top contributing universities are also from Malaysia, the UK, and the USA.

Key author analysis

Table 3 shows the number of articles written by the authors out of the 3457 articles. The table also shows the top 10 authors of bank risk, regulation, and profitability.

Fadzlan Sufian, affiliated with the Universiti Islam Malaysia, has the maximum number, with 33 articles. Philip Molyneux and M. Kabir Hassan are from the University of Sharjah and the University of New Orleans, respectively; they contributed significantly, with 20 and 18 articles, respectively.

However, when the quality of the article is selected based on 50 or more citations, Fadzlan Sufian has only 3 articles with more than 50 citations. At the same time, Philip Molyneux and Allen Berger contributed more quality articles, with 8 and 11 articles, respectively.

Keyword analysis

Table 4 shows the keyword analysis (times they appeared in the articles). The top 10 keywords are listed in Table 4 . Banking and banks appeared 324 and 194 times, respectively, which forms the scope of this study, covering articles from the beginning till 2020. The keyword analysis helps to determine the factors affecting banks, such as profitability (244), efficiency (129), performance (107, corporate governance (153), risk (90), and regulation (89).

The keywords also show that efficiency through data envelopment analysis is a determinant of the performance of banks. The other significant determinants that appeared as keywords are credit risk (73), competition (70), financial stability (69), ownership structure (57), capital (56), corporate social responsibility (56), liquidity (46), diversification (45), sustainability (44), credit provision (41), economic growth (41), capital structure (39), microfinance (39), Basel III (37), non-performing assets (37), cost efficiency (30), lending behavior (30), interest rate (29), mergers and acquisition (28), capital adequacy (26), developing countries (23), net interest margin (23), board of directors (21), disclosure (21), leverage (21), productivity (20), innovation (18), firm size (16), and firm value (16).

Keyword analysis also shows the theories of banking and their determinants. Some of the theories are agency theory (23), information asymmetry (21), moral hazard (17), and market efficiency (16), which can be used by researchers when building a theory. The analysis also helps to determine the methodology that was used in the published articles; some of them are data envelopment analysis (89), which measures technical efficiency, panel data analysis (61), DEA (32), Z scores (27), regression analysis (23), stochastic frontier analysis (20), event study (15), and literature review (15). The count for literature review is only 15, which confirms that very few studies have conducted an SLR on bank risk, regulation, and profitability.

Citation analysis

One of the parameters used in judging the quality of the article is its “citation.” Table 5 shows the top 10 published articles with the highest number of citations. Ding and Cronin [ 44 ] indicated that the popularity of an article depends on the number of times it has been cited.

Tahamtan et al. [ 126 ] explained that the journal’s quality also affects its published articles’ citations. A quality journal will have a high impact factor and, therefore, more citations. The citation analysis helps researchers to identify seminal articles. The title of an article with 5900 citations is “A survey of corporate governance.”

Page Rank analysis

Goyal and Kumar [ 53 ] explain that the citation analysis indicates the ‘popularity’ and ‘prestige’ of the published research article. Apart from the citation analysis, one more analysis is essential: Page rank analysis. PageRank is given by Page et al. [ 97 ]. The impact of an article can be measured with one indicator called PageRank [ 135 ]. Page rank analysis indicates how many times an article is cited by other highly cited articles. The method helps analyze the web pages, which get the priority during any search done on google. The analysis helps in understanding the citation networks. Equation  1 explains the page rank (PR) of a published paper, N refers to the number of articles.

T 1,… T n indicates the paper, which refers paper P . C ( Ti ) indicates the number of citations. The damping factor is denoted by a “ d ” which varies in the range of 0 and 1. The page rank of all the papers is equal to 1. Table 6 shows the top papers based on page rank. Tables 5 and 6 together show a contrast in the top ranked articles based on citations and page rank, respectively. Only one article “A survey of corporate governance” falls under the prestigious articles based on the page rank.

Content analysis

Content Analysis is a research technique for conducting qualitative and quantitative analyses [ 124 ]. The content analysis is a helpful technique that provides the required information in classifying the articles depending on their nature (empirical or conceptual) [ 76 ]. By adopting the content analysis method [ 53 , 102 ], the selected articles are examined to determine their content. The classification of available content from the selected set of sample articles that are categorized under different subheads. The themes identified in the relationship between banking regulation, risk, and profitability are as follows.

Regulation and profitability of banks

The performance indicators of the banking industry have always been a topic of interest to researchers and practitioners. This area of research has assumed a special interest after the 2008 WFC [ 25 , 51 , 86 , 114 , 127 , 132 ]. According to research, the causes of poor performance and risk management are lousy banking practices, ineffective monitoring, inadequate supervision, and weak regulatory mechanisms [ 94 ]. Increased competition, deregulation, and complex financial instruments have made banks, including Indian banks, more vulnerable to risks [ 18 , 93 , 119 , 123 ]. Hence, it is essential to investigate the present regulatory machinery for the performance of banks.

There are two schools of thought on regulation and its possible impact on profitability. The first asserts that regulation does not affect profitability. The second asserts that regulation adds significant value to banks’ profitability and other performance indicators. This supports the concept that Delis et al. [ 41 ] advocated that the capital adequacy requirement and supervisory power do not affect productivity or profitability unless there is a financial crisis. Laeven and Majnoni [ 81 ] insisted that provision for loan loss should be part of capital requirements. This will significantly improve active risk management practices and ensure banks’ profitability.

Lee and Hsieh [ 83 ] proposed ambiguous findings that do not support either school of thought. According to Nguyen and Nghiem [ 95 ], while regulation is beneficial, it has a negative impact on bank profitability. As a result, when proposing regulations, it is critical to consider bank performance and risk management. According to Erfani and Vasigh [ 46 ], Islamic banks maintained their efficiency between 2006 and 2013, while most commercial banks lost, furthermore claimed that the financial crisis had no significant impact on Islamic bank profitability.

Regulation and NPA (risk-taking of banks)

The regulatory mechanism of banks in any country must address the following issues: capital adequacy ratio, prudent provisioning, concentration banking, the ownership structure of banks, market discipline, regulatory devices, presence of foreign capital, bank competition, official supervisory power, independence of supervisory bodies, private monitoring, and NPAs [ 25 ].

Kanoujiya et al. [ 64 ] revealed through empirical evidence that Indian bank regulations lack a proper understanding of what banks require and propose reforming and transforming regulation in Indian banks so that responsive governance and regulation can occur to make banks safer, supported by Rastogi et al. [ 105 ]. The positive impact of regulation on NPAs is widely discussed in the literature. [ 94 ] argue that regulation has multiple effects on banks, including reducing NPAs. The influence is more powerful if the country’s banking system is fragile. Regulation, particularly capital regulation, is extremely effective in reducing risk-taking in banks [ 103 ].

Rastogi and Kanoujiya [ 106 ] discovered evidence that disclosure regulations do not affect the profitability of Indian banks, supported by Karyani et al. [ 65 ] for the banks located in Asia. Furthermore, Rastogi and Kanoujiya [ 106 ] explain that disclosure is a difficult task as a regulatory requirement. It is less sustainable due to the nature of the imposed regulations in banks and may thus be perceived as a burden and may be overcome by realizing the benefits associated with disclosure regulation [ 31 , 54 , 101 ]. Zheng et al. [ 138 ] empirically discovered that regulation has no impact on the banks’ profitability in Bangladesh.

Governments enforce banking regulations to achieve a stable and efficient financial system [ 20 , 94 ]. The existing literature is inconclusive on the effects of regulatory compliance on banks’ risks or the reduction of NPAs [ 10 , 11 ]. Boudriga et al. [ 25 ] concluded that the regulatory mechanism plays an insignificant role in reducing NPAs. This is especially true in weak institutions, which are susceptible to corruption. Gonzalez [ 52 ] reported that firm regulations have a positive relationship with banks’ risk-taking, increasing the probability of NPAs. However, Boudriga et al. [ 25 ], Samitas and Polyzos [ 113 ], and Allen et al. [ 3 ] strongly oppose the use of regulation as a tool to reduce banks’ risk-taking.

Kwan and Laderman [ 79 ] proposed three levels in regulating banks, which are lax, liberal, and strict. The liberal regulatory framework leads to more diversification in banks. By contrast, the strict regulatory framework forces the banks to take inappropriate risks to compensate for the loss of business; this is a global problem [ 73 ].

Capital regulation reduces banks’ risk-taking [ 103 , 110 ]. Capital regulation leads to cost escalation, but the benefits outweigh the cost [ 103 ]. The trade-off is worth striking. Altman Z score is used to predict banks’ bankruptcy, and it found that the regulation increased the Altman’s Z-score [ 4 , 46 , 63 , 68 , 72 , 120 ]. Jin et al. [ 62 ] report a negative relationship between regulation and banks’ risk-taking. Capital requirements empowered regulators, and competition significantly reduced banks’ risk-taking [ 1 , 122 ]. Capital regulation has a limited impact on banks’ risk-taking [ 90 , 103 ].

Maji and De [ 90 ] suggested that human capital is more effective in managing banks’ credit risks. Besanko and Kanatas [ 21 ] highlighted that regulation on capital requirements might not mitigate risks in all scenarios, especially when recapitalization has been enforced. Klomp and De Haan [ 72 ] proposed that capital requirements and supervision substantially reduce banks’ risks.

A third-party audit may impart more legitimacy to the banking system [ 23 ]. The absence of third-party intervention is conspicuous, and this may raise a doubt about the reliability and effectiveness of the impact of regulation on bank’s risk-taking.

NPA (risk-taking) in banks and profitability

Profitability affects NPAs, and NPAs, in turn, affect profitability. According to the bad management hypothesis [ 17 ], higher profits would negatively affect NPAs. By contrast, higher profits may lead management to resort to a liberal credit policy (high earnings), which may eventually lead to higher NPAs [ 104 ].

Balasubramaniam [ 8 ] demonstrated that NPA has double negative effects on banks. NPAs increase stressed assets, reducing banks’ productive assets [ 92 , 117 , 136 ]. This phenomenon is relatively underexplored and therefore renders itself for future research.

Triad and the performance of banks

Regulation and triad.

Regulations and their impact on banks have been a matter of debate for a long time. Barth et al. [ 12 ] demonstrated that countries with a central bank as the sole regulatory body are prone to high NPAs. Although countries with multiple regulatory bodies have high liquidity risks, they have low capital requirements [ 40 ]. Barth et al. [ 12 ] supported the following steps to rationalize the existing regulatory mechanism on banks: (1) mandatory information [ 22 ], (2) empowered management of banks, and (3) increased incentive for private agents to exert corporate control. They show that profitability has an inverse relationship with banks’ risk-taking [ 114 ]. Therefore, standard regulatory practices, such as capital requirements, are not beneficial. However, small domestic banks benefit from capital restrictions.

DeYoung and Jang [ 43 ] showed that Basel III-based policies of liquidity convergence ratio (LCR) and net stable funding ratio (NSFR) are not fully executed across the globe, including the US. Dahir et al. [ 39 ] found that a decrease in liquidity and funding increases banks’ risk-taking, making banks vulnerable and reducing stability. Therefore, any regulation on liquidity risk is more likely to create problems for banks.

Concentration banking and triad

Kiran and Jones [ 71 ] asserted that large banks are marginally affected by NPAs, whereas small banks are significantly affected by high NPAs. They added a new dimension to NPAs and their impact on profitability: concentration banking or banks’ market power. Market power leads to less cost and more profitability, which can easily counter the adverse impact of NPAs on profitability [ 6 , 15 ].

The connection between the huge volume of research on the performance of banks and competition is the underlying concept of market power. Competition reduces market power, whereas concentration banking increases market power [ 25 ]. Concentration banking reduces competition, increases market power, rationalizes the banks’ risk-taking, and ensures profitability.

Tabak et al. [ 125 ] advocated that market power incentivizes banks to become risk-averse, leading to lower costs and high profits. They explained that an increase in market power reduces the risk-taking requirement of banks. Reducing banks’ risks due to market power significantly increases when capital regulation is executed objectively. Ariss [ 6 ] suggested that increased market power decreases competition, and thus, NPAs reduce, leading to increased banks’ stability.

Competition, the performance of banks, and triad

Boyd and De Nicolo [ 27 ] supported that competition and concentration banking are inversely related, whereas competition increases risk, and concentration banking decreases risk. A mere shift toward concentration banking can lead to risk rationalization. This finding has significant policy implications. Risk reduction can also be achieved through stringent regulations. Bolt and Tieman [ 24 ] explained that stringent regulation coupled with intense competition does more harm than good, especially concerning banks’ risk-taking.

Market deregulation, as well as intensifying competition, would reduce the market power of large banks. Thus, the entire banking system might take inappropriate and irrational risks [ 112 ]. Maji and Hazarika [ 91 ] added more confusion to the existing policy by proposing that, often, there is no relationship between capital regulation and banks’ risk-taking. However, some cases have reported a positive relationship. This implies that banks’ risk-taking is neutral to regulation or leads to increased risk. Furthermore, Maji and Hazarika [ 91 ] revealed that competition reduces banks’ risk-taking, contrary to popular belief.

Claessens and Laeven [ 36 ] posited that concentration banking influences competition. However, this competition exists only within the restricted circle of banks, which are part of concentration banking. Kasman and Kasman [ 66 ] found that low concentration banking increases banks’ stability. However, they were silent on the impact of low concentration banking on banks’ risk-taking. Baselga-Pascual et al. [ 14 ] endorsed the earlier findings that concentration banking reduces banks’ risk-taking.

Concentration banking and competition are inversely related because of the inherent design of concentration banking. Market power increases when only a few large banks are operating; thus, reduced competition is an obvious outcome. Barra and Zotti [ 9 ] supported the idea that market power, coupled with competition between the given players, injects financial stability into banks. Market power and concentration banking affect each other. Therefore, concentration banking with a moderate level of regulation, instead of indiscriminate regulation, would serve the purpose better. Baselga-Pascual et al. [ 14 ] also showed that concentration banking addresses banks’ risk-taking.

Schaeck et al. [ 115 ], in a landmark study, presented that concentration banking and competition reduce banks’ risk-taking. However, they did not address the relationship between concentration banking and competition, which are usually inversely related. This could be a subject for future research. Research on the relationship between concentration banking and competition is scant, identified as a research gap (“ Research Implications of the study ” section).

Transparency, corporate governance, and triad

One of the big problems with NPAs is the lack of transparency in both the regulatory bodies and banks [ 25 ]. Boudriga et al. [ 25 ] preferred to view NPAs as a governance issue and thus, recommended viewing it from a governance perspective. Ahmad and Ariff [ 2 ] concluded that regulatory capital and top-management quality determine banks’ credit risk. Furthermore, they asserted that credit risk in emerging economies is higher than that of developed economies.

Bad management practices and moral vulnerabilities are the key determinants of insolvency risks of Indian banks [ 95 ]. Banks are an integral part of the economy and engines of social growth. Therefore, banks enjoy liberal insolvency protection in India, especially public sector banks, which is a critical issue. Such a benevolent insolvency cover encourages a bank to be indifferent to its capital requirements. This indifference takes its toll on insolvency risk and profit efficiency. Insolvency protection makes the bank operationally inefficient and complacent.

Foreign equity and corporate governance practices help manage the adverse impact of banks’ risk-taking to ensure the profitability and stability of banks [ 33 , 34 ]. Eastburn and Sharland [ 45 ] advocated that sound management and a risk management system that can anticipate any impending risk are essential. A pragmatic risk mechanism should replace the existing conceptual risk management system.

Lo [ 87 ] found and advocated that the existing legislation and regulations are outdated. He insisted on a new perspective and asserted that giving equal importance to behavioral aspects and the rational expectations of customers of banks is vital. Buston [ 29 ] critiqued the balance sheet risk management practices prevailing globally. He proposed active risk management practices that provided risk protection measures to contain banks’ liquidity and solvency risks.

Klomp and De Haan [ 72 ] championed the cause of giving more autonomy to central banks of countries to provide stability in the banking system. Louzis et al. [ 88 ] showed that macroeconomic variables and the quality of bank management determine banks’ level of NPAs. Regulatory authorities are striving hard to make regulatory frameworks more structured and stringent. However, the recent increase in loan defaults (NPAs), scams, frauds, and cyber-attacks raise concerns about the effectiveness [ 19 ] of the existing banking regulations in India as well as globally.

Discussion of the findings

The findings of this study are based on the bibliometric and content analysis of the sample published articles.

The bibliometric study concludes that there is a growing demand for researchers and good quality research

The keyword analysis suggests that risk regulation, competition, profitability, and performance are key elements in understanding the banking system. The main authors, keywords, and journals are grouped in a Sankey diagram in Fig.  6 . Researchers can use the following information to understand the publication pattern on banking and its determinants.

Sankey Diagram of main authors, keywords, and journals. Note Authors contribution using scientometrics tools

Research Implications of the study

The study also concludes that a balance among the three components of triad is the solution to the challenges of banks worldwide, including India. We propose the following recommendations and implications for banks:

This study found that “the lesser the better,” that is, less regulation enhances the performance and risk management of banks. However, less regulation does not imply the absence of regulation. Less regulation means the following:

Flexible but full enforcement of the regulations

Customization, instead of a one-size-fits-all regulatory system rooted in a nation’s indigenous requirements, is needed. Basel or generic regulation can never achieve what a customized compliance system can.

A third-party audit, which is above the country's central bank, should be mandatory, and this would ensure that all three aspects of audit (policy formulation, execution, and audit) are handled by different entities.

Competition

This study asserts that the existing literature is replete with poor performance and risk management due to excessive competition. Banking is an industry of a different genre, and it would be unfair to compare it with the fast-moving consumer goods (FMCG) or telecommunication industry, where competition injects efficiency into the system, leading to customer empowerment and satisfaction. By contrast, competition is a deterrent to the basic tenets of safe banking. Concentration banking is more effective in handling the multi-pronged balance between the elements of the triad. Concentration banking reduces competition to lower and manageable levels, reduces banks’ risk-taking, and enhances profitability.

No incentive to take risks

It is found that unless banks’ risk-taking is discouraged, the problem of high NPA (risk-taking) cannot be addressed. Concentration banking is a disincentive to risk-taking and can be a game-changer in handling banks’ performance and risk management.

Research on the risk and performance of banks reveals that the existing regulatory and policy arrangement is not a sustainable proposition, especially for a country where half of the people are unbanked [ 37 ]. Further, the triad presented by Keeley [ 67 ] is a formidable real challenge to bankers. The balance among profitability, risk-taking, and regulation is very subtle and becomes harder to strike, just as the banks globally have tried hard to achieve it. A pragmatic intervention is needed; hence, this study proposes a change in the banking structure by having two types of banks functioning simultaneously to solve the problems of risk and performance of banks. The proposed two-tier banking system explained in Fig.  7 can be a great solution. This arrangement will help achieve the much-needed balance among the elements of triad as presented by Keeley [ 67 ].

Conceptual Framework. Note Fig.  7 describes the conceptual framework of the study

The first set of banks could be conventional in terms of their structure and should primarily be large-sized. The number of such banks should be moderate. There is a logic in having only a few such banks to restrict competition; thus, reasonable market power could be assigned to them [ 55 ]. However, a reduction in competition cannot be over-assumed, and banks cannot become complacent. As customary, lending would be the main source of revenue and income for these banks (fund based activities) [ 82 ]. The proposed two-tier system can be successful only when regulation especially for risk is objectively executed [ 29 ]. The second set of banks could be smaller in size and more in number. Since they are more in number, they would encounter intense competition for survival and for generating more business. Small is beautiful, and thus, this set of banks would be more agile and adaptable and consequently more efficient and profitable. The main source of revenue for this set of banks would not be loans and advances. However, non-funding and non-interest-bearing activities would be the major revenue source. Unlike their traditional and large-sized counterparts, since these banks are smaller in size, they are less likely to face risk-taking and NPAs [ 74 ].

Sarmiento and Galán [ 114 ] presented the concerns of large and small banks and their relative ability and appetite for risk-taking. High risk could threaten the existence of small-sized banks; thus, they need robust risk shielding. Small size makes them prone to failure, and they cannot convert their risk into profitability. However, large banks benefit from their size and are thus less vulnerable and can convert risk into profitable opportunities.

India has experimented with this Differential Banking System (DBS) (two-tier system) only at the policy planning level. The execution is impending, and it highly depends on the political will, which does not appear to be strong now. The current agenda behind the DBS model is not to ensure the long-term sustainability of banks. However, it is currently being directed to support the agenda of financial inclusion by extending the formal credit system to the unbanked masses [ 107 ]. A shift in goal is needed to employ the DBS as a strategic decision, but not merely a tool for financial inclusion. Thus, the proposed two-tier banking system (DBS) can solve the issue of profitability through proper regulation and less risk-taking.

The findings of Triki et al. [ 130 ] support the proposed DBS model, in this study. Triki et al. [ 130 ] advocated that different component of regulations affect banks based on their size, risk-taking, and concentration banking (or market power). Large size, more concentration banking with high market power, and high risk-taking coupled with stringent regulation make the most efficient banks in African countries. Sharifi et al. [ 119 ] confirmed that size advantage offers better risk management to large banks than small banks. The banks should modify and work according to the economic environment in the country [ 69 ], and therefore, the proposed model could help in solving the current economic problems.

This is a fact that DBS is running across the world, including in India [ 60 ] and other countries [ 133 ]. India experimented with DBS in the form of not only regional rural banks (RRBs) but payments banks [ 109 ] and small finance banks as well [ 61 ]. However, the purpose of all the existing DBS models, whether RRBs [ 60 ], payment banks, or small finance banks, is financial inclusion, not bank performance and risk management. Hence, they are unable to sustain and are failing because their model is only social instead of a much-needed dual business-cum-social model. The two-tier model of DBS proposed in the current paper can help serve the dual purpose. It may not only be able to ensure bank performance and risk management but also serve the purpose of inclusive growth of the economy.

Conclusion of the study

The study’s conclusions have some significant ramifications. This study can assist researchers in determining their study plan on the current topic by using a scientific approach. Citation analysis has aided in the objective identification of essential papers and scholars. More collaboration between authors from various countries/universities may help countries/universities better understand risk regulation, competition, profitability, and performance, which are critical elements in understanding the banking system. The regulatory mechanism in place prior to 2008 failed to address the risk associated with banks [ 47 , 87 ]. There arises a necessity and motivates authors to investigate the current topic. The present study systematically explores the existing literature on banks’ triad: performance, regulation, and risk management and proposes a probable solution.

To conclude the bibliometric results obtained from the current study, from the number of articles published from 1976 to 2020, it is evident that most of the articles were published from the year 2010, and the highest number of articles were published in the last five years, i.e., is from 2015. The authors discovered that researchers evaluate articles based on the scope of critical journals within the subject area based on the detailed review. Most risk, regulation, and profitability articles are published in peer-reviewed journals like; “Journal of Banking and Finance,” “Journal of Accounting and Economics,” and “Journal of Financial Economics.” The rest of the journals are presented in Table 1 . From the affiliation statistics, it is clear that most of the research conducted was affiliated with developed countries such as Malaysia, the USA, and the UK. The researchers perform content analysis and Citation analysis to access the type of content where the research on the current field of knowledge is focused, and citation analysis helps the academicians understand the highest cited articles that have more impact in the current research area.

Practical implications of the study

The current study is unique in that it is the first to systematically evaluate the publication pattern in banking using a combination of scientometrics analysis tools, network analysis tools, and content analysis to understand the relationship between bank regulation, performance, and risk. The study’s practical implications are that analyzing existing literature helps researchers generate new themes and ideas to justify their contribution to literature. Evidence-based research knowledge also improves decision-making, resulting in better practical implementation in the real corporate world [ 100 , 129 ].

Limitations and scope for future research

The current study only considers a single database Scopus to conduct the study, and this is one of the limitations of the study spanning around the multiple databases can provide diverse results. The proposed DBS model is a conceptual framework that requires empirical testing, which is a limitation of this study. As a result, empirical testing of the proposed DBS model could be a future research topic.

Availability of data and materials

SCOPUS database.

Abbreviations

Systematic literature review

World Financial Crisis

Non-performing assets

Differential banking system

SCImago Journal Rank Indicator

Liquidity convergence ratio

Net stable funding ratio

Fast moving consumer goods

Regional rural banks

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‘SR’ performed Abstract, Introduction, and Data methodology sections and was the major contributor; ‘AS’ performed Bibliometric and Network analysis and conceptual framework; ‘GP’ performed citation analysis and discussion section; ‘VMB’ collated data from the database and concluded the article. All authors read and approved the final manuscript.

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Rastogi, S., Sharma, A., Pinto, G. et al. A literature review of risk, regulation, and profitability of banks using a scientometric study. Futur Bus J 8 , 28 (2022). https://doi.org/10.1186/s43093-022-00146-4

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DOI : https://doi.org/10.1186/s43093-022-00146-4

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The impact of bank regulation on bank lending: a review of international literature

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• Volume 23 , pages 405–418, ( 2022 )

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This paper reviews the theoretical and empirical literature on the impact of bank regulation on bank lending. It also structures the empirical evidence according to the impact of various bank regulatory measures on bank lending. The surveyed theoretical literature generally indicates that the impact of bank regulation on lending could be asymmetric, depending on the trade-off between the costs and benefits of bank regulation. The evidence from the empirical studies also shows that the impact of bank regulatory measures on lending is ambiguous. Although many studies found the impact to be negative, some established that it was positive while others found it to be insignificant or inconclusive. However, most empirical studies only assumed first-round effects using static and/or dynamic models, whereas the ones incorporating second-round effects using general equilibrium models were limited. Therefore, this systematic review of the literature indicates that policy recommendations regarding the appropriateness and efficacy of bank regulatory measures in influencing bank lending cannot be implemented uniformly across different regions or countries.

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Thamae, R.I., Odhiambo, N.M. The impact of bank regulation on bank lending: a review of international literature. J Bank Regul 23 , 405–418 (2022). https://doi.org/10.1057/s41261-021-00179-9

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Accepted : 24 August 2021

Published : 31 August 2021

Issue Date : December 2022

DOI : https://doi.org/10.1057/s41261-021-00179-9

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Home » Bank and financial institutes » General Banking Activities of Bangladesh Commerce Bank Ltd

General Banking Activities of Bangladesh Commerce Bank Ltd

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1.1 Background of the Study

Banking sector is the driving force for an economic growth of a country. Every commercial bank acts as financial intermediary whose main aim is to earn profit through borrowing and lending funds in the profitable sectors and they also issue different types of credit instruments. Therefore, the Banking system occupies an important place and plays significant role in a nation’s economy building. Necessarily, banking sector also ensure commendable contribution in the economic development of a country and forms the core of the money market in an advanced country. This sort of financial intermediary accepting deposits and granting loans; offers the widest menu of services for different business ventures. Commercial banks have significantly expanded their financial services to the clients and government around the world. In current business world is very dynamic and fast changing. That’s why every professional have to have clear concept regarding this changes and he/she need to conform to these changing environments. In order to become a real professional people’s needed to enter into practical business world. A professional is a person who is skilled in the theoretical, scientific and practical aspect of an occupation and who performs with a high degree of competence.

1.2 Scope of Study  

Bangladesh Commerce Bank Ltd is one of the fast growing banks in the country. It’s actively competing with others leading commercial banks. It formally launched business activities on 06.09.1999. This report constructed on the basis of general banking activities of the organization and it covers the organization’s structure, chronological growth and development performance of the commercial banks. The main part of the repot consists of the “General Banking activities of the Bangladesh Commerce Bank Ltd.”. Due to successful completion of essential part of the report have the opportunity to discuss regarding following issues:

· Finding the bridge between academic study and practice in organization.

· Importance of the General activities in banking.

· Finding the bridge between academic study and practice in Organization.

· What are the problems of Overall banking practice in BCBL?

· What are the basic difference between other commercial banks and BCBL’s activities?

· How to maintain the organizational behavior inside the organization.

· How General Banking performance does affects overall progress of the Organization.

1.3Objectives of the Study

There are some certain objectives behind preparing this report. These acted as incentive to make the report. The primary and basic objective is to fulfill the course requirement and then understand the entire banking system of Bangladesh Commerce Bank Ltd (BCBL). Other than these two other objectives are as follows:

· To achieve concept regarding practical business world.

· Find out similarities between academic knowledge and practical field.

· Understanding the organizational environment.

· How to maintain official rules and regulations.

· Understanding the basic activities of Overall banking.

1.4 Review Literature

General Banking

General Banking is an operational function of the bank which consists the management of deposit, cash, clearing house, bills, account opening, security instruments handling, customer services, locker facilities and other ancillary services of the bank besides Advance and Foreign Trade.

· High quality financial services with the assistance of latest technological device.

· Innovation in banking service at a competitive price.

· Steady return on shareholder’s equity.

· Committed to the growth of society and economic development.

2.5 Vision of the Bank

The vision of Bangladesh Commerce Bank Ltd. is to give experience to delight the customers and to give an environment where its own people will excel. At the juncture of global economic activities, BCBL has been driven by the strategic policy, as the prosperous economies of the global village are option. Its aim is to become the leader in banking sector of the country.

2.6 Functions of the Organization

Beside normal Banking business, the bank is engaged in them following activities:

· Borrowing from individual institutions.

· Lending against or without security for local or international trade.

· Carrying out functions of foreign trade and foreign exchange business including opening of L/C, issuance of T/C, Credit card, buying, selling discounting of bills, CDs, Promissory Notes, approved securities, etc.

· Buying and selling of foreign currencies.

· Direct customer Service like payment of utility bills, insurance premiums, receiving dividends, pensions, etc.

· Participating in the capital market as stock-broker and also as portfolio-investor.

· Reliable safe custody of Valuables.

· Providing excellent remittance facilities.

· Publication of Financial Statement.

· Provides withdrawal facilities of Deposits.

2.7 Organizational Structure of BCBL

I n the legislative body the chairman is the head of the Board of Directors. There is a Managing Director who is also the President or CEO mainly controls and supervises the major divisions of the Bank. One Deputy Managing Director reports to him. Two Executive Vice President Reports to him. Executive Vice Presidents controls the credit, loan administration, international, financial control, accounts, marketing and human resource Division.

The organizational structure of Bangladesh Commerce Bank Ltd. is quite horizontal where each person reports to only one person, which refers to a very good working environment. For example, each Officer reports to the AVP or VP or SVP, AVP or VP or SVP reports to EVP, EVP reports to DMD and DMD reports to MD.

2.8 Management Team

To achieve the mission, a set of different drivers are mandatory. Commercial banks in Bangladesh are now in hard competition.  This is because of the continuous growth of similar service oriented local banks along with special service providing foreign bank due to globalization. BCBL management team is sound experienced and enrich with excellent academic background and the legislative body or Board of Directors are responsible for selection of management team. The Board of Directors also sets objectives, policies and strategies and management team is the instrumental device, who implements those sets by the Board of Directors.  

List of Management Personnel are given below…

2.9 Management Information System

B angladesh Commerce Bank Ltd. uses branch banking software, developed by a private company on windows platform. The head Office and branches use the software for book keeping, automatic interest calculation, daily transaction listing and auto trials, auto maturity and auto renewal of FDR, automatic integration customer’s ledger and general ledger, printing of general ledger position including balance of subsidiaries, monthly income and expenditure position etc.

2.10 Products and Services of BCBL

BCBL is a rapid growing commercial bank in the country. It’s competing with wide range of product and services that play a convenient role to its attainment. Products and services of Bangladesh Commerce Bank Ltd. are as follows:

General banking department offer following products:

· Savings deposits on S/B A/C

· Current deposit A/C.

· Short Term deposit on STD A/C

· Term Deposit

· Fixed Deposit on FDR

· Special Scheme(including double & triple growth deposit, Lacpati Deposit Scheme, Millionaire Deposit Scheme, Marriage Deposit Scheme, Education Deposit Scheme, Kotipoti Deposit Scheme, and new addition nandita & srijoni )

· Consumers Financing

· Lease financing.

Foreign Exchange

Foreign exchange department of the bank provide following service in order for convenience of the customers:

· Issuing Letter of Credit

· Letter of credit advice

· (FDBP) Foreign Document Bill Purchase.

· (FDBC) Foreign Document Bill Collection

· Bill of Exchange

· Negotiating Bills

· Issue of Traveler’s cheques and its encashment

Loans and Advances

Loans and advance department deals with following products and services:

· Financing of small and medium Industries

· Financing of Trade

· Financing if Import and Export

· Micro-Credit and Micro Enterprise schemes

· Credit Scheme for women entrepreneurs

· Consumers credit Scheme

· Special Credit Scheme for service holder

2.11 Special Schemes

Other than the normal banking business the bank has the following special schemes:

· Small and medium scale entrepreneurs credit scheme.

· Scheme for loans to employees.

· Loan scheme for women entrepreneurs.

· Pension deposit scheme for small saver.

· Monthly deposit and profit scheme.

· Credit scheme against share.

· Interest free deposit.

· Agricultural credit Scheme.

· Life time savings Scheme.

2.12 Human Resource Management

BCBL strongly believe that only well qualified manpower can meet the expectations of the clients. For this reason BCBL always conscious regarding its existing Human Resources and frequently hiring efficient manpower to meet the standard of quality services. BCBL often arranging training program for junior level executives at BCBL Institution and senior level officers and executives are sent at BIBM, Mirpur, and Dhaka for higher training. Abreast this BCBL also send its employees abroad for higher training.

2.13 Sources of Funds

There are various sources of funds of Bangladesh Commerce Bank ltd. Basically BCBL accumulate funds from following sources:

Figure: 02, Sources of Fund

2.14 Branches of Bangladesh Commerce Bank Ltd.

Bangladesh Commerce Bank ltd. operates its business activities with 25 branches around the country. Following table shows the Branches’ names, addresses, Telephone no etc.

Table: 01, Branches of BCBL

2.15 Foreign Exchange Business

During the short span of life of the Bank, it has got momentum in the area of foreign trade business. It deals in all kinds of export, import, remittance and all other sorts of foreign exchange business. BCBL has got nine major correspondent banks in important business centers of the world and maintain quite a good number of Nostro accounts with many leading banks of the world. It works in the following main areas:

· Letter of Credit (L/C)

· Bill Purchase & discounting

· Export Credit (Pre-shipment & post-shipment)

· Remittances

· Foreign Currency Accounts

· Taka Drawing Arrangements

· Dealing Room

· SWIFT

2.16   SWOT Analysis of the Bank

SWOT provides an opinion and judgment whether an organization’s business condition is healthy or unhealthy. It is shown as bellow:

2.16.1 Strengths

Chief Executive Officer (CEO) or the top management of the Bangladesh Commerce Bank Ltd. has contributed for the growth and development of the Bank is a key strength.

It has strong network and skilled manpower that able to provide quality services.

Positive professional relationships between bank and clients, which is an emotional tie in regular business.

Due to sophisticated system and technological advancement it’s easy to get the information without wasting paper works and time.

The Bank is always trying to add new and modern equipment and facilities to start online service from December next.

Employees are sharing good atmosphere in BCBL so that it gave them reason to work efficiently and to become dedicated in banking.

BCBL maintains corresponding relationship with many foreign banks so that it is an effective measure for the smooth business.

2.16.2 Weaknesses

Market promotional activities are not actively working due to the lack of appropriate initiative and encouragement.

Doesn’t have effective plane for aggressive marketing activities.

People are discouraged to save their money with BCBL due to Problem Bank.

Due to lack of high quality personnel in the top level of management personality businessmen and entrepreneurs are less interested to work with BCBL.

Well qualified personnel are not interested at all to work in BCBL due to less salary.

There is no well-developed infrastructure.

Most of the Branches are suffering for indiscipline problem.

The bank is far behind from technological advancement.

The branches are not well equipped by modern furniture whereas other commercial banks have sophisticated equipment.

2.16.3 Opportunity

Bangladesh Govt. has rendered its full support to the banking sector to develop the country’s economic position, at the same time creating employment opportunity.

It is almost decided that online banking will be started by December 2011 in BCBL and the wide area of network will facilitate the customer in BCBL Banking.

Bank will be able to accommodate knowledgeable, skilled, experienced and hardworking persons by offering attractive remunerations and fringe benefits with nice working environment.

By expanding the business portfolio, BCBL can start the investment business with foreign exchange curriculum.

By expanding the financing policy with credit facility customers are very much secured in business environment

2.16.4 Threats

Defaulters are seriously affecting the smooth banking culture in Bangladesh. BCBL is a new type of bank which has been started by passing the bills in national assembly with defaulting burdens of BCI -LTD.

Central bank is always supervising the local and foreign banks in Bangladesh and sometimes it is hampering the normal operations of Private Banks.

Though the innovation workings are in continuous process, but the other rival banks are copying it within the short period.

The worldwide trends and acquisitions in financial institutions the concentration goes on competitor’s products and increasing the power in their respective areas.

It is expecting that very shortly more financial institutions are coming with their new products and we should be prepared for hard competition in the following years.

Financial Performance of BCBL

3.1 Introduction

Every bank is the financial institution in nature. Therefore, finance is the blood of any bank. Necessarily the overall growth and development of the bank is totally depends on its financial performance. If the financial performances are being smooth the overall growth would be ensured other than the organizations growth would be disrupted.

3.2 Capital Structure

The capital and reserve of the Bank as on 31 st December, 2010 stood at Tk.2237.80crores. The reserve of the Bank increased from Tk.249.1 million during the year from Tk.148.60 million in the year 2009.the bank has made provision against off balance sheet items amounting to Tk. 8.16million in the year 2010.

3.3 Capital and Capital Adequacy Ratio of BCBL  

According to the evidence of December 31, 2010.BCBL maintained a capital adequacy ratio of Tk.213.46 crore as on against the requirements of Tk.121.83 crore as set by the Bangladesh Bank as per Act 12 of 1997 up to 31-3-2004. It indicates that the bank maintained a satisfactory capital adequacy ratio during the year2010.

3.4 Deposit

At the end of the December 2010 the deposit of the bank was Tk.1218.76 crore against Tk.760.50 crore during the corresponding period of the previous year. The growth of deposit is 60.26% compared to last year. This growth rate may be termed as a remarkable achievement considering the adverse economic situation of the country during 2010. In the prevailing situation mobilizing of deposit had become very competitive and as a result average cost of fund of the bank in the private sectors had increased compared to previous year. The Bank has given stress on procurement of low cost funds including cost free funds for bringing down the average cost of fund. The deposit of their bank as on December 31, 2010 was as follows:

Table 04: Deposit

Graph 04: Deposit

3.5 Investment

The investment portfolio of the Bank during the year 2010 was Tk.147.23 crore against Tk71.01 crore in the previous year registering a growth of 107.34%. The portfolio of investment including Govt. Treasury Bills, Prize Bonds, Share in Public Limited Companies etc. The bank has always given emphasis on investment of funds in high yield areas and maintains statutory Liquidity requirements as fixed by Bangladesh Bank. Following listed seven years investment of BCBL.

Table 05: Investment

Graph 05: Investment

3.6 Dividend

Due to shortfall in statutory provision on loans and advances, the bank was not in a position to declare dividend in 2010. Hopefully, the bank able to declare dividend in the next year if Tk.15.00 crore profits is earned in the year 2011 and the Bangladesh Bank allows declaring dividend without providing the required provisions for BCI classified loans and advances.

3.7 Comparative Financial Highlights from 2009 to 2010

F). Investment

Values of investments have been shown as under:

G). Cash Flow Statement

Cash flow statement is prepared principally in accordance with BAS 7 “Cash Flow Statement” and the cash flow from the operating activities have been presented under direct method as prescribed by the securities and exchange rules 1987 and considering the provision of paragraph 18 (b) of BAS-7 which provides that ‘Enterprise are Encouraged to report cash flow from operating activities using the direct method

3.9 Changes of Equity

Following table shows the changes of equity for the year ended 31 December 2010

Table 09: Changes of Equity

General Banking of BCBL

4.1 Introduction

Every commercial bank deals with different vital division such as:

General Banking division

Loans and Advance division

Foreign Exchange division etc.

Among these three divisions General Banking is the core and leading division. General Banking division is the most important point of all activities. It is the storage point for all kinds of transactions of foreign exchange division, loans and advance division, and other relevant events. Except General Banking functions a bank cannot sustain for long. With the technological advancement this sector is growing tremendously. As a fast growing bank BCBL actively realizing that development and trying to conform to the changing environment.

4.2 General Banking Activities of BCBL

Basically, General Banking division performs the core functions of a bank. It deals day to day transactional activities which include collection of deposit from customers and meet the customers demand for cash. Widely general banking division includes the following sections: 

· Account Opening Section/ Deposit Section

· Collection and Clearing Section.

· Cash Section

· Local Remittance Section

· Bill Section

· Accounts Section

· Dispatch Section

· Administrative Section

4.3 Account Opening Section

To become a customer initially need to open an account with a particular bank and then a person is allowed to go for transaction. Through this process banker- customer relationship begins and continues until violation of any condition by the parties. According to the regulation of central bank and commercial bank everybody cannot open an account. In order to open an account customer need to fulfill some certain conditions and requirements provided by the bank. 

4.4 Types of Account

As we know there are different type’s accounts, however it depends on bank’s goals, objectives, mission and vision as well. Bangladesh Commerce Bank Ltd. provides the opportunity to open following types of account:

· Savings Bank Account (SB)

· Current Account CA)

· Short Term Deposit (STD)

· Fixed Deposit Ratio (FDR)

· Deposit Pension Scheme (DPS)

4.5 Savings Bank Account (SB)

This account is primarily for small scale saver. Any adult and mentally smooth person can open this type of account through the fulfillment of required conditions. Saving bank account is convenient for the people of the lower and middle classes who wish to save a part of their current incomes to meet their future needs and also intend to earn an income from their savings. However, account holders cannot withdrawal money more than two times in a week but he can deposit any time as he/she wishes. If any customers want to withdraw large amount of money he have to notice the bank early. At present its interest rate is 7.50%. Abreast these some other relevant points listed below:

4.5.1 Requirements to open an Account:

In order to open an account customer need to fulfill following requirements:

· 2 copies of passport size photographs.

· Photocopy of 1-7 pages of valid passport (Absence of passport- driving license/ voter ID card/ Commissioner’s certificate).

· Introducer signature and account number at the back of account holder’s (person going to open an account) photographs.

· Photograph of nominee with the signature of account holder at the backside of nominee’s photograph.

· Initial deposit of TK. 1000.

· Two or more persons can open this account jointly.

· Parents can open an account on behalf of his minor children.

· Any private Organization can open savings account in its own name. In this regard 3324organizations need to submit name, photograph, and specimen signature of specific person who be responsible for the account.

4.5.2 Characteristics of the Savings Account

The basic characteristics of saving bank account are as follows:

· At the time of opening an account customers have to deposit minimum Tk.1000.

· One person can open only one account in one name.

· Interest paid twice in a year depending on monthly minimum balance.

· Minor cannot open an account.

· Customer can deposit money at any times during working hour.

· But customer can withdraw not more than twice in a week.

· Generally this account holder cannot take loan but in special case it might happen.

· The main purpose of this account is to construct fund.

· The Bank provide passbook to deposit money in account.

4.5.3 Types of Savings Account

There are different types of savings account bank offers to its customers such as:

· Home savings account

· School savings account

· Works savings account

· Deposit pension account

· Cumulative savings account

· Loan Deposit account

· Foreign currency account etc.

4.6 Current Account (CA)

Current account is running and active account which may be operated upon any number of times during a working day. Basically it’s a pure demand deposit account. Since there is no restriction on withdrawal and deposit holder can withdraw and deposit money any times in a working day. Basically there are two types current account available in the Bank:

General Current Account

Special Notice Current Account

The basic requirements and characteristics of this account are as follows:

4.6.1 Requirements for Current Account

For person:

· Initial deposit of TK. 2000.

For joint venture, Associations, and Clubs: If the party is joint venture, Associations, and Club then they have to fulfill following requirements:

· True copies of certificate of incorporation or registration.

· True copies of certificate of commencement of business.

· True copies of memorandum and articles of association.

· True copies of resolution of the board of directors.

For partnership Company:

· Name and address of the firm.

· Partnership deed.

· Trade License

· Endorsement of account holder of the same branch.

4.6.2 Characteristics:

4.13.4.3 Payment Order Working Procedure

Figure 05: Working procedure of Pay Order

4.13.4.4 Cancellation of PO

If it requires canceling pay order then purchaser need go through a predetermined procedure. At purchaser have to submit written application to refund the pay order attaching therewith the original pay order. Then authority will confirm purchaser’s signature with the original signature. Beside this there have to have the permission of authorized employees prior refund the amount of pay order. Pay order should be affixed on the pay order. In order to cancel pay order there does not charge any fees, only refund the pay order amount and finally reserve original entries with proper description.

4.14 Bill Section

The most important and mentionable task of general banking is to collect and payment of different bills on behalf of clients and the government. As a representative of client BCBL perform following basic tasks:

· Bill collection

· Clearing

· Transfer and Delivery

· Outward and inward bill Collection.

4.14.1 Bill collection

Under this section bank collect different types of bill on behalf of clients. Such as- Purchase and sale share and securities, pay the tax and vat, collect and disburse house rent, collect dividend, collect pension fund, invest the money etc. There are basically two different types of bill. Besides, bank receives check for collection from other bank on behalf of clients. In this case following points should be carefully investigated:

· Cheque should not carry more six months from the date of transfer of funds. In that case check would be stale check.

· The amount should be identical both in word and in pay-in slip.

· The name mentioned should be same both in check and in pay- in-slip.

· Check must be crossed.

Clearing is one of the mentionable tasks of a commercial bank. Clearing means accomplishments of cheque drown on each other through clearing house. In general clearing house means “A place where representatives of local banks meet at an agreed time each day to exchange cheque and other items drown on each other and to settle the resulting balances. This is an initiative of central bank to accumulate the representatives of schedule bank to clear their cheques. In order for clear the cheque BCBL developed a unique section that is responsible for receive checks, drafts, and other instruments like these from customers for the purpose of collection with a deposit slip over the counter crediting their accounts. Only the schedule banks are allowed to participate in clearing house. According to the Article 37 (2) of Bangladesh Bank Order, 1972, the banks which are the member of clearing house known as schedule bank. Accordingly BCBL is a schedule bank and actively participate in clearing function with clearing house on behalf of the customers.

Types of Clearing: Basically two types of clearing available:

· Outward Clearing: When the branches of a bank receive cheques from its customers drawn on the other banks within the local clearing zone for collection through clearing house.

· Inward Clearing: When the bank receives cheque drawn on it from other banks in order for clearing function. 

4.14.2.1 Considerable Factors to receive Cheque

The Bank carefully consider following factors at the time of receiving the cheques for clearing:

· Name of the account on the cheque and Deposit slip.

· Amount in the Cheque must be both in word and figure.

· Bank and Branch name, number and date of the cheque.

· Cheque must be signed by the holder.

· Cheque should be crossed.

· Account number in the cheque must be clear.

· Signature of the depositor.

4.14.3 Outward and inward Bill Collection

This is the transaction occur outside and the debts that arise due to transaction among different branches of different banks are settled through Outward and inward Bill Collection.

4.15 Cash Section

Cash section is most vital and significant section of the bank. Let’s they say cash is the blood of the bank. The main task of this section is receive and payment of money. As we know it has two major counters-

Cash receive counter

Cash payment counter

4.15.1 Cash Receive Counter

In receive counter two/three efficient persons are responsible for cash collection. In this section cheque, pay order, drafts etc. are being received. These tasks accomplish through a predetermined process-

· At first customer need to fill up the deposit slip provided by the bank.

· Deposit the slip to cashier.

· Cashier receives money, confirm the amount and then enter into the cash receipt register book and finally sign with seal and date in the deposit slip.

· Slip then passed to another officer who is responsible for taking details like serial number, amount etc. and return deposit slip to customer. 

Cash payment

Cash payment counter is responsible only for payment of cash on the basis of check, pay order, drafts etc. In terms of cash payment bank initiate some extra care regarding following things- whether the cheque is crossed or not, endorsement, date, specimen signature, amount, and other relevant things. To pay money bank follow process:

· At customer need to deposit the cheque to the cash section.

· Authorized individual verify required things- whether it is properly crossed if it is being cross cheque, endorsement, date, amount, signature, and also ensure current balance in the account and then it send to cashier if everything is positive.

· Cashier is then asked bearer to sign on the back side of the cheque and pay the money.

· Then cashier enter payment details into register book.

Account Section

It’s regardless to analyze how much significant the account section are! Let’s the say account is the nerve center of the bank. Everyday huge transaction occur in different section, account section regularly keep record each and every transaction. In banking business bank need to go for various transaction and these transactions are to be recorded properly and systematically. If the bank fails to record this transaction in an appropriate manner it might happen mismatch and misunderstanding between bank and customers and it also mismatch in the debit and credit side. To avoid this violence bank developed account section which is responsible record keeping of all transactions required information, prepare different statement and other relevant things. Basically accounts supply information to other sections of the bank according their requirement. Generally account section of BCBL responsible for following activities:

· Record keeping of all transactions in the cash book.

· Recording the transactions in general and subsidiary ledger.

· Packing of the correct vouchers according to the debit voucher a credit voucher.

· Constructing the daily position of the branch comparing of deposit and cash.

· Make payment of all expenses of the branch.

· Recording inters branch fund transfer and providing accounting treatment in this regard.

· Preparing monthly salary statements for the employees.

· Preparing weekly position for the branch which is sent to the Head Office to maintain cash reserve requirements.

· Checking transaction list.

· Recording of the vouchers in the voucher register.

· Preparing the daily statement of affairs showing all the assets and liability of the branch as per general ledger and subsidiary ledger separately.

5.  Consumers Credit Scheme

Domestic useable items i.e. Computer, Photocopier, Furniture, Washing Machine, Air Cooler, Refrigerator, Sewing Machine, Car; Pressure Cooker etc are financed for comfortable and modern living of the people of limited source of income.

6.  Special Credit Scheme for Service-holder

Under this scheme service-holders of govt. bank or autonomous bodies are provided with 6 month's basic salary as loan realizable in 18 equal installments. Professionals are also covered under this special credit.

4.17.2 Considerations of Bank in Granting Loans and Advances

Basically main task of the bank is to earn profit through borrowing and lending money. That’s why bank need to proceed some significant principles to provide loans from its fund. At the time of granting loan BCBL consciously investigates followings:

4.17.3 Classification of Advances

The Bangladesh Commerce Bank Ltd. classified its advances/ credit program in following forms:

4.17.3.1 Bank Advances on the basis of the objectives/ Uses

A. Commercial Credit

B. Non- Commercial Credit

A. Commercial Credit: Bank provides this type of credit for the purpose of national and international business. Commercial credit may be short term or long term.

B. Non- Commercial Credit: Bank provides this credit for non- commercial purpose. The bank offers this credit to purchase house, Home materials, Social development, traveling, education, etc.

4.17.3.2 Bank’s Advances on the basis of Duration

Short Term Credit : Bank offers this type of loan for very short time. The maximum duration of this loan is one year and minimum one hour. Basically individual, firms and industries are the main customer of this loan.

Mid Term Loan: Bank also provides credit for mid term between short term and long term. The maximum duration of this credit is less than five years and minimum one year. Bank charge a certain percentage of interest against this credit and that is 11%-14%. Customers of the Long term credit are-

· General Businessman

· Importer

· Exporter

· The bank demand borrower land and properties as collateral against this loan.

Long Term Credit: Bank offers this credit for long term, generally bank grants this credit for five years to twenty years duration. Bank charge high interest against long term credit it is 15%-20%.

Normally bank grants long term credit under a certain project. However, bank provide long term loan to purchase land and machineries, house building, construction of industry and machineries purchase, etc. Bank also grants long term credit for small and cottage industries, fisheries, etc.

4.17.3.3 Loan

Among all the advances loan is most significant and comparatively high demandable to the customers. Generally bank provides this loan through credit account, it does not provide in cash. Customers draw by the cheque from his / her account. Normally, loan need to repay within a certain time period. However, customers are allowed to repay loans in installment. Necessarily bank demand high interest on different types of loan and customers are instructed to pay interest with principle amount of loan. BCBL grant loans for following different purposes:

· Purchasing Transportation

· Agricultural activities

BCBL make arrangement for foundation training for all of officers in order for their better development at Bank’s own institute and BIBM.

Bill section is most cash liquidity handle in banking transaction.

Some problems of BCBL

Until now the bank apply traditional banking system, the bank is far behind from modernization.

The Bank could not introduce proper automation and database system. Only a few branch use automation system.

The working environment of the bank is not modern like other commercial bank.

The cash section of the bank could not properly develop. In order for cash receive and payment they employ traditional system that is extensive time consuming.

The bank did not formally develop the job description and job responsibility. That’s why one employee’s need to work in different working area.

Last but not the list banks depend on deposit collection less than to give loan.

They have no normal credit or debit card.

Some branches are to much less busy then other branches.

They have no ATM Booth.

Just principals Branch create more foreign transaction then others branches.

 7. Conclusion

Its high committed toward better customer services. The Bank by concentrating on the activities in its area of specialization has achieved good market reputation with effective customer services. The bank is committed to keep its working force modern by providing continuous training to its staff in their respective field of work. BCBL Pledges to maximize customers’ satisfactions through services and building a trusting relationship with customers, which has stood the least of time for the last seven years.

The bank offers wide ranges product line in order for customer convenience and marketing activities in banking is the most significant. Basically, General Banking activities are the driving force of the Organization. Abreast this bank also offers credit to all sectors of commercial activities having productive purpose and successfully performs foreign exchange activities.

Recommendations

After analysis of all the gathered information and other relevant things the Bangladesh Commerce Bank Ltd. should consider the following matters.

Since today’s business world totally technology depended so the Bank should develop online banking system as soon as possible.

To sustain in the competitive market bank should modernize the working environment.

The Bank performs business activities with only 25 of its branches. Therefore in order to capture the market share bank should immediately enhance number of branches. 

Retrieved October 10, 2010, from www.bcbl-bd.com.

View With Charts And Images   

  1.1 Background of the Study

Banking sector is the driving force for an economic growth of a country. Every commercial bank acts as financial intermediary whose main aim is to earn profit through borrowing and lending funds in the profitable sectors and they also issue different types of credit instruments. Therefore, the Banking system occupies an important place and plays significant role in a nation’s economy building. Necessarily, banking sector also ensure commendable contribution in the economic development of a country and forms the core of the money market in an advanced country. This sort of financial intermediary accepting deposits and granting loans; offers the widest menu of services for different business ventures. Commercial banks have significantly expanded their financial services to the clients and government around the world. In current business world is very dynamic and fast changing. That’s why every professional have to have clear concept regarding this changes and he/she need to conform to these changing environments. In order to become a real professional people’s needed to enter into practical business world. A professional is a person who is skilled in the theoretical, scientific and practical aspect of an occupation and who performs with a high degree of competence.

Bangladesh Commerce Bank Ltd is one of the fast growing banks in the country. It’s actively competing with others leading commercial banks. It formally launched business activities on 06.09.1999. This report constructed on the basis of general banking activities of the organization and it covers the organization’s structure, chronological growth and development performance of the commercial banks. The main part of the repot consists of the “General Banking activities of the Bangladesh Commerce Bank Ltd.”. Due to successful completion of essential part of the report have the opportunity to discuss regarding following issues:

· Finding the bridge between academic study and practice in organization.

· Importance of the General activities in banking.

· Finding the bridge between academic study and practice in Organization.

· What are the problems of Overall banking practice in BCBL?

· What are the basic difference between other commercial banks and BCBL’s activities?

· How to maintain the organizational behavior inside the organization.

· How General Banking performance does affects overall progress of the Organization.

· To achieve concept regarding practical business world.

· Find out similarities between academic knowledge and practical field.

· Understanding the organizational environment.

· How to maintain official rules and regulations.

· Understanding the basic activities of Overall banking.

General banking is one of the key drivers of the U.S. economy. General banking provides a safe place to save excess cash, known as deposits. It also supplies liquidity to the economy by loaning this money out to help businesses grow and to allow consumers to purchase homes, cars and consumer products. Banks primarily make money by charging higher on their than they pay for deposits.

Financial institution that mediates or stands between ultimate borrowers and ultimate lenders is known as banking financial institution. Banks perform this function in two ways – taking deposits from various areas in different forms and lending that accumulated amount of money to the potential investors in other different forms.

1.5Methodology

Data Collection

To prepare an authentic and informative report we had to study all the company’s information, record, company website and other relevant things. With these it was most significant to discuss with employees of different section regarding various confidential records. Besides we studied different congenial books and journal published on related subject and collected information from different sources.

Sources of Data

To prepare an enrich report it require acquisition of huge information and study of different relevant works on it. That’s why we had to utilize both primary and secondary sources to collect relevant information.

A). Primary Sources of Data

· Conversation with the organization’s stuff and Executives in the Principal branch and employees of Mailbag Branch.

· Conversation with bank’s clients.

· Study of relevant file.

· Observation of day to day activities.

· Informal works exposures from different desks of the branches.

B) The secondary sources of Data

This source includes:

· Annual report of Bangladesh Commerce Bank Limited.

· Periodicals published by the Bangladesh Bank.

· Website of BCBL.

· In order to prepare the report I have used these sources widely.

Data Analysis and Organize

After collection of entire data different approaches are widely used to analyze and organize the data such as qualitative approach. In this process technological assistance was more significant and indispensable.

Profile of Bangladesh commerce bank limited

2.1 Background of the Bangladesh Commerce Bank Ltd.

Bangladesh Commerce Bank Ltd. (BCBL) is a Commercial bank but it has some differences in its formation compare to other private banks. Bangladesh Commerce Bank Ltd. was established by recognizing the erstwhile BCI Ltd through passing act 12 of 1997 in the parliament of the People’s Republic of Bangladesh having paid up capital amounting to Tk. 92 crores consisting of Tk. 40 Crore cash money paid by the government and 3 state- owned Banks and Tk. 52 crores of BCI depositors’ money. The commercial operation of the Bank started since September 16, 1999 through opening of its principal branch and all other 23 branches were opened by 31 st December 1999. Having incurred losses in the first two years the bank started earning profit since 2001. The Bank started its operation shouldering the legacy of BCI and has been progressing smoothly facing all hurdles and problems. The progress is satisfactory and noticeable.

Bank earned an extensive net profit Tk. 4.81 crores & Tk. 7.04 crores in the year of 2002 & 2003 respectively. Although the overall economic picture of the country was instable during 2003, but the bank registered a growth of 124% over that of previous year. The bank adequately covered capital adequate ratio as fixed by the Central Bank. This achievement had been possible due to positive attitude toward the organization, hard working, and honesty of the management team with the support of policy directives and guideline from the board of Directors. Out of deposited money of BCI Ltd. Tk. 163 crore has already been paid out of 180 crores of BCI which is a success for the bank. The said payment has been made through transferring Tk. 52 crores with investment BCI Ltd. and paying cash Tk. 62 crores. For the sake of BCI depositors Tk. 30 crores over the recovery of BCI investment has been paid to the depositors. In the year of 2003 the total deposit of the bank was Tk. 409.39 crores which is 46% more than that of previous year. At the same time the bank disbursed a total loan of Tk. 291.10 crores which is 71.11% more than that of previous year. The progress is continuing.

Bangladesh Commerce Bank Ltd. inherited 24 closed branches of former Bangladesh Commerce and Investment Limited. Having been registered with the Registrar of Joint Stock Companies and Firms with the prior approval of Securities and Exchange Commission, it commenced banking operation with the opening of its Principal Branch at 19, Rajuk Avenue, Motijheel Commercial Area, the financial hub of the Capital City of Dhaka on 16th September 1999. In the year of 2002 by opening a branch in Commilla the total no. of branches have been increased to 25. The bank has planned to open more new branches and that will be implemented in phases after getting approval from Bangladesh Bank. In the year 2009 bank earned profit Tk. 7.25 crores. In the year 2010 bank earned profit Tk. 11.59 Crore.

It is known that Bangladesh Commerce Bank Ltd. Could not started its operation smoothly this had to launch its operation with a burden of Tk. 179 crores of BCI stuck up loans. Most of the loans were from BCI period there was no documents and against which were unsecured. With continuous and sincere efforts of the Officers a cash recovery of Tk. 4.50 crore has been possible during the year which led the cumulative recovery to Tk. 84.00 crores up to this time.

The Bank is concentrating the activities in its area of specialization has achieved good market reputation with efficient customer service. The Bank is committed to providing continuous training to its staff to keep them up to date with modern practices in their respective fields of work. The Bank also tries to fulfill its share in community responsibilities. By such measures the Bank intends to grow and increase shareholder’s earning per share. Bangladesh Commerce Bank Ltd. Promises to maximize customer satisfaction through services and build a trusting relationship with customers, which has stood the test of time for the last all  years.

The total manpower strength is 375 out of which 213 are officers and 162 are staff. They are very much efficient in their professional area. They are being further trained to take up the challenging job.

2.2 The Objectives of the Bank

As a member of the money market, BCBL plays a pivotal role in accelerating economic development of the country . Bangladesh Commerce Bank Ltd. has been established in order to achieve some certain objectives. Those objectives are as follows:

· Providing services by diversifications to the doorstep of people in the economic sector.

· Ensuring maximum utilization of professional manpower by developing skill and creativeness.

· Offering maximum service to the clients and shareholders of the Bank, as per rules.

· Creating savings attitude among various classes of people. Increasing investment for keeping the market economy operative.

· Assessment of customers need and provide short-term and long- term finance on the basis of real need.

· Earning confidence of all concerned by easing foreign trade and international transactions.

· Proper maintenance of bank’s resources through appropriate investment and active participation in various welfare programmers of the country.

· Involve customers with modern banking through proper uses of modern information technology.

· Provide best services to customers through establishing firm discipline in bank management and long-term relations.

· Achievement of economic growth through various socio- economic activities.

· Building image of the bank at home and abroad. Upgrading socio- economic aspects of Bangladesh by financing agro-based project.

· Activate capital market by more participation in capital market.

2.3 Goals of the Organization  

The bank conducts its business activities toward some certain goals. These are as follows:

· The basic goal is to organize funds in order to invest for profitable purposes in various fields of small and medium scale of trading, large companies and corporate sectors.

· To undertake project promotion to identify profitable areas.

· To scrutinizes the opportunities for investment and developing the new products.

2.4 Mission of Bangladesh Commerce Bank Ltd.  

Mission of Bangladesh Commerce Bank Ltd. is as follows:

· One Stop, Fast, and accurate customer services.

· High slandered business ethics

· Balanced financial growth strategy.

· Attracting & nourishing quality human resources with right compensation.

· High quality financial services with the assistance of latest technological device.

· Innovation in banking service at a competitive price.

· Steady return on shareholder’s equity.

· Committed to the growth of society and economic development.

· Borrowing from individual institutions.

· Lending against or without security for local or international trade.

· Carrying out functions of foreign trade and foreign exchange business including opening of L/C, issuance of T/C, Credit card, buying, selling discounting of bills, CDs, Promissory Notes, approved securities, etc.

· Buying and selling of foreign currencies.

· Direct customer Service like payment of utility bills, insurance premiums, receiving dividends, pensions, etc.

· Participating in the capital market as stock-broker and also as portfolio-investor.

· Reliable safe custody of Valuables.

· Providing excellent remittance facilities.

· Publication of Financial Statement.

· Provides withdrawal facilities of Deposits.

In the legislative body the chairman is the head of the Board of Directors. There is a Managing Director who is also the President or CEO mainly controls and supervises the major divisions of the Bank. One Deputy Managing Director reports to him. Two Executive Vice President Reports to him. Executive Vice Presidents controls the credit, loan administration, international, financial control, accounts, marketing and human resource Division.

Bangladesh Commerce Bank Ltd. uses branch banking software, developed by a private company on windows platform. The head Office and branches use the software for book keeping, automatic interest calculation, daily transaction listing and auto trials, auto maturity and auto renewal of FDR, automatic integration customer’s ledger and general ledger, printing of general ledger position including balance of subsidiaries, monthly income and expenditure position etc.

BCBL is a rapid growing commercial bank in the country. It’s competing with wide range of product and services that play a convenient role to its attainment. Products and services of Bangladesh Commerce Bank Ltd. are as follows:

· Savings deposits on S/B A/C

· Current deposit A/C.

· Short Term deposit on STD A/C

· Term Deposit

· Fixed Deposit on FDR

· Special Scheme(including double & triple growth deposit, Lacpati Deposit Scheme, Millionaire Deposit Scheme, Marriage Deposit Scheme, Education Deposit Scheme, Kotipoti Deposit Scheme, and new addition nandita & srijoni )

· Consumers Financing

· Lease financing.

· Issuing Letter of Credit

· Letter of credit advice

· (FDBP) Foreign Document Bill Purchase.

· (FDBC) Foreign Document Bill Collection

· Bill of Exchange

· Negotiating Bills

· Issue of Traveler’s cheques and its encashment

· Financing of small and medium Industries

· Financing of Trade

· Financing if Import and Export

· Micro-Credit and Micro Enterprise schemes

· Credit Scheme for women entrepreneurs

· Consumers credit Scheme

· Special Credit Scheme for service holder

· Small and medium scale entrepreneurs credit scheme.

· Scheme for loans to employees.

· Loan scheme for women entrepreneurs.

· Pension deposit scheme for small saver.

· Monthly deposit and profit scheme.

· Credit scheme against share.

· Interest free deposit.

· Agricultural credit Scheme.

· Life time savings Scheme.

Bangladesh Commerce Bank ltd. operates its business activities with 25 branches around the country. Following table shows the Branches’ names, addresses, Telephone no etc.

· Letter of Credit (L/C)

· Bill Purchase & discounting

· Export Credit (Pre-shipment & post-shipment)

· Remittances

· Foreign Currency Accounts

· Taka Drawing Arrangements

· Dealing Room

SWOT provides an opinion and judgment whether an organization’s business condition is healthy or unhealthy. It is shown as bellow:

Due to sophisticated system and technological advancement it’s easy to get the information without wasting paper works and time.

Doesn’t have effective plane for aggressive marketing activities.

Bangladesh Govt. has rendered its full support to the banking sector to develop the country’s economic position, at the same time creating employment opportunity.

The worldwide trends and acquisitions in financial institutions the concentration goes on competitor’s products and increasing the power in their respective areas.

Table 07:  7 years performance

3.9 Significant Accounting Policies

A). Basis of Preparation of the Financial Statements

The financial statements of the company are made up to 31 December each year and are prepared under the historical cost convention and in accordance with first schedule of Banking Companies Act (BCA) of 1991, Bangladesh Bank Circulars, Bangladesh Accounting Standards, the Companies Act 1994, the listing Regulations of the Exchange, the securities and Exchange Rule 1987 and other laws and rules applicable in Bangladesh on a going concern basis.

B). Revenue Recognition

The revenue during the year are recognized as following which satisfy all conditions of revenue recognition as prescribed by BAS 18 “ Revenue Recognition”.

Interest is calculated on daily product on unclassified loan and advances but charged on quarterly basis.

Interest is charged on classified loans and advances as per Bangladesh Bank BRPD circular No. 16 of 1989 and such interest were not taken into income.

Dividend income is recognized at the time when it is realized.

Commission and bills on purchased and discount are recognized at the time of realization.

C). Fixed Assets and Depreciation

Assets are stated at cost less accumulated depreciation.

Depreciation has been charged in diminishing balance method.

D). Earning Per Share (EPS)

The company calculates earning per share (EPS) in accordance with BAS 33 “Earning per Share” which has been shown on the face of profit and loss account. This has been calculated by dividing the basic earnings by the weighted average number of ordinary shares outstanding during the year. A diluted earnings per share is required to be calculated for the year, as there is scope for diluted during the year under review.

E). Statement of Liquidity

Cash flow statement is prepared principally in accordance with BAS 7 “Cash Flow Statement” and the cash flow from the operating activities have been presented under direct method as prescribed by the securities and exchange rules 1987 and considering the provision of paragraph 18 (b) of BAS-7 which provides that ‘Enterprise are Encouraged to report cash flow from operating activities using the direct method

· Account Opening Section/ Deposit Section

· Collection and Clearing Section.

· Cash Section

· Local Remittance Section

· Bill Section

· Accounts Section

· Dispatch Section

· Administrative Section

As we know there are different type’s accounts, however it depends on bank’s goals, objectives, mission and vision as well. Bangladesh Commerce Bank Ltd. provides the opportunity to open following types of account:

· Savings Bank Account (SB)

· Current Account CA)

· Short Term Deposit (STD)

· Fixed Deposit Ratio (FDR)

· Deposit Pension Scheme (DPS)

· 2 copies of passport size photographs.

· Photocopy of 1-7 pages of valid passport (Absence of passport- driving license/ voter ID card/ Commissioner’s certificate).

· Introducer signature and account number at the back of account holder’s (person going to open an account) photographs.

· Photograph of nominee with the signature of account holder at the backside of nominee’s photograph.

· Initial deposit of TK. 1000.

· Two or more persons can open this account jointly.

· Parents can open an account on behalf of his minor children.

· Any private Organization can open savings account in its own name. In this regard 3324organizations need to submit name, photograph, and specimen signature of specific person who be responsible for the account.

· At the time of opening an account customers have to deposit minimum Tk.1000.

· One person can open only one account in one name.

· Interest paid twice in a year depending on monthly minimum balance.

· Minor cannot open an account.

· Customer can deposit money at any times during working hour.

· But customer can withdraw not more than twice in a week.

· Generally this account holder cannot take loan but in special case it might happen.

· The main purpose of this account is to construct fund.

· The Bank provide passbook to deposit money in account.

· Home savings account

· School savings account

· Works savings account

· Deposit pension account

· Cumulative savings account

· Loan Deposit account

· Foreign currency account etc.

Current account is running and active account which may be operated upon any number of times during a working day. Basically it’s a pure demand deposit account. Since there is no restriction on withdrawal and deposit holder can withdraw and deposit money any times in a working day. Basically there are two types current account available in the Bank:

· Initial deposit of TK. 2000.

· True copies of certificate of incorporation or registration.

· True copies of certificate of commencement of business.

· True copies of memorandum and articles of association.

· True copies of resolution of the board of directors.

· Name and address of the firm.

· Partnership deed.

· Trade License

· Endorsement of account holder of the same branch.

· There is no restriction on withdrawal, but in case of large amount i.e. more than 2 lac banks requires one day prior notice.

· Interest is not allowed on this account.

· Closing charge Tk.200 prescribed by the bank shall be realized at time of closing down of a current account.

· Current account holders enjoy certain privileges compared to the saving account holders. I.e. Current account holders provided overdraft facilities.

· The banker is under an obligation to repay the deposits on demand. So, they are called demand liabilities of a banker.

· Clients are permitted for overdraft on basis of contract.

· Banker does not provide any passbook for this account but sometimes issue description card.

· Bank cannot invest from this account due to demand deposit.

4.7 Short Term Deposit Account (STD)

We can assume the nature of this account from the name; it’s very short term in nature and payable on short notice. Generally large companies, firms, Institutions are the customer of this account. In order for withdraw money bank requires to prior notice. In BCBL customers are instructed that their current account would be debited whenever its deposited amount crosses a certain limit and this amount will be transferred to STD account. In this account deposited money requires to keep minimum seven days to earn interest at five percent rate. Basically interest is calculated based on daily minimum product and two times in a year.  Minimum amount for opening STD account is about Tk. 10000 only. At present its interest rate is 4%. STD is mainly suitable for the large firms/ corporations/ public bodies, which have idle funds for deposit in a short term account.

4.8 Fixed Deposit Ratio (FDR)

Fixed deposit account consists of long term deposit. Fixed deposit is normally high yield to earn the maximum possible return. Any amount to be deposited for three months, six months, and one year. BCBL currently offer the interest rate about 12.5%, and 11% respectively. The basic requirements to open a fixed account are almost same as savings and current account.

4.8.1 Procedure to open a Fixed Deposit Account

To open a fixed deposit account customer need to fill up a specific form provided by the bank. At the time of opening account depositor sign in a contract paper with the bank and then depositor deposit money through payment slip. Bank return one part of the slip to the customer and rest of the part keep into the bank. In this account bank does not provide any cheque book, depositor can draw money after the end of the duration through payment slip. Customers can open this account individually or jointly.

4.8.2 Features of Fixed Deposit Account

The main features of fixed deposit account are as follows:

· Payment slip is the major document of this account.

· This is for a certain period of time. After the end of period contract also get finished but customer can redeposit if he/she desire.

· Initial deposit should not less than Tk.2000 for individual and Tk.5000 Institutions.

· It earns higher income.

· Customer can deposit only one time and draw after end of duration.

· Payment slip is not transferable.

· It does not require cheque book.

4.9 Deposit Pension Scheme (DPS)

Pension Scheme can be opened in the name of individual who crossed the minimum age level 18 years. Under this scheme joint account is not permissible. Account holder can deposit from Tk.500-5000 per month for minimum three years to maximum ten years. At the end of duration holder can withdrawal cumulated money with interest through monthly installment or over 3 to 10 years. BCBL currently offer the interest rate about 10%.

4.10 Account Opening Procedure in a flow chart

Figure 03: Account Opening Procedure

4.11 Facilities for Customers toward an Account

Bank provides some facilities to customers for their convenience like below:

4.11.1 Issuing Check Book/ Pass Book

When account opening formalities is finished bank provides a checkbook/ pass book to account holders. In order get checkbook/ pass book account holder require to requisite on prescribed application form. In case of old account, requisition made on the prescribed slip attached with the checkbook/ pass book issued earlier. To avoid hassle it requires signing by the authorized officer on every page of the check.

4.11.2 Transfer of an Account

There is opportunity to transfer account from one branch to another if any customer wish without any extra fee. In this regard, customer should formally apply to the branch manager with reasonable causes. Manager then convey a request massage to the branch manager where the customer want to transfer account as well as manager also sends inventive copy of account opening form and specimen signature card and others relevant documents.

4.11.3 Closing of an Account

No account for eternal, due some reasons account might be closed. If account holder wishes to close the account he/ she can do it any time. Beside this bank can close the account due to following reasons:

· Due to the death of account holder.

· If the holder discontinue transaction for long time.

· If the court send legal notice to close the account.

· If account holder become mental abnormal.

· Absence of minimum deposit requirement.

· If bank receive notice regarding account transfer.

· If it’s not profitable for bank.

After closing the account customer instructed to return the checkbook, pass book, and deposit slip. On the other hand bank return deposited money; but bank will charge Tk.100 by debiting the amount from his account.

4.12 Sample of Deposit Slip and Pass Book

Sample of Deposit Slip

Sample of Pass Book

4.13 Local Remittance Section

One of the most important aspects of commercial bank is rending services to its customers. The word “Remittance” implies sending money from one place to another through post and telegraph to avoid any unexpected situation. Banks also extend these facilities to its customers by means of receiving money from one branch and making arrangement for payment to another branch around the country. One of the most aspects of the commercial banks is the rending service to its customers. Local remittance facilities are the most significant and congenial among the services provided by the bank. Local remittance facilities consist of three different categories:

· Demand Draft

· Telegraph Transfer

· Payment Order

4.13.1 Demand Draft (DD)

Among different financial instruments Demand draft is most significant. Demand Draft issued by a particular branch on behalf of the customers to another branch instructing to pay a certain amount of money. According to the regulation if the amount is more than Tk. 25000 a test code is require to give on IBCA. In terms of DD serial number is much important in both receiving and payment of money.

In order to issue Demand Draft bank impose some charge is as follows:

· Commission @ 0.15% but minimum Tk.50, Postage charge Tk.20 (Fixed), DD collection charge Tk.50 (Fixed).

4.13.2 Issuance of duplicates (DD)

Bank provides the facilities for duplicate Demand Draft in order for convenience of the customers. If the customers demand for duplicate DD then they require filling up following formalities:

· Drop an application by the original DD holder early

· Require to inform nearest police station

· Furnishing an Indemnity Bond

· Put a “Caution” mark in the register

· Inform head office instantly through issuing branch

· Inform all the branches around the country to pause payment

· Issue a new DD by the bank.

4.13.3 Telegraphic Transfer: (TT)

Due to the technological advancement it’s possible to transfer money over telegraphic modes. Sometimes customers need money immediately, in that circumstances they ask for telegraphic transfer. There are some common modes for this type of transfer such as Telegram, Telephone, Telex, and Fax.  Though telegraphic transfer is expensive but it’s fast and convenient. Customers have to pay for this service according to the rate determined by the central bank. Telegraphic transfer commission calculates as per Bangladesh Bank rate min Tk.25 and telex charge to be taken as Tk.30 per minute.

4.13.4 Payment Order (PO)

Pay order means order to pay a certain amount of money to specific parties mentioned on the PO. It’s an instrument for bank and bank earns a percentage of money. Once PO was issued only to effect local payment of banks own but situation has been changed now it issued on behalf of customers. PO is not transferable and there is no chance to dishonor like a check does. Basically, PO can be purchased by three different modes such as:

Payment Order is a current liability for bank and it required to be discharge against payment in cash or through an account. In order for pay order bank charge a certain amount of fees:

4.13.4.1 PO Issuing Process

To issue a pay order need to maintain some formalities like below:

· Fill up application form by the customers

· Deposit specific amount of money either in cash or by check

· Prepare the instrument and make necessary entries in the bills payable register where payees name, date, PO no. etc.

· Deliver the instrument to the customer after scrutinized and approved by authorized by taking signature of the customer on the counter part.

4.13.4.2 Entry for Pay Order

As we know pay order is a current liability for the bank and it required to discharge against payment in cash or in account. For pay Order the bank’s accounting entry is like below:

If it requires canceling pay order then purchaser need go through a predetermined procedure. At purchaser have to submit written application to refund the pay order attaching therewith the original pay order. Then authority will confirm purchaser’s signature with the original signature. Beside this there have to have the permission of authorized employees prior refund the amount of pay order. Pay order should be affixed on the pay order. In order to cancel pay order there does not charge any fees, only refund the pay order amount and finally reserve original entries with proper description.

· Bill collection

· Transfer and Delivery

· Outward and inward bill Collection.

· Cheque should not carry more six months from the date of transfer of funds. In that case check would be stale check.

· The amount should be identical both in word and in pay-in slip.

· The name mentioned should be same both in check and in pay- in-slip.

· Check must be crossed.

Clearing is one of the mentionable tasks of a commercial bank. Clearing means accomplishments of cheque drown on each other through clearing house. In general clearing house means “A place where representatives of local banks meet at an agreed time each day to exchange cheque and other items drown on each other and to settle the resulting balances. This is an initiative of central bank to accumulate the representatives of schedule bank to clear their cheques. In order for clear the cheque BCBL developed a unique section that is responsible for receive checks, drafts, and other instruments like these from customers for the purpose of collection with a deposit slip over the counter crediting their accounts. Only the schedule banks are allowed to participate in clearing house. According to the Article 37 (2) of Bangladesh Bank Order, 1972, the banks which are the member of clearing house known as schedule bank. Accordingly BCBL is a schedule bank and actively participate in clearing function with clearing house on behalf of the customers.

· Outward Clearing: When the branches of a bank receive cheques from its customers drawn on the other banks within the local clearing zone for collection through clearing house.

· Inward Clearing: When the bank receives cheque drawn on it from other banks in order for clearing function. 

· Name of the account on the cheque and Deposit slip.

· Amount in the Cheque must be both in word and figure.

· Bank and Branch name, number and date of the cheque.

· Cheque must be signed by the holder.

· Cheque should be crossed.

· Account number in the cheque must be clear.

· Signature of the depositor.

Cash section is most vital and significant section of the bank. Let’s they say cash is the blood of the bank. The main task of this section is receive and payment of money. As we know it has two major counters-

· At first customer need to fill up the deposit slip provided by the bank.

· Deposit the slip to cashier.

· Cashier receives money, confirm the amount and then enter into the cash receipt register book and finally sign with seal and date in the deposit slip.

· Slip then passed to another officer who is responsible for taking details like serial number, amount etc. and return deposit slip to customer. 

· At customer need to deposit the cheque to the cash section.

· Authorized individual verify required things- whether it is properly crossed if it is being cross cheque, endorsement, date, amount, signature, and also ensure current balance in the account and then it send to cashier if everything is positive.

· Cashier is then asked bearer to sign on the back side of the cheque and pay the money.

· Then cashier enter payment details into register book.

It’s regardless to analyze how much significant the account section are! Let’s the say account is the nerve center of the bank. Everyday huge transaction occur in different section, account section regularly keep record each and every transaction. In banking business bank need to go for various transaction and these transactions are to be recorded properly and systematically. If the bank fails to record this transaction in an appropriate manner it might happen mismatch and misunderstanding between bank and customers and it also mismatch in the debit and credit side. To avoid this violence bank developed account section which is responsible record keeping of all transactions required information, prepare different statement and other relevant things. Basically accounts supply information to other sections of the bank according their requirement. Generally account section of BCBL responsible for following activities:

· Record keeping of all transactions in the cash book.

· Recording the transactions in general and subsidiary ledger.

· Packing of the correct vouchers according to the debit voucher a credit voucher.

· Constructing the daily position of the branch comparing of deposit and cash.

· Make payment of all expenses of the branch.

· Recording inters branch fund transfer and providing accounting treatment in this regard.

· Preparing monthly salary statements for the employees.

· Preparing weekly position for the branch which is sent to the Head Office to maintain cash reserve requirements.

· Checking transaction list.

· Recording of the vouchers in the voucher register.

· Preparing the daily statement of affairs showing all the assets and liability of the branch as per general ledger and subsidiary ledger separately.

Loans and advances is another vital function of commercial bank. Generally bank loan means the credit granted by a banker to his customers either in cash or any other means, is called bank credit or bank loan. Besides deposit collection BCBL lend money to its customer as well. The loans and advances of the bank registered an impressive growth during the year 2010. The total loans and advances amount to Tk.826.60 crore as on 31 st December 2010, against Tk.625.62 crores in the previous year showing an increase of 32.12%. The advance portfolio of the bank is well diversified and covers funding to a wide spectrum of business and industries. The classified loan of BCBL during the year under report was 3.75% which may be termed as encouraging in the socio-economic environment prevailing in the country. The bank gives top most priority to acquire quality assets and does appropriate lending risk analysis while approving commercial and trade loans to clients. Bank provides different types of loan on the basis of customers demand. 

Graph 13: Loans and Advances from 2004-2010

Credit Scheme

BCBL offers following Schemes to its customer:  

1.  Financing of small and medium Industries

The main thrust of financing is given on small and medium enterprises. This is the priority sector of Bangladesh Commerce Bank.

2.  Financing of Trade  

Trade Finance includes CC (Cash Credit), SOD (Secured Overdraft) FO (Financial Obligation), RE (Real Estate) working capital. This will help the local traders and businessmen to expand their trade and business unhindered.

3.  Micro-Credit and Micro Enterprise Scheme

For poverty alleviation micro-credit is provided to poor people without security for their self-sustenance and to rehabilitate them in the society.

4.  Credit Scheme for Women entrepreneurs

Under this scheme service-holders of govt. bank or autonomous bodies are provided with 6 month’s basic salary as loan realizable in 18 equal installments. Professionals are also covered under this special credit.

Basically main task of the bank is to earn profit through borrowing and lending money. That’s why bank need to proceed some significant principles to provide loans from its fund. At the time of granting loan BCBL consciously investigates followings:

4.17.3.2 Bank’s Advances on the basis of Duration

· General Businessman

· The bank demand borrower land and properties as collateral against this loan.

· Purchasing Transportation

· Agricultural activities

· Working Capital

· Small and Cottage Industries

· House building etc.

Generally bank offers two different types of loan:

· Secured Loan

· Unsecured Loan

1. Secured Loan: Secured loan means any loan which is guaranteed by the borrower giving valuable property as security. Generally bank grant this types of loan against some movable or immovable assts or properties for the safe return of loans. If the customers fail to repay loan then bank sale all his security assets and properties to compensate the loss.

2. Unsecured Loan: Unsecured loan means any loan which grant without any security money or assets. Bank generally provide this loan to the persons with whom bank has long term relationship, honest, socially well-known persons, and the clients who has goodwill in the society. This type of loan contains high risk, if the borrowers get unable to repay the bank collect the loan by the help of the court.

Rate of interest on Loans and Advances: BCBL Charges interest on loans and advances according to the following rate:

4.17.3.4 Cash Credit

Under the cash credit Banker specifies a limit, called the cash credit limit, for each customer up to which the customer is permitted to borrow against the security of tangible assts or guarantee. Bank generally offers this type of credit for businessman and industries for a certain period of time ( 6- 12 months) to meet their instant financial need.

Bank offers two different types of cash credit:

Cash Credit Hypothecation

Cash Credit Pledge

1. Cash Credit Hypothecation: The mortgage of movable assets or property for securing credit is known as hypothecation. Hypothecation is a legal transaction whereby goods are made available to the banker as security. Since the goods always remain in the physical possession of the borrower, that’s why it contain high risk for banker.

2. Cash Credit Pledge: Cash credit pledge imply the credit allowed against pledge of goods as security for credit. Bank retains an effective control over the pledged goods. The goods might be stored in the storehouse of the borrower under the active supervision of the bank.

Formalities for Cash Credit: If customers wishes to take cash credit ten they need to submit following documents:

· Trade license

· Up to date income tax clearing certificate.

· Charge of documents

· Letter of continuity

· Letter of arrangement

· Demand Promissory note

· Letter of Guarantee

After end of the analysis of above documents bank prepares a CC proposal form that contains the following information’s:

· Nature of Business

· Banking with BCBL

· Transaction with Current Deposit account by the client

· Allied deposit with SB/STD account

· Number of adjustment

· Based on the above information the credit officer prepares recommendation about the prospect of granting the CC loan.

4.17.3.5 Process of Giving Loan

In order to get the loan customers have to go through following process:

4.17.3.6 Overdraft

The overdraft is always allowed on a current account. The customers may be allowed to a certain limit up to which he can overdraw within a stipulated period of time. In an overdraft account withdrawal and deposit can be made any number of times within the limit and prescribed period. Interest is calculated and charged only on the actual debit balances on daily product basis. Generally bank grant three different types of overdraft such as:

· Temporary Overdraft (TOD)

· Clean Over draft  ( COD)

· Secured Overdraft ( SOD)

1. Temporary over Draft:

TOD is allowed to honor an important cheque of a valued client without any prior arrangement. As this facility is allowed for a very short period, it is called temporary Overdraft.

2. Clean overdraft :

Sometimes overdrafts are allowed with other security other than the personal security of the borrower. These types of overdraft are known as clean overdraft.

3. Secured overdraft:

When overdrafts are allowed against securities they are called secured overdraft.

4.18 Foreign Exchange

Generally foreign exchange means the rate of exchange at which one currency is exchanged against another. Foreign exchange is a significant department of Bangladesh Commerce Bank Ltd. Bank provides extensive facilities in foreign exchange business. Generally bank provides the following service to foreign exchange business:

· Foreign Remittance

4.18.1 Foreign Remittance

Foreign remittance section of BCBL is an integral part of foreign exchange department. This section normally deals with-

I. Inward Foreign Remittance

II. Outward Foreign Remittance

I. Inward Foreign Remittance:

Normally inward foreign remittance comprises all incoming foreign currencies. Remittance issued by the correspondent banks situated in the foreign countries and thereby drawn on BCBL is considered to its inward foreign remittance. The major inward remittance of BCBL is as follows:

· FDD payable

· FTT payable

· TC payable

· Encashment of foreign currencies

· Purchase of foreign currencies.

II. Outward Foreign Remittance:

Remittance issued by the BCBL to its foreign correspondent to fulfill their customers demand is considered to be outward foreign remittance. OFR comprises following activities:

· FDD Issued

· FTT Issued

· TC Issued

· Endorsement of foreign currencies in the passport

· Sale of foreign currencies.

4.18.1.1 Methods of Foreign Remittance Applied BCBL

The BCBL performs foreign remittance activities with following different ways:

· Foreign Bills of Exchange

· Foreign Bank Draft

· Mail Transfer- MT

· Telegraphic Transfer- TT

· Personal Cheque

· Cash Letter of Credit

· Traveler’s Cheque

· International Money Order- IMO

· Cash paper Money and Coins.

4.17.2 Import

Import means purchase of product and services from foreign countries. Sometimes private firms, businessman, and government organization purchase different a type of products from other countries in order to meet their demand and this is known as import from foreign country. BCBL actively assist in import business and make it easy for importer. Basically the bank work on behalf of the importer by the issuing and collecting different documents. Sometimes the bank directly communicates with foreign exporter on behalf of the clients. The function of BCBL in import business is to issuance of “Letter of Credit (L/C)” on behalf of importer and in favor of exporter.

4.18.3 Letter of Credit (L/C)

A letter of credit is a document issued by the banker in one place authorizing any other banker or agent in another place or country, to honour the cheques or drafts of a person named in the document, to the extent of a certain sum stated in the letter and to charge the total sums of cheques and drafts so honoured to the account of the grantor.

In general “Letter of Credit” is a document where issuing bank undertake responsibility on behalf of his clients (Importer) to make payment if the importer fails to pay.

4.18.3.1 Types of Letter of Credit (L/C):

There are different types of L/C’s are available in import and export business. Following are more common and frequently issued by the bank:

· Confirmed Letter of Credit

· Un- Confirmed Letter of Credit

· Documentary Letter of Credit

· Clean Letter of Credit

· Revolving Letter of Credit

· Fixed Letter of Credit

· Revocable or open Letter of Credit

· Irrevocable or Firm Letter of Credit

· Back to Back Letter of Credit.

4.18.3.2 Parties in the Letter of Credit :

Letter of Credit consists following parties

· The Opening Bank

· The Advising Bank

· The Buyer and the Beneficiary.

· The paying Bank

· The negotiating Bank and

· The confirming Bank.

The Opening Bank: The opening bank is one that issues L/C at the request of buyers. Through issuing LC the bank takes responsibility to pay the money if the client is unable to pay. If the draft is negotiated by another bank the opening bank reimburses to that bank.

Advising Bank: The letter of Credit often transmitted to beneficiary through a bank in the latter country which is known as advising bank. The bank may be a branch or correspondent of opening bank. The advising bank undertakes responsibility to prompt advice of credit to the beneficiary and has to be careful in communicating all its details.

Buyer and Beneficiary : The importers who buy the LC are known as buyer. Bank issue LC on behalf of the buyer. On the other hand, the exporter to whose favor bank issue LC is known as beneficiary. As a seller beneficiary is entitled to receive the money which he do by drawing bills under the LC.

Paying Bank: The Paying is responsible for make sure the payment stated on the letter of credit by debating the latter accounts with it if there is such an account or by any other measured up between two bankers.

Confirming Bank: Sometimes an exporter stipulates that the LC issued in his favor be confirm by one of his local bank which is known as confirming bank.

4.18.3.3 Contents of Letter of Credit

The contents of LC may vary bank to bank though most of the banks issue it on a specific form which clearly mentions the banks name and its area of obligations under the credit. The more common contents of a general LC are listed below:

4.18.3.4 Procedure to Open a L/C

In order to open a letter of credit buyer and banker need to go some process. The beginning of LC the importer receive a invoice from exporter, then the importer request his/ her bank issue a letter of credit on behalf of him/herself or organization in favor of the exporter. The bank willingly does that if it can rely on reimbursement by the buyer. Before doing that the bank carefully check the customers account whether enough funds are exit in his account. In order to get LC from the customer have to have sufficient funds in the account otherwise bank won’t provide LC. With this the customers need to submit some documents like below:

Tax Identification Number.

Valid Trade License.

Import registration Certificate etc.

After this customers need to fill up some forms provided by the bank such as LC form, Application form, Agreement form etc. Besides he/ she suggested to complete other relevant formalities.

4.18.4 Export

If any Bangladeshi firm, organization and government Institutions sale products and services to foreign buyers that is known as export. The Bangladesh Commerce Bank Ltd. actively assists in export business. This is the most significant section of the bank, because every day they are to process an extensive number of export facilities. In export business bank need to perform huge formalities on behalf of the customers. Therefore, the foreign exchange of BCBL is always conscious toward their responsibilities in this particular context.

6. Findings

During three months internship with Bangladesh Commerce Bank Ltd. I have achieved huge experience and also understood the entire banking system of BCBL and found different information regarding their activities which enriched my knowledge extensively. Here I have tried to present my experiences and knowledge in order for better judgment. Bangladesh Commerce Bank Ltd. is one of the first growing and committed private commercial bank in the country. It conducts business activities efficiently around the country to achieve its objectives, and goals and gradually forwarding toward its mission and vision. As a commercial bank sometimes its success and sometimes fail to its achievements. The bank have been achieving continuous growth rate in all spares of banking operation since its establishment. All of its departments, sections are working hard for better customer services. Abreast these I also have found the following essence through careful investigation. 

Findings about the Organization:

Bangladesh commerce Bank Ltd. is one of the first growing and committed commercial bank conducting business activities around the country with 25 of its branches.

The bank offers wide range of products line to its customers.

It has strong and efficient management team, who works hard in order to survive successfully in the competition.

BCBL offers credit to all sectors of commercial activities having productive purpose.

General Banking activities are the driving force of the Organization.

Excellent interpersonal relation exists among the employees.

Account Opening procedure is comparatively essay.

The loans and advances of the bank registered an impressive growth in every year.

With normal banking business the bank offer some special scheme.

The gives top most emphasis to acquire quality assets and does appropriate lending analysis at the time approving commercial and trade loans.

BCBL provides excellent remittance facilities around local area through pay order, Demand Draft, Telephone Transfer, Mail Transfer and Transfer of funds by special arrangement.

The investment portfolio of the bank increasing gradually.

The Bank actively participates in international trade.

BCBL make arrangement for foundation training for all of officers in order for their better development at Bank’s own institute and BIBM.

The bank did not formally develop the job description and job responsibility. That’s why one employee’s need to work in different working area.

Its high committed toward better customer services. The Bank by concentrating on the activities in its area of specialization has achieved good market reputation with effective customer services. The bank is committed to keep its working force modern by providing continuous training to its staff in their respective field of work. BCBL Pledges to maximize customers’ satisfactions through services and building a trusting relationship with customers, which has stood the least of time for the last seven years.

Since today’s business world totally technology depended so the Bank should develop online banking system as soon as possible.

The bank should introduce automation immediately in every branch to achieve efficiency of the employees.

Cash section is not well organized. The bank needs to make it more structured and disciplinary to collect and payment of money.

The bank should formally develop job description and job responsibility for the employees.

In order to build up excellent relationship between customers and bankers bank should take initiative. To do this bank can send gift items like calendar, books, dairy for their old and reliable customers.

The bank is somewhat reluctant toward advertisement, but they should participate more in advertise campaign in order to present themselves in front of the people.

In banking business Islamic banking is getting popularity gradually. That’s why bank might consider this. In accounts section need to employ more personnel in order for smooth operation.

The bank should care about employee’s satisfaction. Sometimes employees are dissatisfied with bank’s strategy and their job responsibility.

Banks create more SME loan and house loan because now every day will be more competitive and challenging.

Bibliography :

1. Annual Report of BCBL (2006 to 2010.)

2. Auditors Report of BCBL.

3. Brochures of BCBL.

4. Circulars/ Instructions

5. Bangladesh Bank’s Circular

6. New Management’s Action Plan

9. Internship Report on different topics of different banks.

10. INTERNET WABSITE GOGOLES.com

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General Banking Activities of Banks in Bangladesh

Executive Summary

T he internship report is prepared with respect to the three months internship program in Jamuna Bank Limited . This report is composed of four parts,. In the first two part the introductory portion has been presented along with methodology of the report, limitations of the study and the background of JBL. From chapter three and four, I have highlighted the theoretical framework of the report, which includes definition, fundamentals of Banking Operation and SOWT analysis & findings. Chapter three deal with general banking operation and chapter four deals with SOWT analysis and findings. Recommendations & conclusion have been given in chapter five. While preparing the report I always tried my level best to make it authentic and at the same time easily understandable.

 Origin of the Report:

This report has been prepared as a requirement of the internship program, which is equivalent to a complete course and compulsory for every student of MBA program of Jagannath University. The main objective of the internship program is to initialize the students with the actual working experience, introducing to the corporate culture and an exposure to the world outside the theoretical explanation.

This report is based upon the Jamuna Bank Limited, I am, Md. Arif Anowar, was placed for the internship program for three months under the guidance of my faculty advisor Assistant professor Mazeda Sultana  and under the organization supervisor Md. Golam Sattar Executive Officer of accounts division of the branch

Objective of the Report:

The main objectives of the study are:

• To find out the reality in the practical life.
• To fulfill the requirement for the completion of postgraduate (MBA) program.

The secondary objectives of this report are:

• To apply theoretical knowledge in the practical field.
• To develop the practical knowledge by the practical orientation of work.
• Working environment in commercial bank.
• To build up the pillar of the career for near future.
• To gain in-depth knowledge of standard banking services of JBL highlighting the islami banking activities.
• To know the progress & growth of banking operation of JBL.
• To find out the problems & prospects of banking operation & transactions under Islami Banking system.
• To identify existing bank-customer relationship.
• To know the dealings process with the BB.
• Above all, to know the overall banking process.

Scope of the Report:

For the purpose of my internship program, I was assigned in the Nayavazar Islami Banking Branch at JBL and this paved me the way to get myself familiarized with banking environment for the first time indeed. I have an opportunity to gather experience by working in “Accounts Departments” of the Branch. The scope of the study is only limited to this department of the branch.

The study would focus on the following areas of JBL:

•  Products of JBL.
• Files that keep in accounts division.
• Daily workings.
• Accounting software and its function.
• Limitations of the branch.
• To recommend actions that may be necessary.

Methodology of the Study:

Different data and information are required to meet the goal of this report. Those data and information were collected from various sources, such as, primary and secondary which is showed below:

Primary sources of data:

• Personal observation.
• Face to face conversation of the officers.
• Working at accounts department.

Secondary sources of data:

• File study.
• Annual report of Jamuna Bank Limited-2010
• Statement of affairs.
• Visit the JBL website “ www.jamunabankbd.com ”
• Progress report of the Bank.
• Audit report BB.

Limitations of the Study:

This internship report is my first assignment outside our course curriculum in the practical life. I am a student of “Accounting and Information Systems” just have completed my formal education stage. After completing the institutional experience, practical performances in the formal stages become difficult. So in performing this report my lack of proper knowledge greatly influenced in this performance. Besides above, have to face some other limitations are:

• Three months time is not enough for such an extensive study. It is very difficult to collect all the required information in such a short period.
• Up-to-date information was not available.
• Load at the work place was a barrier to prepare this report. Although the officers of JBL have been very helpful, they don’t have enough time to provide, as they very busy with their assigned works. So, in some cases, observation was needed.
• Due to some legal obligation and business secrecy banks are reluctant to provide data..

Background of JBL:

Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act, 1994 with its Head Office at Chini Shilpa Bhaban, 3, Dilkusha C/A, Dhaka-1000. The Bank started its operation from 3rd June 2001.

The Bank undertakes all types of banking transactions to support the development of trade and commerce of the country. JBL’s services are also available for the entrepreneurs to set up new ventures and BMRE of industrial units. Jamuna Bank Ltd., the only Bengali named new generation private commercial  bank was established by a group of winning local entrepreneurs conceiving an idea of creating a model banking institution with different outlook to offer the valued customers,  a comprehensive range of financial services and innovative products for sustainable mutual growth and prosperity. The sponsors are reputed personalities in the field of trade, commerce and industries.

The Bank is being managed and operated by a group of highly educated and professional team with diversified experience in finance and banking.  The Management of the bank constantly focuses on understanding and anticipating customers’ needs. The scenario of banking business is changing day by day, so the bank’s responsibility is to device strategy and new products to cope with the changing environment. Jamuna Bank Ltd. has already achieved tremendous progress within only eight years. The bank has already ranked as one of top quality service providers & is known for its reputation.

At present the Bank has real-time centralized Online banking branches (Urban & Rural) throughout the Country having smart IT-Backbone. Besides these traditional delivery points, the bank has ATM of its own, sharing with other partner banks & Consortium throughout the Country.

Vision of JBL:

To become a leading banking institution and to play a pivotal role in the development of the country.

Mission of the JBL:

The Bank is committed to satisfying diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional work-force.

Strategies :

Goals and Objectives

Key Features: 

• Centralized Database.
• Platform Independent.
• Real time any branch banking.
• Internet Banking Interface.
• ATM Interface.

Corporate MIS Facility:

• Branch Network.
• ATM Network.
• POS (Point of Sales) Network.
• Internet Banking Network.

 Deposit Products

(a)   All Types of Deposit Accounts:

The client can maintain different types of deposit accounts i.e. Current, Savings, STD, FDR and Foreign Currency Account accounting to his necessity and convenience.

Loan Products

(a)   General Loan Facility

  (c) Retail Credit Products

 Electronic Products

 General Banking is the starting point of all banking operation. It is a combination of

General Banking: General banking is the starting point of the banking operation. It is the department which provides day-to-day services to the customers. Main functions of general banking department are the following:

   Accounts Opening Section.

  Cash Section.

  Clearing Section.

  Remittance Section.

   Accounts Section.

Account Opening Section :

The relationship between banker and customers begins with the opening of an account by the customer. Opening accounts binds the banker and customers into contractual relationship.

Islami Banking system of Jmuna Bank Limited Gives special importance on savings. The objectives and principles of the savings policy are:

  To encourage people to save for self and for the country as a whole.

  To develop a sustained savings habit among the people.

  To mobilize deposits through the operation of the following accounts :

• Al-Wadeeah Current Account
• Mudaraba Savings Account
• Mudaraba Term Deposit
• Mudaraba Special Notice Account
• Mudaraba Hajj Saving Scheme
• Mudaraba Savings Bond Scheme
• Mudaraba Foreign Currency Deposit (Savings) Scheme
• Mudaraba Monthly Profit Deposit Scheme

To operate Current Account on Al-Wadeeah principle and all other deposit accounts on Mudaraba principle of Islamic Shariah.

Cash Section :

Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the branch. This section deals with all types of negotiable instruments and it includes vault, used as the store of cash, instruments. Operation of this section begins when the banking hour starts. Cash officer begins his transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a more secured place. The amount of opening cash balance is entered into a register. After whole days’ transaction, the surplus money remains in the cash counter is put back in the vault and known as the closing balance. main branch. The main functions of this section are –

Cash Receipt

Cash Payment

According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks which are a member of the clearing house are called as Scheduled Banks. The scheduled banks clear the cheques drawn upon one another through the clearing house. This is an arrangement by the central bank where every day the representative of the member banks sits to clear the cheques. For clearing there is a department in every Bank. This department receives cheques, drafts and like instruments from its customers for the purpose of collection with a deposit slip over the counter crediting their accounts. Clearing of cheque is done through the clearing house in Bangladesh Bank.

Remittence Section:

Cash remitting from one place to another is risky. So, Banks remit funds on behalf of the customer(s) to save them from any awkward happening through network of their branches. There are three modes of remitting funds. These are –

  Pay Order (PO)

  Demand Draft (DD)

  Telegraphic Transfer (TT)

 Accounts Section:

This is obviously an independent and unique department, which works as the composition of all the departments of the branch, but it is under the in charge of the general banking in this branch.

Accounts department maintains all records of transactions and all types of statement. At the end of transaction hour all concerned section sends vouchers of transactions to this department. Accounts department compares all figures/ amount, contents of transactions with supplementary statement prepared by computer. If any discrepancy arises regarding any transaction then this department reports to the concerned department. Following are the activities of accounts department:

  To record all transaction in the cash book.

  To prepare daily, weekly, monthly, half-yearly and yearly fund position.

  To prepare all kinds of statements related to Bangladesh Bank, Head office and National Board of Revenue (NBR).

  To prepare monthly salary statement, provident fund statement and administrative expenditure statement.

  To make charges for different types of duty.

 Statements Prepared by JBL:

• Weekly fund position (CRR-4% and SLR-16%)
• Monthly sector corporation
• Monthly Schedule Bank Statements-1 (SBS-1)
• Quarterly Schedule Bank Statements-2 (SBS-2)
• Quarterly statement of exchange of torn/ dirty notes
• Half-yearly Schedule Bank Statements-3 (SBS-3)
• Half-yearly deposit insurance pension scheme

Name of Files Keeps in Accounts Section:

Accounting Software use by JBL

For recording purpose: For transaction recording procedure JBL use accounting software named FLORA BANK. For all Br. of JBL use same accounting software but for islami banking, Nayabazar islami banking br. use a different type of FLORA BANK software designed base on islami banking. In this software islami banking terms are included for better banking.

For report purpose: For preparing reports JBL use FLORA BANK REPORT software. This software has six parts, which are:

  Remittance

  General ledger

  Daily activities

 Steps of Arranging Vouchers

  Collect last day’s vouchers from all other department.

  Divide vouchers into Dr. & Cr.

  Divide vouchers into different accounts head.

  Arrange voucher into their serial number.

  Attach arrange vouchers with instructed supplement.

  Check all vouchers amounts with supplement.

 Arrange all supplements for audit purpose

For audit purpose bank store its all documents by Maintain a serial. First all cash transaction supplement then All clearing Supplement and at last all transfer supplements. This all type of supplements is serial as follows:

  Cash position memo

  Sundry deposit

  P. O. Issued

 Profit payable

  Accrued profit on investment

  Bankers liabilities

  Jamuna bank general A/C (Islami)

  Jamuna bank general A/C

  Customers liabilities

  Suspense accounts

  Expenditure

  Al-Wadiah current account

  Savings deposit

  Margin on L/C

  Short notice deposit

  Stamps in hand

  Profit receivable

  Bai-Muajjal

  Quard against MTDR

  Murabaha import bill

  Cheque book issue

  Daily audit report for management

Today is not like yesterday and tomorrow will be differ from today. Given the first changing, dynamic global economic and the increasing pressure of globalization, liberalization, consolidation and disintermediation, it is essential that Jamuna Bank should adopt some of the industry best practices that are not practiced currently. These are given in short below:

• This br. should use upgrade accounting software because some time employees facing problem to posting transaction.
• Employees don’t use their skill properly to posting a transaction.
•  They made some wrong posting regularly.
• They have to take some steps to improve the service quality.
• More branches should be opened in Dhaka city and in other cities of the country.
• They will have to start consumer credit scheme and other schemes that will help the consumer.
• It is badly needed to provide modern banking services such as Credit Card, ATM Card, Visa Card etc.
• Large loan risk must be minimized and should be emphasis to its SME and consumer credit scheme so that recovery rate may increase and risk may decrease.
• JBL should adopt a credit grading system that will cover risk grade. Borrower risk grade should be clearly defined and stated on application.
• The lending guideline line should include Industry and Business Segment Focus, Types of loan facilities, Single borrower and group limit, lending caps, Discouraged Business types, and Loans Facilities Parameters and Cross boarder risk..
• Lending functions should be segregated in following ways:
• Relationship management / Marketing.
• Risk management / Credit approval.
• Credit administration / Recovery.

The Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of JBL is described in the following table:

Table: SWOT Analysis of JBL

NIBB has many problems but the problems are not uncomfortable, where there is problem there must be a solution. Some solution, which I recommend to improve the performance of NIBB are as follows: –

  Bank has been facing space problem. So they need another floor for solve the problem finally they manage another floor, I think this is the right decision in right moment.

  Bank need to improve interpersonal relationship of the employees.

  Bank need to train up their employees like computer operation, Communication skills & others needs.

  The employees of the bank need to be very fast; customers come to the private Bank for fast service; because Time is Money.

  To establish Islamic legal framework for conducting foreign exchange Business.

  To establish Islamic capital market for conducting foreign exchange business.

   Bank needs to recruit expert manpower with computer literacy & business communication skills.

 To handle foreign exchange business, business communication skill should be developed.

  To establish institution to make expert for international trade and foreign exchange business.

  To conduct research for Islamic capital market.

  A better coordination between IBTRA and Shariah council of IBBL should be ensured in order to evolve new avenues of activities under Islamic Shariah and innovate new Islamic financial instruments. The AC of IBTRA and Shariah council may hold joint meetings from time to time.

  Islamic guidelines are required for foreign exchange investment.

  A study team may visit Malaysia, Pakistan and other countries to study the operations of Islamic capital market in those countries.

  To build up interest free economy system recognized by the state so as to cope with the conventional banks.

  To create syndicate banking system for foreign exchange business.

  To establish partnership relation with exporter and importer on a profit loss-sharing basis so as to avoid the undesirable effects of interest based transaction and necessary steps to establish justice in the economic system.

  Shariah cell should be in dealing foreign exchange business with Islamic Banks.

  To conduct foreign exchange smoothly govt. support is required to get IRC and ERC.

  The bank should ultra- modernize its foreign trade and remittance.

  Literature on Islamic capital market may be preserved at IBTRA library and important copies of those may be supplied to the researchers, internee and thinkers on the subject from time to time.

  Bank should introduce update technology to render competitive banking service, Increase ATM booth, and Launching credit card.

 Bank should take hand various advertisement programs.

  To gather the Social image NIBB needs to participate in the Social welfare.

  Bank need to change the tea boy, behavior of the tea boy is unacceptable

Interest free banking system is no more a concept. It is now a Reality, a dynamic system, embodying a set of superior banking mechanism. More than 300 Islamic bank and financial institutions are operating in different Countries throughout the world with a marked success from this inception in our country in 2001 but Jamuna Bank Limited has been operating with real and confidence in corporation with other conventional banks. Bringing a new concept in such business sector, which is growing too rapidly in the world, is rally bold step. As a large Islamic commercial bank, Jamuna bank took various steps to create employment and socio-economic development for the poor through Islamic shariah. After taking effective and time defeating measures regarding efficient employees and instruments will help the local office of Jamuna Bank Limited to reach the pinnacle of success with high profit and productivity. A new bank they should be stronger in financial side because there is too much competition and new banks are growing up. Now the time for Jamuna Bank Limited to fabricate in success they have achieved and go on with its operation. The Jamuna Bank Limited have an illusion to their customers, this statement is

“Your Partner for Growth”

So, the Economic Development is not only facilitated but its swiftness is quickened by the appropriate development of the Investment Management system of financial mediators in the country.

Bibliography:

  Brochures of Jamuna Bank Limited.

  JBL General Banking Policy Book

   Credit Risk Grading Policies of JBL

  Published booklist and hand bills of JBL

  CRG Chart provided by Bangladesh Bank

 JBL Foreign-Exchange Banking policy guideline

  Statement affairs of JBL NIBB year 2009, 2010, 2011 .

  JBL prospectus.

  www.jamunabankbd.com

  www.bangladeshbank-bd.org

  www.wikipedia.com

Credit Management System of United Commercial Bank

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