CONSTITUENTS OF CAPITAL OF PRIVATE BANKS OF BNGLADESH. TIER-1 & TIER- 2 CAPITAL

CORE CAPITAL (TIER-1)

A. Paid up Capital

B. Non-repayable Share premium account

C. Statutory Reserve

D. General Reserve

E. Retained Earnings

F. Minority interest in Subsidiaries

G. Non-Cumulative irredeemable Preference Shares.

H. Dividend Equalisation Account

SUPPLEMENTARY CAPITAL (TIER-2)

A. General Provision maintained against Unclassified loans

B. Assets Revaluation Reserves

C. All other Preference Shares

D. Perpetual Subordinated debt

E. Exchange Equalization Account

F. Revaluation reserves of HTM Securities (Upto 50% of the revaluation reserves)

Note 1: Core Capital must be equal to or more than  5% of the risk-weighted assets.

Note 2: Reserves created by periodic revaluation of banks' assets can be included as a

Component of Tier-2 capital only if the revaluation is formally conducted by

professionally qualified valuation firm. Such reserves will be eligible up to 50% for the

treatment as Supplementary Capital provided that the rationale of the re-valued amount is

duly certified by the external auditors of the bank. Such revaluation may be done once in

a year.

Reference: BRPD Circulars on Capital Adequacy.

Cpital Adequacy / Minimum Capital Requirement of a Bank

Capital Adequacy / Minimum Capital Requirements of Banks in Bangladesh

According to the BRPD circular no. 11/2008:

Minimum Paid up Capital and Reserve & Surplus of a bank must be Tk. 400 crore of which paid up capital must be at least Tk. 200 crore.

To raise Paid-up Capital and Reserve Fund, as mentioned in the notification, banks shall

have to follow instructions as stated below:

(i) Banks shall have to fulfill the required Paid-up Capital and Reserve Fund of Taka 400 crore

within 3 years from the notification date i.e. within 11 August 2011 and the paid-up capital

will be not less than Taka 200 crore. .

(ii) To maintain required capital Banks may raise the Reserve by keeping profit after tax by

issuing right shares or IPO, if applicable.

(iii) Any Bank having shortfall of required capital and reserve will not pay or declare cash

dividend.

(iv) Foreign Banks will have to meet the capital shortfall by not repatriating the profit or by

bringing in additional/Capital from abroad within the stipulated.

(v) In terms raising the capital, bank-company shall take necessary measures to amend their

Memorandum and Articles of Association.

(vi) Feasibility of merging with other banks and financial institutions may be considered to

ensure the required capital and reserve within stipulated time limit.

Minimum Capital of bank as % of Risk-Weighted Assets:

Accoording to BRPD Master Circular No. 05/2007 on may 14, 2007.

With a view to strengthening the capital base of banks and make them prepare for the implementation of Basel II Accord, it has been decided that henceforth banks will be required to maintain Capital to Risk-Weighted Assets Ratio 10% at the minimum with core capital not less than 5%. This requirement will have to be achieved by December 31, 2007.

Profit Centre Analysis of Bank, A Case Study on Jamuna Bank Limited

reamble 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.  Jamuna Bank Limited is a highly capitalized new generation Bank with an Authorized Capital of Tk. 4,000.00 million and Paid-up Capital of Tk.1,313.26 million. The total capital/equity of the bank stands at Tk. 2,444.33 million as on December 31, 2008. Currently the Bank has 43 (Forty Three) branches-16 in Dhaka City, 8 in Chittagotang, 4 in Gazipur, 3 in Sylhet, 1 in Bogra, 2 in Naogaon, 1 in Munshigang, 1 in Shirajganj, 1 in Rajshahi, 1 in Narayanganj, 1 in Kushtia, 1 in Dinajpur, 1 in Noakhali and 2 in Comilla. 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 point, the bank has ATM of its own, sharing with other partner banks & Consortium throughout the Country.

Vision                                                                  

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

Mission

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.

Corporate Slogan:

Your partner for growth.

Product and Services of Jamuna Bank Limited

All types of Deposit Account.

Special Deposit Schemes.

Loan Products

General Loan Products

SME Credit Products

Retail Credit Products

Electronic Products.

Branch Network:

Jamuna Bank Limited has 43 branches over the country. The branches are situated both in urban and rural areas.

16 in Dhaka City, 8 in Chittagotang, 4 in Gazipur, 3 in Sylhet, 1 in Bogra, 2 in Naogaon, 1 in Munshigang, 1 in Shirajganj, 1 in Rajshahi, 1 in Narayanganj, 1 in Kushtia, 1 in Dinajpur, 1 in Noakhali and 2 in Comilla.

STRATEGIES  OF JAMUNA BANK

• To manage and operate the Bank in the most efficient manner to enhance financial performance and to control cost of fund • To strive for customer satisfaction through quality control and delivery of timely services • To identify customers' credit and other banking needs and monitor their perception towards our performence in meeting those requirements. • To review and update policies, procedures and practices to enhance the ability to extend better service to customers. • To train and develop all employees and provide them adequate resources so that customers' needs can be reasonably addressed. • To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to employees in a timely fashion • To cultivate a working environment that fosters positive motivation for improved performance • To diversify portfolio both in the retail and wholesale market • To increase direct contact with customers in order to cultivate a closer relationship between the bank and its customers.

OBJECTIVES OF JAMUNA BANK

•	To earn and maintain CAMEL Rating 'Strong'
•	To establish relationship banking and improve service quality through development of Strategic Marketing Plans.
•	To remain one of the best banks in Bangladesh in terms of profitability and assets quality.
•	To introduce fully automated systems through integration of information technology.
•	To ensure an adequate rate of return on investment.
•	To keep risk position at an acceptable range (including any off balance sheet risk).
•	To maintain adequate liquidity to meet maturing obligations and commitments.
•	To maintain a healthy growth of business with desired image.
•	To maintain adequate control systems and transparency in procedures.
•	To develop and retain a quality work-force through an effective human Resources Management System.
•	To ensure optimum utilisation of all available resources.
•	To pursue an effective system of management by ensuring compliance to ethical norms, transoarency and accountability at all levels.

Financial Highlights:

JAMUNA BANK LIMITED
Profit and Loss  Account Information
	Dec ' 2004	% of operating income	Dec ' 2005	% of OE	Dec ' 2006	% of OE	Dec ' 2007	%  of OE	Dec ' 2008	% of OE
Interest Income	1004.36		1374.38		2095.51		2230.27		2890.65
Interest Paid	726.06		1045.46		1606.88		1774.39		2321.89
Net Interest Income	278.29	54.30	328.92	46.67	488.63	42.75	455.88	34.31	568.76	32.45
Investment Income	80.44	15.70	126.30	17.92	255.66	22.37	474.48	35.71	666.19	38.01
Commission, exchange & brokerage	133.70	26.09	211.34	29.99	328.77	28.76	320.73	24.14	419.95	23.96
Other operating income	20.04	3.91	38.25	5.43	69.96	6.12	77.52	5.83	97.63	5.57
Total operating income	512.47	100.00	704.81	100.00	1143.02	100.00	1328.60	100.00	1752.53	100.00
Salary & allowances	94.49		110.14		188.80		232.63		405.19
Rent, taxes, insurance, electricity etc.	26.78		32.88		47.76		62.91		73.98
Legal expenses	0.27		0.35		3.05		1.54		1.72
Postage, stamp, telecommunication etc	9.45		20.04	28.71	2.58				28.10
Stationery, printings, advertisements	11.46		16.24		35.74		26.07		22.13
MD's salary	4.20		3.30		2.81		6.27		7.12
Director's fee	2.17		2.10		2.72		4.16		6.12
Auditior's fee	0.06		0.06		0.53		0.10		0.10
Depreciation	13.92		17.49		27.21		30.25		36.67
Other expenses	40.84		82.27		107.35		111.76		131.14
Total operating expenses	203.64		284.87		418.52		504.40		712.30
Profit before provision	308.83		419.94		724.50		824.21		1040.20
Provision for loan	35.13		56.63		201.15		419.16		119.48
Other provision	0.00		0.00		0.19		0.00		54.90
Total Provision	35.13		56.63		201.35		419.16		174.39
Profit before taxes	273.70		363.31		523.15		405.04		865.81
Provision for taxation	117.75		163.49		246.57		315.93		382.05
Net Profit after taxation	155.95		199.82		276.58		89.11		479.44

Jamuna Bank Limited
Balance Sheet
FINANCIAL YEAR	Dec ' 2004	Dec ' 2005	Dec ' 2006	Dec ' 2007	Dec ' 2008
Cash	387.84	811.32	1,158.60	1,379.17	1846.96
In Hand	113.8	152.21	225.3	412.51	357.87
Balance with BB and its agent bank (s)	274.04	659.11	933.3	966.66	1507.09
Balance with other banks and FI	3,043.03	2,442.78	2,441.76	1,877.15	2343.45
In Bangladesh	2,929.63	2,371.22	2,171.72	1,575.48	1999.45
Outside Bangladesh	113.4	71.56	270.04	301.66	344.00
Money at call and short notice	1,632.00	60	555	120	50.00
Investments	1,163.70	2,037.84	2,552.67	5,390.03	4238.63
Government	950.3	1,505.70	2,286.64	5,346.42	4185.46
Others	213.4	532.14	266.03	43.61	53.16
Loan and advances	6,722.80	11,011.83	12,796.63	16,617.45	21036.86
Loan, cash credits, overdrafts etc.	5,405.43	9,304.78	10,578.09	14,565.24	18917.46
Bills purchased and discounted	1,317.38	1,707.06	2,218.54	2,052.21	2119.40
Lease receivables	0.00	0.00	0.00	0.00	0.00
Fixed assets	97.99	106.46	137.36	174.4	609.02
Other assets	444.17	393.53	515	847.2	1503.71
Non-banking assets	0	0	0	0	0
TOTAL ASSETS	13,491.52	16,863.77	20,157.02	26,405.40	31646.63
LIABILITIES AND CAPITAL
Borrowing from other FI	2,048.50	867.8	618.35	2,298.93	396.12
Deposits and other accounts	10,450.16	14,454.13	17,284.81	20,924.02	27307.94
Current deposits	905.89	1,543.07	2,088.47	2,625.67	3283.21
Bills Payable	78.48	109.29	169.8	354.44	412.03
Banks Savings Account	614.96	749.52	1,084.01	1,407.32	1679.40
Time deposit	8,023.26	10,899.42	11,804.01	13,125.13	16360.18
Others	827.58	1,152.84	2,138.52	3,411.46	5572.32
Other liabilities	385.54	734.7	691.39	1,525.96	1781.84
Long term liabilities	0	0	0	0	0
TOTAL LIABILITIES	12,884.20	16,056.62	18,594.55	24,748.91	29485.90
Paid up capital	429	429	1,072.50	1,225.71	1313.27
Share premium	0	0	85.8	85.8	0
Statutory reserve	77.01	149.67	249.67	330.68	503.84
Dividend equalization account	0	0	0	0	0
Proposed dividend	0	0	0	0	0
Retained earnings	101.31	228.47	154.5	9.39	313.91
Others	0	0	0	4.91	29.71
TOTAL SHAREHOLDERS EQUIT	607.32	807.14	1,562.47	1,656.49	2160.73
TOTAL LIABILITIES AND S.	13,491.52	16,863.77	20,157.02	26,405.40	31646.63

ROWTH RATE OVER THE YEAR

Financial Year	2005	2006	2007	2008
Net Interest Income	15.39%	32.69%	-6.70%	19.85%
Investment Income	36.31%	50.60%	85.59%	28.78%
Commission, exchange & brokerage	36.74%	35.72%	-2.45%	23.63%
Other Operating Income	47.61%	45.33%	10.81%	20.60%
Net Income after tax	21.95%	27.75%	-210.38%	81.41%

We see that interest income growth rate is very slow over the year but Investment income, commission and brokerage and other operating income is growing highly. Net income is growing but in 2007 income decreased because of classified loan for which they have to maintain large amount of provision. The growth rate of  income factor other than interest income indicate that bank are engaging in other activities and deviate from the core business i.e. from lending.

Contribution to the Operating Income:

Financial Year	2004
Net Interest Income	54.30%
Investment Income	15.70%
Commission, exchange & brokerage	26.09%
Other operating income	3.91%
Total Operating Income	100%

Financial Year	2005
Net Interest Income	46.67%
Investment Income	17.92%
Commission, exchange & brokerage	29.99%
Other operating income	5.43
Total Operating Income	100%

Finanicial Year	2006
Net Interest Income	42.75%
Investment Income	22.37%
Commission, exchange & brokerage	28.76%
Other operating income	6.12%
Total Operaing Income	100%

Financial Year	2007
Net Interest Income	34.31%
Investment Income	35.71%
Commission, exchange & brokerage	24.14%
Other operating income	5.83%
Total Operaing Income	100%

Financial Year	2008
Net Interest Income	32.45%
Investment Income	38.01%
Commission, exchange & brokerage	23.96%
Other operating income	5.57%
Total Operaing Income	100%

Business Trends:

From the above information we see that

·         Interest Income contribution to the operating income is decrease day by day from 2004 to 2008 from 54.30% to 32.45%.

·         Invest Income contribution to the operating income is increasing gradually from 2004 to 2008 from 15.70% to 38.01%.

·         Commission, brokerage and exchange income contribution to the operating income is increasing significantly over the period 2004 to 2005 from 26.09% to 29.99%  but from the year 2006 to 2008 it shows decreasing trend.

·         Other operating income contribution is also shows increasing trend.

We see that Jamuna Bank Limited’s net interest income percentage is decreasing but still now it contribute a significant amount in operating income. It is about 50% in 2008. Investment income contribution is also material part of the operating income.  Commission, brokerage and exchange income is growing at slow rate. So it can be said that Jamuna Bank Limited up to now concentrate on the core banking functions Loans, advances and investment.  But trend shows that it business gradually diverted from core banking business to other activities.

Conclusion:

Today’s banking is more competitive than earlier. Sherehareholders always expect better return. To maximize profit bank now want to expand its business besides its core banking functions. Investment banking, Merchant banking new two dimension of bank business. Some bank earn huge profit from Merchant banking. For sustainable growth and better development of the county banking sector should concentrate on the core function.

Compiled By: Nur Muhammed Tutul, MBA. 

References:

1.      Annual Reports of Jamuna Bank Limited.

2.      Web Site of Jamuna Bank Limited.