Study on the Structure of Brac Bank Finance Essay

BRAC Bank is a scheduled commercial bank. It is established in Bangladesh as a public limited company. 4th July 2001 the bank started its journey in Bangladesh under the banking company act 1991. On May 20, 1999 the bank established as a bank which is limited by the share. Building a profitable and social responsible organization is the corporate vision of the BRAC Bank. The main vision of this bank is to be a market leader and give loan and banking service to the business and individuals of those competitive markets. In February 2003 new executive vice president was appointed in BRAC Bark. His name was Amin and he was a director of American express Bank Ltd. before joining in BRAC Bank Ltd. He also helped BRAC Bank to set up capital market operation of equity resources Ltd. Consultants and financial advisers were appointed BRAC Bank in 2005. In 2005 financial advisers of the bank is planning to float its IPO. As a chief executive officer and managing director of BRAC Bank Ltd. Imran Rahman has been appointed in May 1, 2006. It earned a net profit of Tk. 216.95 million as per its half yearly on June 30, 2007. Shahidul Hague Sikder securities Ltd. has with drown one of it's a member of Dhaka Stock exchange. 31st December 2008 a result came to the BRAC Bank Ltd. Share holders from 10th annual general meeting that share holders of BRAC Bank Ltd. have approved 30% of stock dividend for the year. This meeting of the company held in the city Sunday. 6 July 2009, most significant years for BRAC Bank. It issues 1392304 ordinary shores of Tk. 100 each at a ratio of 1:30. The Bank also provides "best-in-the class" services by ensuring latest information technology. Continuously BRAC Bank gives a close attention on the enterprises in rural and urban areas and introduced relationships banking in Bangladesh. As a result Bank able to access market opportunity and raise their profit in the banking sector. BRAC Bank introduces "double bottom line" agenda, which help the bank to take profit and social responsibility to hand in hand. The main goal of this type of agenda is to establish poverty free and knowledgeable Bangladesh BRAC Bank also provides support to the enterprise which is more then 200000. As a result of its activities in July 2001 the bank established in 71 branches, 429 offices, 60 SME sales center and 200+ ATMs across country (as on June 30, 2010). The shares of this bank are brought by several organizations BRAC bank also hold some share form those. We are giving some short description about it. Shareholding Structure As on March 31, 2010 Name of Shareholder % of Shareholding BRAC 38.79% International Finance Corporation 5.38% Shore Cap International Limited 6.99% Non-Resident Bangladeshi 0.45% Mutual Funds 4.07% Institutions and General Public 45.48%

Vision:

There are some events that will take by the BRAC bank to improve itself. Such as, it will build a knowledge based organization. The employer of this bank will continue to learn about there customer and colleagues with a view to add their value in the market. Employer will try to improve themselves, devoted himself to solve problem, to give excellence in service and to prove the efficiency of those sectors. BRAC bank is trying to focus on markets and Business with a view to growth potential by providing a profitable and socially responsible financial institution.

Corporate Values

Our Strength emanates from our owner-BRAC. This means, we will hold the following values and will be guided by them as we do our jobs. Value the fact that we are a member of the BRAC family. Creating an honest, open and enabling environment Have a strong customer focus and build relationships based on integrity, superior service and mutual benefit. Strive for profit & sound growth.

Board of Directors of BRAC Bank Limited

The Board of Directors of BRAC Bank Limited includes: Mr. Muhammad A (Rumee) Ali Chairman Mr. Shib Narayan Kairy Director Mr. Quazi Md. Shariful Ala Director Ms. Nihad Kabir Director (Independent) Dr. Hafiz G.A. Siddiqi Director Mr. Mark A. Coffey (Nominated by ShoreCap International Limited) Ms. Tamara Hasan Abed Director Mr. Syed Mahbubur Rahman Managing Director and CEO

Members of BRAC Bank Limited Management Committee

Mr. Syed Mahbubur Rahman, Mr. Mohammad Mamdudur Rashid, Mr. Nabil Mustafizur Rahman, Mr. Syed Faridul Islam, Mr. Rais Uddin Ahmad, Ms. Tahniyat Ahmed Karim, Mr. Firoz Ahmed Khan, Mr. Mohammed Rahmat Pasha, Mr. Zeeshan Kingshuk Huq. Heads of various departments are arranged a committee is called mancom. It is consist at managing director and Deputy managing director. Mancom arrange a formal meeting which gives a result of the performance of different departments. This meeting also includes growth, issues and future plans. BARC bank arrange board meeting every month. Town hall meeting are arranged twice in every year. In front of all members MD gives an over view of the bank progress. Besides these BRAC bank arrange steering committee meeting, ALCO meeting, ERMC meeting and credit committee.

Corporate cash management services

Cash and trade of corporate institutions provides various operational supports by the corporate cash management services. This operational unit provides services and supports, including nationwide collection services (NCS), Payment transfer services (PTS) as well as mobile banking services (MBS) CMS strives to ensure smooth and uninterrupted quality services to our valued corporate clients.

Mobile banking service

At the premise of customer, mobile banking service s refers to providing banking services through setting up booths. We are collecting utility bills of the utility service provider under this service and by setting the booth at their places, MBS made it easier to pay the tution fees of the private universities. All collected funds are deposited to the client's account at the end of the day with nearest BBL Branches.

Corporate Repayment & Closing

Cash and trade, emerging business and large corporate of corporate institutions provide various operational services with closing and repayment. A corporate customer may have several opportunity sanctioned therefore relationship manager. Specifically mention the number and details of the loan account to be repaid and closing. Retail banking services loan Loan repayment Loan rescheduling and restructuring Loan closing Loan clearance SME banking service SME repayment unit SME loan closing unit SME clearance unit Retail banking service FDR closing DPS closing CASA closing

Automated banking

ATM

Three types of ATMs are presently used in BBL ATM booths: GRG Diebold Wincor

Facilities of BRAC bank ATM

Withdraw cash 24 hours a day by using credit/debit cards Account balance inquiry Account mini statement Pin change of debit/credit card Post Paid Bill Payment (GP) BBL credit Card Bill Payment

Upcoming facilities

Chequebook request Utility and/household bill payment Fund transfer to other account of BRAC Bank Ltd.

CDM

Internet Banking

Upcoming facilities

Open an account Set up automatic payment Receive bills electronically Request e-mail notification Review payments Review transfer Order checkbook Order statement copy Stop check payment Stop sending cancelled check View paper statement Calculator: balancing your checking account. Mobile recharge Order a Demand Draft/pay order Request for Duplicate physical bank statement

SMS Banking

Service charge

Annual service charge is BDT 200 + 15% VAT.

Analysis of the topics

Loan Classification:

BRAC bank provide high quality financial service or loan service and various product with view to contributing in GDP and enhance there business in trade and commerce. They also provide facility by industrialization, developing export, increasing employment sector for educated person, reducing poverty, developing standard of living and increasing overall development across the country. BRAC bank is a profitable business. It earns profit by investing its fund. So that we can say the profit is the main point of this bank. It invests the fund in many ways. The major portion of that part of income is comes from investment/credit which is a part of customer deposit. So BRAC bank should follow active policy and sound lending policy when it is lending services to the customer. There are many activities by BRAC bank. These are- Working capital financing commercial and trade financing, long term financing, House building financing, retail and customer financing, SME financing, Agricultural financing, import and export financing. The assessment of loan proposal setting out the term, disbursement of loan money, Monitoring the end use and collection of dues from the borrowers on due dates are involved in lending money. The possibility that the borrower willingly or unwillingly, may not repay the loan on a timely basis is granted by the primary risk. The banking parlance defines it as credit risk or default risk. Excessive credit risk manifests itself in the form of non-performing loans. Usually non-performing loans are used in the banking circle to underscore the status of banks portfolio. Non-performing or default loan is qualified when a borrower cannot repay interest or installment on a loan after it has become due. The loan classification system tries to separate non-performing loans from the performing ones. BRAC bank provide credit facility in the following sectors- Communication financing Real estate and civil construction Consumer financing Industry Business Lease financing Trade and commerce and others

Types of loan and advance:

BRAC bank provides various types of loan in different sectors. These can be included into four major groups. There are- 1. Continuous loan: The loan which is to be made with in a certain time and in the expired date its full adjustment will be treated as a continuous loan. These types of loan can be converted as doubtful and Bad-debt. If it is kept irregular of 6 months or beyond but leas than 9 months as "doubtful" if for 9 months and it is leas than 12 months then the loan is called bad-debt. Now we can explain some types of continuous loan in below. Loan general: When a loan is providing facility more than one year to the customer, then the bank finance form the starting to finish. BRAC bank gives this type of facility to the medium and big enterprise.

CC (Hypothecation):

When a borrower provides movable property as a mortgage for securing loan is called hypothecation. It is a type of cast credit. There is a big facility to the borrower because a borrower takes cc (hypothecation) against working process, bill receivable, sundry debtors and commercial vehicles. The banker has only equitable charge on stocks. It takes few charges from customer. But it is very risky investment for the banker. So it is much better for a bank to take a close attention of their activities and granted to parties with high integrity. The interest rate is 13.47%. CC (pledge): Pledge is a bailment of goods and securities. When a borrower takes loan from bank, bank acquires the ownership of the goods. The bank will not transfer the ownership until the borrowers repay the amount of loan and interest. When the price of the good is decreased from the previous year it is high risky for the banker. If the product get rotten then it is high risky for the banker. The highest interest rate is 13.47%. 2. Term loan: Term loan is the combination of midterm and long term loan. It is provided for more then one year with a view to established a new industry and purchase of capital assets and the enlargement or various diversification of an existing unit. Lease finance: This type of financing are usually provided to transportation sector. Now-a-days this lease financing is one of the popular financing projects. Rate of interest is 20%. In the lease financing of corporate portfolio corporate holds 24% of BRAC banks total assets.After considering lease financing of 2006 we can see that it has increased almost two times comparing to 2005.here a statement of BRAC Bank about lease financing is given below.

Lease finance

2006

2005

Lease finance receivables within 1 year 190,281,648 8,862,532 Lease finance receivables within 5 years 162,976,046 330,285,785 Total 353,257,694 339,148,317 House building loan: This loan is provided against 100% cash collateral and the land building are also mortgaged with the bank. Interest rate is 20%. The loan is under unclassified.

3. Demand loan:

Loan Against Trust Receipt (LATR)

Under this loan investment allowed for refinement of shipping documents and release of goods imported through L/C. Proceed should be deposited to liquidate the investments within a given period. It is known as a temporary loan.

Inland Bill Purchase

To meet urgent requirement of the customer falls under this types of investment facility payment made through purchase of inland bill cheque. We can adjust this temporary investment from the proceeds of cheques purchased for collection. It is treated as a classification of commercial lending. Loan Documentary bill purchase: Export oriented industry use this as a document. Here payments are made against those types of documents are deemed as exports and are provided in local currency and foreign currency falls under this head. This type of bill is called the primary security of these documents. After that the client submits the bill and the bank discount it. Interest rate is 16%. Loan against imported merchandise: When the retirement of shipping document and release of goods imported through L/C then the bank take some advances which is used to make effective control over the goods by pledge with a view to fall this types of advances.

4. Loan under SME:

Working capital Loan: It is used to meet working capital requirement, inceptive of size big, medium or large manufacturing fall under the categories.

Small Business Loan

The loan which is used to provide capital to small entrepreneurs. It is provided to the borrowers against collateral and estimation of the revenue generation of the project. Consumer credit scheme: Depending on the limited income of a person this type of scheme is strived to attract the middle and upper middle class population. The borrower should maintain a saving or current deposit account with the bank. It is free form collateral and purchased items are hypothecated with the bank. When the loan is disbursed then it is affected by the debiting loan account. After the submission of the indent, deposit of client and completion of documentation formalities loan amount is sending through account payee pay order and demand draft directly to the seller. We analysis SME credit scheme of 6 different banks then we can see that BRAC bank limited take the interest rate is 18% to 24% P.A. Home repairing loan: This type of loan is used to construction of new land and modernization of the house/building/flat. Actual local owner of the land is allowed to take this type of loan. 15.02% interest is used for home construction/repair. Personal loan: Personal loan is allowed for a salaried person in different organization to meet his emergency cash need. The Bangladesh bank lest shows that BRAC bank has the highest interest spread rate at 13.47%. The interest rate is 16%. In front of banking service BRAC bank open retail banking services loan which is deals with 4 types of works. These are loan repayment, loan rescheduling or restructuring, loan closing and loan clearance (NOC). When BRAC bank gives retail banking facility to the borrowers then the bank imposed some rules about loan repayment, loan rescheduling or restructuring, loan closing, loan clearance (NOC). BRAC bank repays the loan of Arong staffs and SME outstation staffs on monthly basis and CCU and AM are on the daily basis. BRAC bank reschedules their loan in different ways. They changes tenor which is keeping EMI several times as before. They collect 1% charges of outstanding and 1.5% for unscreened loan rescheduling with a view to reschedule SL. Maintaining all instruction and filling the application cope of loan closing a customer can close his/her loan. There are different types of loan closing. These are- 1) Unsecured loan closing 2) Secured term loan closing 3) Secured overdraft closing 4) Home loan closing Depending on this loan closing system the bank takes some early settlement fees. These are elaborated below. Type of Loan Early Settlement Fees Secured loan 1% of payoff amount & 15% of VAT Secured overdraft 2000 flat and 15% VAT Unsecured Loan 5% of payoff amount (if close within 1yr) 3% of payoff amount (if close within 2yr) 1% of payoff amount (if close within 3yr before maturity) Home loan Do With a view to closing the loan BRAC banks RBS take and execute the data and inform the branches. Retail banking system (RBS) deals with three types of deposit closing. Such as, FDR closing DPS closing CASA closing When BRAC bank gives loan to the borrowers the bank can take the following charges as a security- There are 6 types of moods of charging on securities: Pledge:Pledge is the bailment of goods as security for payment of a debt or performance of a promise. A pledge may be in respect of goods including stocks and share as well as documents of title to goods such as railway receipts, bills of landing, dock warrants etc. duly endorsed in Bank's favor. .

2. Hypothecation :

In case of hypothecation the possession and the ownership of the goods both rest the borrower. The borrower to the Banker creates an equitable charge on the security. The borrower does this by executing a document known as Agreement of Hypothecation in favor of the lending Bank. .

3. Mortgage:

According to section (58) of the Transfer of Property Act, 1882 mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, existing or future debt or the performance of an engagement which may give rise to a pecuniary liability. In this case the mortgagor dose not transfer the ownership of the specific immovable property to the mortgagee only transfers some of his rights as an owner. The Banker exercises the equitable mortgage.

4. Lien:

Lien is the right of the Banker to retain goods of the borrower until the loan is repaid. The Banker's lien is general lien. A Banker can retain all securities in his possession till all claims against the concern person are satisfied.

5. Assignment:

Assignment means transfer of any existing or future right, property or debt by one person to another person. The person who assigns the property is called assignor and the person whom it is transferred is called assignee. Usually assignments are made of actionable claims such as book debts, insurance claims etc. In banking business, a borrower may assign to the Banker (1) the book debts (2) money due from government's debt (3) insurance policy.

6. Set-off:

Set-off means the total or partial merging of a claim of one person against another in a counter claim by the latter against the former. It is in effect the combining of accounts between a debtor and a creditor so as to arrive at the net balance payable to one or the other. It is a right, which accrues to the Banker as a result of the Banker-customer relationship. Set-off arises when a debtor or his creditor wishes to arrive at the net figure owing between them when separate accounts or debt are involved.

SME Banking Services

Dedicated support to SME business loan repayment, closing rescheduling/restructuring, clearance related issues, etc are provided by SME Banking. SME banking services have three units and these are given below: SME repayment unit SME loan closing SME clearance unit

SME Repayment unit:

All daily and periodical repayment of small and medium business and all other SME related repayment issues are handled by SME repayment unit.

SME closing unit

The duty of this unit is to manage all type loan and deposit closing i.e. repeat loans, matured loan closing, top up loan, deceased/absconded loan A/cs, recovery related loans and FDR/DPS/CASA closing etc related activities as per instruction SME business.

SME clearance unit

All of necessary clearance to clients after fall adjustment of loan liabilities with the banks provides SME clearance unit. In this regard necessary activities of SME clearance unit are given below- Clearance unit start processing clearance certificate from the system after having loan closing confirmation. Check and process prescribed format to application that should be recommended properly by respective CRO/ZM. For loan purpose and return as per request letter of the borrower identify no. of securities are obtained by bank. SME respective CRO/ZM forward the clearance certificate and redemption authority of mortgage property. BRAC bank collect fund from different sector. After collecting fund BRAC bank manages its fund through treasury. The brief about the treasury is given below: Treasury is such kind of place where we can keep all funds safely and pay out assets to match the inflow and outflow of sources and application of available funds and through this way treasury maximizes the return and minimizes the risks. Treasury is the trainer of the fund of banks. It is a liquidator and regulator that manage day to day requirements. To supply the money market and capital market treasury works and also invests fund. It is manages mandatory liquidity (18% as SLR of which 5% is CRR) It collects the foreign exchange exposure of the bank. On the other hand it manages funds to maximize return with minimum risk. Treasury functions are basically divided into three major/key part- Front office- Initiate transactions/deals Mid office- Check point Back Office- Process the transaction /deals

Functional Areas of Treasury Financial Institution:

There are three major functional areas of treasury and FI are given below- Money market Corporate Fx Sales Asset Liability Management and Financial Instructions

1) Money Market

It has two wide divisions

One is local currency and the other is foreign currency. Some of the products of money market are overnight borrowing or lending from call market, Repo or reverse Repo, Treasury bills of 91 days, 182 days and 364 days.

Local currency

For short-term borrowing and lending money market is considered as financial market. To manage daily liquidity requirements and to comply with SLR and CRR, foreign exchange pen position and other regulatory requirements is the key functions of money market. The products of money market have matured up to one year.

Foreign currency

Foreign currency is bought and sold by treasury in different value dates: ready, spot, TOM, forward, SWAP. Cash transactions which are settled on the deal date is termed as ready transactions. The transactions which are settled on one day after the deal date are TOM transaction. The other transactions which are settled on the third day after the deal date are spot transactions. A forward transaction is such kind of transaction that takes place away from spot date. And lastly the transaction which is simultaneous buy and sell of foreign currency pair with two different value dates is known as SWAP transaction. Daily exchange rate sheet-that estimates the exchange rate for foreign currencies against local currency and the interest rates for FACY Deposits are circulates by treasury. Different rates are available for different intentions in the exchange rate, e.g. BC for import payment, TT and OD for FTT and FDD issuance, cash notes and traveler cheques buying and selling, TT dean for inward, remittance, TT Doc and OD sight for export proceeds and OD transfer for purchases FCY cheques and bills. These rates are available in USD, GBP, EUR, JPY, CHF, CAD and AUD foreign currency exchange and USB, GBP and EUR for FCY deposits.

Capita Market

Length of capital market products starts from one year to twenty years. At present our govt. is offering 5 years, 10 years, 15 years and 20 years of treasury Bonds.

Securities market

Share preference share, bonds, zero coupon bond and debentures of different maturities are offered by securities market. By playing in the above markets, treasury provides internal and external clients, as appropriate. CRR and SLR, net foreign currency open position, holding of on shore balance is in FCY-all these regulatory requirements are followed by treasury as a commercial bank.

Corporate FX sales

BRAC bank treasury offers buying and selling of foreign currency against local currency to the customers having their exposure in documentary credit or any other foreign currency obligation . Usually customers buy foreign currency to settle their payments for LC, remittance of offshore borrowing repayment, technical fees, profit repatriation and etc from our corporate FX sales desk the main customers of corporate FX sales desk are top-notch multinational corporate

Financial Institution

To support- our internal (SME, PBS, CMCL, Retail and corporate) and external clients, financial institutions maintain relationship with different local and foreign banks. To meet our business requirements FI have arranged MOV/agreement with different banks in channeling/loans/remittance /collection/cash deposit. To support its small and medium enterprise (SME) cash management and remittance operations throughout the country, BRAC Bank Ltd. Also maintains about 550 accounts with different local banks. Through its correspondent network BRAC Bank Limited continued its efforts to reach out every corner of the world. A correspondent relationship has been successfully established by BRAC Bank Ltd. And 23 foreign nostro acc with the world's lending banks, which includes: HSBC, city bank NA Hypovereins Bank, ING Bank, Unicredito Italiano, Zuracher Kontonal Bank, Standard Chartered Bank, ICICI Bank, Mashreq Bank, UBAF, NOVA Scatia, Dreshdner Bank, Banske Bank, Banca Nazionale del Lavoro, Fortis Basque, International Moscow Bank, Cresent Commercial Bank, Bank Austria, Bank of Asia Public Company Ltd. AB Bank Mumbai etc. to provide best of services of its clients efficiently and profitably. BRAC Bank Ltd. Maintain nostro accounts with a number of banks for settlement of LCY and FCY transactions. But it doesn't keep any bond with the non-banking financial institutions.

Asset Liability Management

Asset Liability Management (ALM) monitor measure and manage the risks associated with balance sheet and guard the bank against and unforeseen loss or threat of survival. ALM position is being placed before asset liability committee (ALCO) and Board for necessary guidance and review. ALM deals with two major risks associated with balance sheet (i) liquidity Risk (ii) Interest Rate Risk. ALM also looks after the capital adequacy of the bank.

Advance Deposit (AD) Ratio

It helps to judge bank's liquidity position. In ideal scenario, AD ratio should be around 82%, as 18% of deposit maintained as SLR.

Liquidity Ratio

Liquidity ratio (Liquid Assets to Total Assets) is the proportion of a financial institution's assets held in easily convertible to cash form. This ratio measures bank's ability to meet commitments or obligations to counterparties when due. ALCO set minimum liquidity ratio 18%. Cash & Bank Balances. Call Payment, Treasury Bills/Bonds, Govt. Bonds, Foreign Currency and Shares (Publicly Traded) would be considered as liquid assets. Total asset is the balance sheet total asset.

Gap Analysis

The structural liquidity gap report calculates the gap of inflow and outflows assets and liabilities in various time buckets based on the residual maturity. The gap is also derived considering forecasted inflow & outflow and renewal & prepayments options. The interest rate gap analysis is done by deriving gap of inflows (rate sensitive assets, RSA) and outflow (rate sensitive liabilities, RSL) in various time buckets based on interest rate reprising period. It shows the mismatches in each defined time buckets as well as at the overall level. On the basis of gap, interest rate risk for different interest rate movement is calculated. BRAC Bank Ltd. distributes its loan and advances in different ways. These are given below. Loans and advances 2006 2005 Overdrafts 1,622,104,860 1,300,948,646 Demand loans 993,364,955 965,503,471 Term loans 6,537,569,949 4,278,213,605 Lease finance (Note 7.2) 353,257,694 339,148,317 Small and medium enterprises 9,937,018,916 4,852,960,094 Credit cards 1,229,884

Staff loans 97,194,773 52,344,311 19,541,741,031 11,789,118,444 Bills purchased and discounted 15,424,349 2,194,078 Total 19,557,165,380 11,791,312,522 BRAC bank allows maturity-wise grouping loan and advance to the borrower around the year.

Maturity-wise grouping

2006 2005 Upto one month 92,951,763 1,127,324,795 More than one month but not more than three months 404,242,161 555,690,003 More than three months but not more than one year 2,016,426,274 2,703,883,776 More than one year but not more than five years 13,700,432,989 7,274,148,048 More than five years 3,343,112,193 130,265,900 Total 19,557,165,380 11,791,312,522 BRAC bank distributes its total loanable fund with a view to provide loan and overdraft.

Loans and advances under the following broad categories

Inside Bangladesh:

2006 2005 Loans 17,935,060,520 10,490,363,876 Overdrafts 1,622,104,860 1,300,948,646 19,557,165,380 11,791,312,522

Outside Bangladesh

Total

19,557,165,380 11,791,312,522

Sector-wise allocation of loans and advances

2006 2005 Agriculture, fishing, forestry and dairy firm 1,001,916,113 471,634,345 Industry (jute, textiles, garments, chemicals, cements, etc.) 803,394,480 498,123,343 Working capital financing 1,845,968,883 452,225,832 Export credit

-

303,413 Commercial credit 9,845,341,742 5,890,511,616 Small and cottage industries 579,278,590 233,101,451 Miscellaneous 5,481,265,572 4,245,412,522 Total 19,557,165,380 11,791,312,522

PROVISIONING:

After industrialization in the world we can see the eagerness of entrepreneurs in establishing industry. To establish industry entrepreneurs need huge amount of capital which they cannot afford without the help of bank. Banks provide them capital in order to obtain profit. Sometimes borrowers cannot repay the borrowed money. In order to adjust such kinds of problem banks always keep some fund against loan which is known as provision. In other word we can say that provisioning means setting aside fund in the banks of account profit and loss account against possible loan loss. BRAC bank maintains different provision rate on different types of classified loans and advances.

Particulars Rate on General provision :

Unclassified loans & advances 1% Small enterprise 2% Consumer finance for house building loan and loan for professional setup 2% Consumer finance other than house building loan and loan for professional setup 5% Special mention account 5% Specific provision on: Substandard loans and advances 20% Doubtful loans and advances 50% Bad/loss loans and advances 100%

Particulars of required provisions for loans and advances

Base for provision 2006 2005 Status Taka Taka Unclassified - 361,474,865 1 95,581,933 Special mentioned account 26,294,430 5 ,956,711 Classified - Sub-standard 50,022,381 1 8,033,709 Doubtful 80,340,767 4 4,908,592 Bad/loss 116,554,342 4 8,677,371 Total 246,917,490 1 11,619,672 Required provision for loans and advances 634,686,785 3 13,158,316 Total provision maintained 646,426,378 3 40,020,211 Excess/(short) provision at 31 December 11,739,593 2 6,861,895 Now we can explain provision for loan and advance based on year given below: Particulars 2006 Taka 2005 Taka Specific balance at the beginning of the year 134,061,42 86,987,669 Add: provision made during the year 171,780,596 93,497,121 Total 305,842,16 180,484,790 IN case of provision and taxation in 2005 current tax is tk 498,511,560 and deferred tax is tk 44,082,214. In 2006 current tax is tk 246,289,944 and deferred tax is tk 7,902,214. Now we can briefly explain current and deferred tan in different years.

Provision for current taxation :

Particulars

2006 Taka 2005 Taka Balance at the beginning of the year 246,289,944 110,552,935 Add: Provision made during the year 334,920,000 1 39,777,786 Total 581,209,944 2 50,330,721 Less: Adjustment of tax provision for previous years 82,698,384 4 ,040,777 Balance at the end of the year 498,511,560 2 46,289,944

Withholding tax payable

Assessment up to the income year ended 31 December 2004 corresponding to the assessment year 2005-2006 has been Completed. Assessment for the year 2001 (assessment year 2002-2003) is under appeal with the High Court preferred by the bank Against tax department's demand for additional tax of Tk 3,367,206 which has been shown as contingent liability.

Provision for deferred taxation

2006

2005

Balance at the beginning of the year 7,902,214

-

Add: Provision made during the year 36,180,000 7 ,902,214 Balance at the end of the year 44,082,214 7 ,902,214 BRAC bank maintains provision for classified and unclassified loan and advance in 2005 and 2006. Now we can explain the amount of provision for both types of loan and advance below- In 2005 provision for classified loan and advances is tk 93,497 and provision for unclassified loans and advances is tk 145,916,477. In 2006 provision for classified and unclassified loans and advances is tk 171,780,596 and 173,140,004. Provision for income tax is divided into two parts. Current Tax: According to the income tax ordinance, BRAC bank made its provision for income tax. In the review of year 2004 the current tax is tk 334,920,000. Deferred Tax: Using the liability method BRAC bank calculates deferred tax. In 2005 the amount of tax is tk 36,180,000 where tk 7,902,214 had been adjusted as a deferred tax. The objectives of loan classification and provisioning are as follows- To introduce transparency in the operation of banks. To assess the capital adequacy of the individual banks and to prevent further erosion and for infusion of addition capital by the bank owners. To regularize follow-up and monitoring activities. To strengthen credit discipline and to infuse public confidence in the financial system. To improve recovery position and to transfer necessary amount from the income as interest suspense. To build up reserve over the years to cushion the shortfall arising from unforeseen losses at any subsequent period. To consolidate and provide necessary data, which will help the concerned authority of the bank as well as the government, and Bangladesh Bank in formulating necessary policies.

Conclusion

BRAC Bank has contributed in the national economy by investing a remarkable amount throughout the country. While analyzing the data of BRAC Bank Limited some findings and observations were pointed out as listed below: BRAC Bank Limited has already achieved a high growth rate accompanied by an impressive profit growth rate in 2008. The amount of deposit and investment are also increasing rapidly. This bank declared 30% stock dividend to every shareholders at December 31, 2008. BRAC Bank Limited has already established a favorable reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh with 71 branches, 60 SME Services center, 200+ATMs across the country (as on June 30, 2010). BRAC Bank ltd. has incorporated online banking system in their operation. All of the branches are now connected with this online banking system. BRAC Bank has introduced Debit and credit Card to promote its customers with 24 hours banking facilities. BRAC Bank has achieved an outstanding performance in receiving foreign remittance. They have made quick money transfer into the country with the help of ATM booth. In order to accelerate the investment in small & medium enterprise sector BRAC bank limited established 60 SME service centers. BRAC Bank should give more attention to advertisement for creating more attraction among its customers, which is helpful to collect more deposit and increase investments scope. That's why bank should give emphasis on advertisement in various media like TV, News Paper, Internet and Billboard. In order to fostering economic growth, to generate employment & reducing poverty BRAC Bank Limited may enhance their budgetary allocation and give more loan to the educated unemployed . To make more investment in Small and Medium Enterprise sector in order to contribute in national economic development the bank need to establish more loanable service with a view to the improve rural areas. The top management of the Bank is a key strength for the BRAC bank contributed the growth and development of the Bank. It has already established its banking sector having tremendous growth in the profits and deposits within a few years. Form the very beginning, BRAC bank tries to design their work as a whole with modern equipment and facilities for the speedy services to the customers. The Bank has installed money-countering machine in the cash counter. The bank has computerized itself from the beginning. BRAC bank has already collected huge amount of deposit from its client. Due to lack of government facilities in industrialization it cannot utilizes its fund properly. So considering share market as a safety place for investing BRAC bank using its money in share market. But this type of investment is very risky. BRAC bank provides continuous loan, demand loan, term loan and loan under SME. These types of loan are very fruitful for our country. Besides these another reason is come to us that Bangladesh is a developing country. Maximum people of our country live below the poverty line. The interest rate of those loans is very high relating to those people. If the bank reduces the interest rate of those loans all people might be helpful taking these loans. But relating to the interest rate loan under SME is perfect in our country. BRAC bank offers various types of loan. Such as-secured loan, unsecured loan, secured overdraft, home loan . Instead of giving these types of loans it takes some early settlement fees which is very low relating to the loan. BRAC bank has divided provision into two categories. These are- General provision Specific provision Under the specific provision BRAC bank maintain standard provision rate. That is 20% provision on sub-standard loan and advance, 50% provision on doubtful loan and advances, 100% provision of bad loan and advance. But under the general provision, provision rate is very few comparing to the amount of loan. The upcoming private local banks can also create threats to the BRAC Bank. It is expected that in the next few yew years more local private bank may emerge. If that happens the intensity of competition will rise further and banks will have to develop strategy to compete with them.

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