Emranul Huq has recently been promoted as the deputy managing director of Dhaka Bank, the Bank said in a statement yesterday.

Prior to the promotion, he was the Bank's senior executive vice president and head of corporate banking.

Huq started his career with Bank of Credit and Commerce International in Dhaka as a management trainee in 1986.

He also worked at Eastern Bank, Dhaka and Credit Africa Bank Ltd in Zambia in various capacities, before joining Dhaka Bank in 1998.

The Daily Star/ Bangladesh/ 11th May 2012

The "Business Conference-2012" of Standard Bank Ltd was held recently in the city under Chairmanship of Managing Director SA Farooqui. Chairman of the Board of Directors of the Bank Kazi Akramuddin Ahmed graced the occasion as chief guest.

The "Business Conference-2012" of Standard Bank Ltd. (SBL) was held recently in the city under Chairmanship of Managing Director Mr. S.A. Farooqui.

Chairman of the Board of Directors of the Bank Mr. Kazi Akramuddin Ahmed graced the occasion as chief guest. Audit Committee Chairman Sahazada Syed Nizamuddin Ahmed, Director Mr. Mohd. Nurul Islam, Mr. Ferozur Rahman, Mr. Mohammed Abdul Aziz, Mr. Ferdous Ali Khan, Barrister Moshfeque Mamun Rizvi, Mr. Md. Faikuzzaman & Shaikh Mesbah Uddin were present as Guests of honour on the occasion.

Mr. Kazi Akramuddin Ahmed founder Chairman of the Bank congratulated the Branch Managers, Executives, Officers and Employees of the Bank for their active participation, commitment and valuable contribution to the growth and success of the Bank. He mentioned that Standard Bank has been able to achieve the confidence of its clients and patrons by handling of substantial volume of deposits, loans and advances as well as exploring import & export business. He emphasized on preparedness to face the global challenge in the upcoming days and also advised to lay foundation of state of art of technology based banking service to the clientele.

Managing Director & Additional Managing Director of the Bank spoke on the occasion and advised the Branch Managers, Executives and Officers to become more serious in their profession for meeting aspiration of Board of Directors through achievement of the target for the year 2012.

Financial Express/ Bangladesh/ 10th May 2012

Afzalul Haq in the first of a three-part article on bank capital standard

There has been an apparent dimensional change in the recent times between the capital standards of banks in two paradigms. These two paradigms may be categorised: firstly, as the paradigm before, and secondly, as the paradigm after (or since) the international convergence of the measurement and standard of capital of banks. That is, we are talking about the pre-Basel and post-Basel standards of banks' capital requirement.

In the realm of financial management, capital-structure ratios, indicating the proportion of funds provided by the 'owners and creditors', have been recognised as very important statistics for many purposes. Among such different ratios, debt-equity ratio, as an indicator of the capital financing structure of a company, has got a significant role. It is also an important element for credit risk grading (CRG) of a company. The CRG is conducted in respect of a company, which seeks finance from the external sources, specially from any bank or non-banking financial institution.

Bankers now, among other peripheries of scrutiny, conduct the CRG while checking for the eligibility of a potential borrower, whether he qualifies to get finance from the bank. The CRG has got five principal risk components encompassing 20 parameters, where leverage or debt equity ratio has been listed the top. This ratio is calculated as a measure of the financial risk involved and the fund-seeking firms' ability to use the debt.

In broad statistical terms, debt-equity ratio is nothing but the proportion of sources of fund of a company between internal (equity) and external (debt) sources. So debt-equity ratio of 0.4 or 40 per cent would indicate that the company concerned has got debt of Taka 40 against every Taka 100 from the sources of the owners i.e. the share-capital, as talked about a joint stock company.

The prudent use of debt plays the role of leverage or 'gear to lift' in magnifying earning per share (EPS) of a company. This is why the debt-equity ratio is also termed as gearing ratio or leverage, meaning an accelerator. Thus literally the term leverage as the nomenclature denotes, indicates something positive, a magnifier of shareholders' return as already stated.

Financial risk: But in this write-up, we will focus how debt-equity ratio is rather treated as one of the indicators of a significant risk factor, the financial risk. Debt-equity is a risk factor. Because when a company takes excessive fund in the form of debt, the fate of recovery/repayment of debt becomes uncertain. Such an uncertainty accentuates if the borrower company unfortunately fails in business.

Let us think of a business of Taka 100m (hundred million), consisting of bank debt of Taka 30m and own capital or equity of Taka 70m. Say the business of the company fails and the residual fetches the company 50 per cent i.e. Taka 50m only. In this case, the bank, which has lent the debt of Taka 30m, is supposed to get back full amount it lent, although the borrower company has suffered loss of Taka 50m. This is the 'rule' that the creditor (in this case, the bank) will have the first claim over the recovered money. The owner will have claim on residual, if any, after meeting claim of the creditors as the externals pre-emption right.

In the other instance, let Taka 100m business fund is conversely composed of Taka 70m as bank debt and only Taka 30m as equity. If the business faces the same fate of 50 per cent decay, then the scenery would be terrible for the lender bank. The bank would not be able to recover more than the amount the company could realise i.e. Taka 50m only, incurring a loss of Taka 20m (70m minus 50m). The entrepreneur company (i.e. its shareholders), according to law, is not supposed to bear any loss beyond its share capital i.e. Taka 30m in this case.

So the shrinkage of the company's asset at a higher rate than the proportion of the equity in the total source of its fund would cause loss to the creditor bank, the lender. As such a lender or an external provider of fund must take care, so that it/he need not incur any loss. In other words, the lender must expect that the loss, if any, is to be covered by the owners money. The higher is the debt equity ratio, the higher is the risk of the external financier or the lender to incur loss.

The above scenario assumes a case where a joint stock company, other than a bank or a non-banking financial institution (NBFI), is approaching a bank or NBFI to avail of external finance. For simplicity, we have also assumed to limit component of finance between the owners capital and bank loan only i.e. in the above example, bank is the external financier or provider of debt or a lender / creditor.

Now let us conversely think of a bank as a business (borrower) unit or entrepreneur, forgetting its earlier role as loan provider. For simplification like in the earlier, case we assume that sources of fund are limited between paid-up capital (as internal) and depositors (outsiders or external source of) money. Thinking in the similar way of two liquidition scenarios as stated, we must talk of the safeguard of the outsiders i.e. the depositors. The more the depositors fund is in relation to equity, the more will be the risk or uncertainty of recovery of their (depositors) fund.

So there had been a concern vis-à-vis maintaining a balance between internal and external finance of any venture, be it banking or any other business organisation. This is to control debt or external finance (in relation to internal finance) so that it does not touch the danger point, which may ultimately land the external financiers in a situation to suffer loss. For the creditors, it reaches the danger point when the concerned company incurs an amount of loss, surpassing the contribution of the owners or equity capital.

Once upon a time, until the Basel accord, such a ratio or proportion-like debt-equity was also applicable for the banking companies. The ratio had been in the use, to determine and control the maximum limit, which a bank can collect from the depositors in relation to its share capital. That was the ratio between deposit (debt) and bank's equity or capital.

At that time, say for every Taka 6.0 capital, a bank could collect an amount of Taka 94 from the depositors to equate a Taka 100 as sources of fund. The purpose of this ratio was obviously to contain a bank so that it cannot take excessive money from depositors. Excess money from the depositors might cause them suffer loss. Because, where the actual loss of a bank exceeds the amount of its capital, depositors might be compelled to share a part of that loss.

So the above proportion at that time played the role of a controlling device, a limit or cap to safeguard the interest of the depositors of the bank. This was simply to maintain such a capital structure of financing, so that external liability (as opposed to internal liability or equity) does not become reckless. As a regulation it was not unfair to control external finance from the public in connection with the bank's capital (deposit versus capital, liability versus liability).

A 'same-side' case: But such a ratio, as a proportion between those two figures, was subsequently considered inadequate or irrelevant. The rationale shown for this negation was that the debt and equity both stay under the same umbrella. Both of them belong to liability group as opposed to asset group (or sources of fund as opposed to application of fund) of the balance sheet. So the ratio between two liability items was regarded as irrelevant to fixing the limit or floor of volume of deposit. Such an equation was rather regarded as a 'same-side' case.

It was then thought that the ratio must not be the quotient of two items from the similar group of the balance sheet items, as stated above. This realisation gave birth to Basel Accord, the most talked about and important issue in the banking and finance industry across the globe.

The Basel accord is a global standard designed in the Bank for International Settlements (BIS). This accord is known as International Convergence of Capital Measurement and Capital Standards. The standard, as was born in Basel of Switzerland, it has got a nickname as Basel accord or simply Basel.

As a control device, the suggestion in the Basel came to find out a ratio, where the components, numerator and denominator must be from the reversal part. That is, if one of these items is from the group of sources of fund, another is to be from that of application of fund. Therefore, the BIS agreed that the new control device shall be the proportion of capital on one side, and loans & advances, on the other side (liability vs asset).

Loans and advances, in banking, are termed as the asset item. Such asset figures, for the purpose of calculation of sufficiency of capital, under Basel accord, are however adjusted in amount, multiplying them by their respective risk-weights. Risk-weights are expressed in terms of a fixed percentage of a few options determined by the Basel Committee on Banking Supervision (BCBS). The risk-adjusted amount of asset is then termed as risk-weighted asset (RWA) or risk weighted amount as the basis on which a bank's minimum capital amount is to be decided.

A new ratio: The BCBS therefore advised rather to contain the RWA in relation to capital. In other words the Basel accord discovered a new ratio to find out the minimum capital that a banking company must have in relation to its corresponding risk weighted asset, not in relation to the amount of collected deposit, unlike the provision of the pre-Basel paradigm.

According to the new formula, if a quotient (Capital ÷ RWA) of 0.10 or 10 per cent is set as the required minimum capital, it would mean that to book risk weighted asset of Taka 100, a bank must have its own capital of Taka 10. In other words, a capital of Taka 10 would enable a bank to extend its weight adjusted loans (RWA) upto Taka 100 and not more. To extend credit or loans beyond this limit, the bank must increase its capital proportionately. Here the required amount of capital (a liability item) is determined in relation to an asset item and not related to the depositors fund (another liability item).

The initial Basel accord was subsequently updated. A revised standard known as Basel-II has now been prevailing. For further updating, particularly in the backdrop of the latest financial meltdown, resulting in fall of many ' too big to fall' like Lehman Brothers & AIG and subsequent many a bailout programme to save the drowning ones, the Basel-III is cooked with more stringent regulations to come into force in the near future. To accommodate the lessons of the financial crisis, the revision extended the purview of recognition of risk factors and some other new factors. Those will be discussed in the subsequent parts of the article.

The writer is Vice President & Head of Islamic Banking, Bank Asia Limited at its Corporate Office at Rangs Tower,

Purana Palton.

afzal@bankasia.com.bd

Financial Express/ Bangladesh/ 10th May 2012

Abul Hossain concluding his two-part article on investment documentation

Weak and fake documents have become a headache of the bankers all over the world. The bankers must take utmost care in documentation since they deal with public money and will be held liable for non-realisation/nonrecovery of the same due to weak and fake documentation/problems in documentation.

Clients and their legal advisers sometimes avail advantage of weak and fake documents/shortage of documentation in the court. In that case sometimes, the court gives verdict in favour of the client against the bank. As a result, the prospect of recovery of bank dues becomes bleak. As such, bankers should adopt utmost care at all stages of documentation before disbursement. Since, irregularities/lapses at any stage may imperil the interest of the bank and also put the officials concerned in trouble.

The bankers should ensure the

following:

i) Copy of application form duly signed by the client and verified by the banks officials;

ii) Bank officials should be conversant with the laws and practices;

iii) A bank officer must adopt a strict professional approach in execution of documents.

iv) The first duty of the bank official is to verify the genuineness of the documents and correctness of the title, proper identification of the mortgagor(s). Besides, he should scrutinise the chain of documents personally and from the Record Room, Sub-Registry office, AC land office and Tahshil office.

v) Physical verification of the collateral must be done by Branch Incumbent/Second Officer/Investment in-charge and other responsible officials to ascertain the nature of the collateral and force sale value thereof. Care should be taken in accepting the properties having no entrance to avoid problems in disposing the same in case of need.

vi) Documents should preferably be hand-written not typed. Signature should be verified by incumbent/responsible officer with wooden pencil;

vil) Documents should be executed in the presence of responsible officers. No documents should be handed over to the borrower for obtaining signature of co-borrower guarantor/mortgagor.

viii) Obtaining of NOC from concerned authorities (Rajuk, CAD, KDA, RDA, City Corporation, Pourashava, and Cantonment Board) etc., as the case may require, including checking the latest master plan.

Minor: A minor is not competent to enter into a contract; hence a banker should not invest any money on him. However, if an investment is to be made against a fixed deposit in favour of a minor, the banker should obtain a letter from the guardian of the minor stating that the amount is required for the benefit of the minor. Father is the natural guardian of his minor children. In case of mother, she is to be appointed guardian of the minor children under the Guardianship Act. The guardian should sign all documents in his/her personal capacity.

Power of attorney: Sometimes documents are executed by an attorney on behalf of his principal. In such case the relative power of the attorney should be examined to ensure whether it is in order and confers the requisite power on the attorney to execute documents on behalf of the principal. The power to execute the documents may not be accompanied by the powers to borrow or pledge securities. This point must be kept in view.

There are two types or power of attorney -- special power of attorney and general power of attorney. A special power of attorney is confined to a single transaction and a general power of attorney gives general authorities to act in more than one transaction. It is intended to operate over a length of time.

A power of attorney, if revocable, may at any time be revoked by the principal after giving reasonable notice. A power of attorney is also revoked by the death or lunacy of either the principal or the attorney, or by the principal being adjudicated as insolvent. If the power of attorney is irrevocable, it cannot be revoked or terminated by the death or insanity of the customer. (Section 201 of Contract Act 1872).

If any power of attorney is executed from foreign land the same should be authenticated by the authorised officials of Bangladesh embassy/high commission in that country.

Witnessing/attestation: Some of the documents require to be compulsorily witnessed, such as, a mortgage deed, gift deed or immovable property and Will. At least two witnesses are required on the documents. Certain documents viz, mortgage deed, sale deed of immovable property etc., also require attestation for their validity. In absence of such attestation, the document is void and not enforceable. But documents, such as, promissory note, letter of guarantee, pledge or hypothecation agreement etc. are not required to be witnessed or attested.

Investment to a trust organisation: The copy of trust deed should be duly attested by a Class I gazetted officer and verified by the incumbent-incharge of the branch with the original copy. The trust deed must contain a clause authorising the trustees to do business with banks and to avail investment facilities/borrow from banks.

Acceptance of inherited properties without obtaining original title deed may be discouraged as far as possible for avoiding any type of complications in future. Personal guarantee of all the members of the board of trustees must be obtained.

Investment to co-operative society: Clearance from the registrar of the co-operative societies for doing business and avail facilities/investment from the bank within the annual borrowing limit of the society will be required. Personal guarantee of the office-bearers of the cooperative society must give personal guarantee and a resolution of the management committee must be obtained.

Investment against work order: In case of investment against work order, power of attorney executed by the client authorising the bank to receive bill duly accepted by the authority issuing the work order must be obtained.

Investment to illiterate persons: In case of illiterate persons left hand thumb impression of the client should not be attested/verified by bank officials. This should be done by respectable and well accepted person preferably by banks penal of lawyers with the remark that he has readout the whole mortgage documents and the clients has given LTI by clearly understanding the whole matter.

Investment against mortgage of possession deed: In case of investment against mortgage of possession deed, personal guarantee of the landlord or written consent of the landlord to mortgage the shop/establishment to be obtained along with original possession deed, "Memorandum of Deposit of Title Deeds," tripartite agreement between land owner, client and bank (if possible), written consent of the market committee, if there is any such committee etc.

In case of investment against vehicles/vessels/transport: Joint registration of the same is a must in the name of the bank and the client.

Identification of the mortgagor must be ensured by responsible bank official.

Other suggestions: i) Identification of the mortgagor must be ensured by responsible bank official; ii) The genuineness of the mortgagor must be confirmed by responsible officer. iii) No undemarcated land should be taken as mortgage. iv) Credit report (confidential opinion) to be obtained with declaration of collateral security for avoiding duplicity of security. v) Sign board/wall writing be made mentioning that the property is mortgaged with the bank before execution of mortgage. vi) Due date diary must be maintained by the branch and letter to be issued to the client well before its expiry date. The branch/2nd officer/ investment officer/dealing officials must maintain due date diary and discuss the issue in their periodical Task Force meeting regularly and will also pursue the client vigorously for adjustment of the investment deal on or before due date.

When documents are not acceptable: The bankers should not accept blank or incomplete documents; Unstamped or under-stamped documents, unregistered documents, time-barred documents; and documents with cutting, erasing, overwriting not authenticated under full signature.

The writer is Executive Vice President Establishment and Common Services Division of Islami Bank Bangladesh Ltd. aboulhossain@islamibankbd.com

Financial Express/ Bangladesh/ 10th May 2012

Choudhury Moshtaq Ahmed, Deputy Managing Director of MBL, inaugurates a booth at city’s Dholaikhal.

Mercantile Bank Limited (MBL) launched the operation of its 42nd ATM booth at city’s Dholaikhal.

Choudhury Moshtaq Ahmed, Deputy Managing Director of MBL, inaugurated the booth officially, said a press release Wednesday.

Head of Dholaikhal Branch, senior executives of the Bank and customers of the branch were also present at that time.

The Daily Sun/ Bangladesh/ 10th May 2012