Introduction
1.1 Preface:
Generally by the word “Bank” we can easily understand that the financial institution deals with money. But there are different types of banks like; Central Banks, Commercial Banks, Savings Banks, Investment Banks, Industrial Banks, Co-operative Banks etc. But when we use the term “Bank” without any prefix, or qualification, it refers to the ‘Commercial banks’. Commercial banks are the primary contributors to the economy of a country. So we can say Commercial bank is a profit-making institution that holds the deposits of individuals & business in checking & savings accounts and then uses these funds to make loans. For these people and the government is very much dependent on these banks as the financial intermediary. As banks are profit -earning concern; they collect deposit at the lowest possible cost and provide loans and advances at higher cost. The differences between two are the profit for the bank.
Banking sector is expanding its hand in different financial events every day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increases day by day, they are coming with different innovative ideas & products. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better service opportunities to provide their fellow clients. As a result, it has become essential for every person to have some idea on the bank and banking procedure.
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Internship program is essential for every student, especially for the students of Business Administration, which helps them to know the real life situation. For this reason a student takes the internship program at the last stage of the BBA Program, to launch a career with some practical experience.
The Banking Companies Ordinance was promulgated on the 7th June 1962. This has been adopted in Bangladesh and is applicable to the banking companies only. Nothing of this ordinance shall apply to a co-operative Securities Act (1912).
Shahjalal Islami Bank Limited has a vision and mission to improve the financial sector of Bangladesh i.e. economic condition of Bangladesh by providing effective and innovative banking and financial product in financial market. However, in every economy of the world financial sector is highly regulated sector. Therefore, financial products of every bank are almost same as same law & regulations regulate them. Commercial Banks, as the very name indicates, function primarily as deposit takers and lenders to trade and commerce. But through a historical process, these Banks are now also engaged in long medium and short term industrial lending, agricultural financing including development financing. Commercial Banks are of three types Nationalized, Local Private and Foreign Commercial Banks.
1.2 Background of the study
The BBA program (Stamford University Bangladesh) is designed to focus on theoretical and professional development of people open to take up business as a profession as well as service as a career. This internship provides the students to link up their theoretical knowledge into practical fields. This report is prepared for the internship program consisting of a major in depth study of the “overall activities of Shahjalal Islami Bank in banana branch”. This program enables a student to develop his analytical skill and scholastic aptitude.
1.3 Rational of the study
In today’s modern and globalization world, business sector is competitive. Theoretical knowledge is not enough for a business student because there is a gap between theoretical knowledge and practical field. It is more competitive in the financial institution like bank. Now a day’s local banks are playing a key role for economic growth and development of the country. In that case Shahjalal Islami Bank is playing a pioneer role for structural development of the country. This study mainly covered the areas of performance of Shahjalal Islami bank, its services, types of deposits, remittance, loans & advance, recovery system and its growth.
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1.4 Objective of the study
1.4.1 General objectives:
The General objectives of the study are:
□ To fulfill the requirement for the completion of (BBA) program. □ The general objective of this report is to fulfill the requirement for the completion of (BBA) program through internship report. □ To acquire practical experience in different banking services of Shahjalal Islami bank. Understand the Islamic Sharia Based General Banking, Foreign Exchange and Investment Management of Shahjalal Islami Bank.
1.4.2 Specific Objectives:
The Specific objectives of the study are:
• To make a bridge between the theories and practical procedures of banking day-to-day operations. • To gather knowledge about the transaction of different department of the branch. • To familiar with banking environment, clients, working hours, values, conditions and other things related to bank • To understand present an overview of Shahjalal Islami bank
1.5 Scope of the study
An infrastructure of the organization has been detailed, accompanied by a global perspective and look into the future. The scope of this report is limited to the overall description of the company, its services, and its position in the market and its marketing strategy. The scope of the study is limited to organizational setup, functions, and performances for customer satisfaction.
The study would focus on the following areas:
▪ General Banking of Shahjalal Islami bank Ltd.
▪ Remittance and clearing section of SJIBL.
▪ Credit operation of Shahjalal Islami bank Ltd.
▪ Foreign Trade of Shahjalal Islami bank Ltd.
Each of the above areas would be critically analyzed in order to identify the service quality of the bank.
1.6 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:
Data Analysis:
For the analysis purpose I have basically undergone some financial analysis and also judged some qualitative factors responsible for the Shahjalal islami bank position in banking sector. To continue the study, I have collected the useful data by two methods: 1) Conceptual approach.
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2) Empirical approach.
These two data analysis techniques provided independently derived information that could be crosschecked, thus enhancing validity.
Sources of collecting data:
The information incorporated in this report has been gathered from primary and secondary sources. Apart from this, a review of related circular and office circular as well as face-to-face interview of the executives, officials and clients were carried out.
1.7 Limitation of the study
There is a certain boundary to cover this study. It was not possible due to shortage of time to cover each and every activity performed by the bank. So the study has covered only the General banking Activities of Shahjalal Islami bank Limited. Like any other articles and theories, this study is not free from limitations. I have tried my level best to overcome these limitations through extensive study, hard and sincere devotion to the assigned duty. The major limitations are: • I complete my internship in a small town branch, Banani branch. So I don’t get the proper information which I need. • The bank personnel and officials were very busy with their occupational activities. Hence it was little bit difficult for them to help within their high schedule. • Relevant data and document collection were difficult due to the organization confidentiality.
Chapter: Two
Overall Banking System
2.1 Banking Environment:
During 2008, Bangladesh witnessed higher inflation that affected life of common people, labor unrest in garments sector- the highest contributor in export sector affected economic activities and business operations.
Higher import cost of commodity prices, price hike in international oil market as well as money and credit growth resulted in higher inflation. As a result, the economy of the country showed every sign of recession. Despite this numerous adversities, closed the balance sheet of the Bank with an enormous per-tax profit of TK. 1216 million with excellent growth rate of 54.44% while the whole financial sector faced a slowdown. This credit worthy achievement has been possible due to our professional smoothness and confidence.
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2.2 Global banking:
In the 1970s, a number of smaller crashes tied to the policies put in place following the depression, resulted in deregulation and privatization of government-owned enterprises in the 1980s, indicating that governments of industrial countries around the world found private-sector solutions to problems of economic growth and development preferable to state-operated, semi-socialist programs. This spurred a trend that was already prevalent in the business sector, large companies becoming global and dealing with customers, suppliers, manufacturing, and information centers all over the world. Global banking and capital market services proliferated during the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole, bullish. Interest rates in the United States declined from about 15% for two-year U.S. Treasury notes to about 5% during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy.
Such growth rate would have been lower, in the last twenty years, were it not for the profound effects of the internationalization of financial markets especially U.S. Foreign investments, particularly from Japan, who not only provided the funds to corporations in the U.S., but also helped finance the federal government; thus, transforming the U.S. stock market by far into the largest in the world. Nevertheless, in recent years, the dominance of U.S. financial markets has been disappearing and there has been an increasing interest in foreign stocks. The extraordinary growth of foreign financial markets results from both large increases in the pool of savings in foreign countries, such as Japan, and, especially, the deregulation of foreign financial markets, which has enabled them to expand their activities.
Thus, American corporations and banks have started seeking investment opportunities abroad, prompting the development in the U.S. of mutual funds specializing in trading in foreign stock markets. Such growing internationalization and opportunity in financial services has entirely changed the competitive landscape, as now many banks have demonstrated a preference for the “universal banking” model prevalent in Europe. Universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a “one-stop” supplier of both retail and wholesale financial services. Many such possible alignments could be accomplished only by large acquisitions, and there were many of them. By the end of 2000, a year in which a record level of financial services transactions with a market value of $10.5 trillion occurred, the top ten banks commanded a market share of more than 80% and the top five, 55%.
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Of the top ten banks ranked by market share, seven were large universal-type banks (three American and four European), and the remaining three were large U.S. investment banks who between them accounted for a 33% market share. This growth and opportunity also led to an unexpected outcome: entrance into the market of other financial intermediaries: nonbanks. Large corporate players were beginning to find their way into the financial service community, offering competition to established banks. The main services offered included insurances, pension, mutual, money market and hedge funds, loans and credits and securities. Indeed, by the end of 2001 the market capitalization of the world’s 15 largest financial services providers included four nonbanks.
In recent years, the process of financial innovation has advanced enormously increasing the importance and profitability of nonbank finance. Such profitability priory restricted to the nonbanking industry, has prompted the Office of the Comptroller of the Currency (OCC) to encourage banks to explore other financial instruments, diversifying banks’ business as well as improving banking economic health. Hence, as the distinct financial instruments are being explored and adopted by the banking and nonbanking industries, the distinction between different financial institutions is gradually vanishing.
2.3 Overall Banking Sector:
Financial sector reforms to strengthen the regulatory and supervisory framework for banks made headway in 2006 although at a slower than expected pace. Overall health of the banking system showed improvement since 2002 as the gross Non-performing Loans (NPL) declined from 28 percent to 14 percent while net NPL (less Provision) reduced to 8 percent from 21 percent. This led significant improvement in the profitability ratios. Although the Private Commercial Banks (PCB) NPL ratio registered a record low of 6 percent, the four Nationalized Commercial Banks (NCB) position are still weak and showed very high NPL at 25 percent. The NCBs have large capital shortfalls with a risk-weighted capital asset ratio of just 0.5 percent (June 2006) as against the required 9 percent. For the PCBs risk-weighted capital asset ratio stood at 10 percent.
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Bangladesh Bank issued a good number of prudential guidelines during the year 2006 and the first quarter of 2007 which among others relate to (i) Rationalization of prudential norms for loan classification and provisioning, (ii) Policy for rescheduling of loans,
(iii) Designing and enforcing an “integrated credit risk grading manual”,
(iv) Credit rating of the banks, and
(v) Revisions to the make-up of Tier- 2capital.
Besides, recent decision of the Government to corporatize the remaining three NCBs along with the initiative to sale the Rupali Bank are bound to usher in changes in the banking sector competitiveness aspect. Bangladesh Bank has also taken up the task of implementing the Basel II capital accord. Further, the recent enactment of the Micro-credit Regulatory Authority Act (MRAA) for the regulation of the Micro Finance Institutions (MFI) has been a major development in the year 2006. Since 1998 CAMEL rating of banks gradually improved and in 2006 Bangladesh Bank updated this rating model by incorporating the market risk and the new model is known as CAMELS.
2.4 Banking System of Bangladesh
The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks. Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh. The insurance business was also nationalized and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts.
The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances. The transformation of finance priorities has brought with it problems in administration. No sound project-appraisal system was in place to identify viable borrowers and projects. Lending institutions did not have adequate autonomy to choose borrowers and projects and were often instructed by the political authorities.
In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection systems were inadequate to deal with the problems of loan recovery. It became more common for borrowers to default on loans than to repay them; the lending system was simply disbursing grant assistance to private individuals who qualified for loans more for political than for economic reasons. The rate of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was even worse. As a result of this poor showing, major donors applied pressure to induce the government and banks to take firmer action to strengthen.
2.5 Perspective of Islamic Banking System:
Banking plays a pivotal role in the development processes of a country. It helps accelerate the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. The tremendous development that the present world experienced in the last few decades was contributed by several factors among which growing institutional supply of loanable funds must have played the pivotal role. The role of banking is comparable to what an artery system does in human body. Banks both commercial and another development financial institution provide short, medium and long -term credits to businessperson and entrepreneurs who usually take the lead in ventures of economic development.
Institutional supply of credits has been made possible by a system of financial intermediation organized in a way where conventional banks collect small saving from the public by offering them a fixed rate of interest and advancing the loanable funds out of the deposited money to enterprising clients charging relatively higher rate of interest.
The margin between these two rates is bank’s income. Bank provides many other services to the people against service charges as well. Despite the outstanding contribution of conventional banking system (interest-based), several ancient and modern economists are critical about its efficiency level. Some economists consider role of interest in the conventional banking mechanism as a major destabilizing factor that contributes to cyclical fluctuations in the economy. Specifically, the ineffectiveness of interest rate as a stabilization tool during the period of Great depression is a case to note. Thus most of the economists called for urgent reform of the World Economies Order.
In response though not exactly to that exigency but for quite a few other reason, a new system of banking known as Profit-Loss-Sharing has emerged in as many as 45 countries of the world. Another study provides a list of 248 Islamic financial institutions that are now in operation in different parts of the world. The second half of the twentieth century witnessed a distinctly separate line of thinking on banking. The thought later on got institutionalized at the end of third quarter and subsequently emerged as a new system of banking called Islamic Banking. At this stage, it is important to note the factors responsible for the emergence of profit-loss-sharing (PLS) system of banking. There are religious as well as economic reasons that have contributed to the emergence of PLS-banking as an alternative to its conventional counterpart. It is the prohibition of ‘riba’ in the Holy Quran that, according to the proponents of the PLS-system, was the source of inspiration for establishing Banks in line with Islamic shariah.
