Islamic Banking

Vs.
Conventional
Banking
A comparative
study on

Exim Bank Ltd. &

Eastern Bank
Ltd.

Islamic Banking Vs. Conventional

Banking: A comparative study on
Exim Bank Ltd. & Eastern Bank
Ltd.
Submitted to:
Nusrat Khan
Assistant Professor
School Of Business
North South University

Submitted by:

Nusrat Binta Nasir

ID: 1330563060

Department of M.B.A

Submission Date
April 17, 2015

Letter of Transmittal
August 20, 2013
Nusrat Khan
Assistant Professor
North South University
Subject: Submission of the report on Islamic Banking Vs. Conventional Banking: A
comparative study on Exim Bank Ltd & Eastern Bank Ltd.
Dear Sir,
This is our pleasure to submit a report on Islamic Banking Vs. Conventional
Banking: A comparative study on Exim Bank Ltd & Eastern Bank Ltd Which we
were assigned. We have tried our best to prepare this to be as informative and
relevant as possible. To prepare this report we have reviewed some books, articles,
journals and downloaded some information from internet. We believe that the
knowledge and experience we have gathered during this course completion period
will immensely help us in our future professional life. We have concentrated our
best efforts to achieve the objectives of this course as well as report and hope that

our endeavor will serve the purpose. We considered your remarks and instructions
very carefully while preparing this report. We tried the best to follow your schedule,
format and discipline.
Thank you for your kind consideration.
Sincerely yours,
Nusrat Binta Nasir ID:09304123
North South University

Executive Summary
A Bank is an economic institution whose main aim is to earn profit through
exchange of money& credit instruments. It is a service oriented as well as profits
oriented organization. The Bank divides its operation mainly three parts- General
Banking, Foreign Exchange and Investment. The banking sector of Bangladesh is
passing through a tremendous reform under the economic deregulation and
opening up the economy. Currently this sector is becoming extremely competitive
with the arrival of multinational banks as well as emerging and technological
infrastructure, effective credit management, higher performance level and utmost
customer satisfaction. Bank has a significant role in the economic development of
the country. The successful banking business ensures the growth of the economy by
the effective uses of the funds. In order to developing the national economy, banks
keep in mind going for lending, maintaining safety, liquidity & profitability.
The report has been prepared on focusing Investment Activities of Exim Bank
Limited to compare with the activities of Eastern Bank Limited (EBL) whereas Exim
bank is serving as an Islamic bank and EBL is based on traditional banking.
Exim Bank Limited and Easter Bank Limited were introduced in Bangladesh as a
banking company under the Company Act 1913(Indian) and 1994 in Bangladesh.

Exim Bank commenced on operation on 2nd June 1999 and Eastern Bank
commenced on operation on 16th August 1992. Numerically both of the banks are
just another commercial Bank, now operating in Bangladesh, but the finders of
Exim Bank committed to make different & a little bit special qualitatively. This bank
has new vision to fulfill & a new goal to achieve & try to reach new height for
realizing its dream. We have done this report on the investment activities but
mainly focusing on the differences between Islamic banking and conventional
banking in comparing Exim bank with Eastern Bank Ltd. This is basically included
Investment and loan activities to show how this department works differently.
The 1st chapter contains the origin, objectives, limitations etc. of the study, 2nd
chapter is about the overview of EXIM Bank Ltd, 3rd chapter is about the overview
of Eastern Bank Ltd, 4th chapter is focused on the difference of investment banking
of EXIM Bank and EBL. At the end chapter 5 is all about the findings and conclusion
of the report.

CHAPTER -01
Introduction
1.1
Background of the Report
Bank is very old institution that is contributing toward the Development of any
economy and is treated as an important Service industry in the modern world.
Economic history shows that development has started everywhere with the
banking system and its contribution towards financial development of a country
is the highest in the initial stage. Modern banks play an important part in
promoting economic development of a country. Bank provides necessary funds
for executing various programs in the process of economic development. They
collect savings from large masses of people scattered throughout the country,
which in the absence of banks would have remained ideal and unproductive.
These scattered amounts are collected, pooled together and made available to
commerce and industry for meeting the financial requirements. Todays modern

banks are not only providing traditional banking but also expanding the many
financial services. In todays world the life of the people directly or indirectly are
within the arena of banking whether conventional or Islamic banking. Although
Islamic banking is not a newer concept in Bangladesh as it has started its
operation since 1983, very few people are aware about its operation. But things
are changing. Islamic Banking is also getting popularity in the country which is
the main focal point to this report shown the differences between Islamic and
conventional banking. In this regard, Exim bank ltd as an Islamic bank is not
same as EBL as a traditional bank.
1.2

Origin of the Report

1.3
Statement of the Problem
In general sense we mean bank as a financial institution that deals with money.
On the basis of functions bank can be categorized like Central bank, Saving
bank, Invest bank, Merchant bank, Commercial bank, etc. but when we use the
term bank it generally means commercial bank that collects the deposits from
surplus unit of society and then lends the deposits to the deficit units of the
society.
For the economic development of a country bank plays a vital role, but
traditional commercial banking Systems are interest based and Islamic finance
and banking interest is prohibited. Islamic finance refers to financial system that
complied with the Shariah. In this regard to establish a banking system that run
according to Shariah, the concept of Islamic banking arises. Though the regular
banking system and the Islamic banking system operate in different mode of
investment, there is confusion that both systems have merely any fundamental
differences. This confusion arises a question that is there actually any difference
between Regular banking system and Islamic banking system. Thats why It is
the key area that how Islamic banking and general commercial banking is
different in respect to Investment or credit which has been shown on studying
Exim bank ltd and EBL.
1.4
Objective of the Study
Broad Objective
We were instructed from our finance course lecturer Nusrat Khan to submit a
report on a comparative study on Exim Bank Ltd & Eastern Bank Ltd focusing
conventional and non-conventional banking system.
Specific Objectives
The specific objectives of this study are as follows:
To have an overall idea about Islamic banking system that claims to be
based on the Quran and the Sunnah.
To know the principles of Islamic banking system and conventional
banking and how it is operated.

To find out the differences between the conventional /traditional banking

system & Islamic banking system by comparing Exim bank ltd with EBL.
Understanding the differences between Islamic banking system and other
commercial banking systems.
Understanding how an Islamic Bank runs its business without interest.
To know how an Islamic Bank earns its profits through investment.
To know the key functions of investment.
To apply theoretical knowledge into practical area.

1.5
Methodology
In this report we used secondary data those data that have already been
collected for the purposes other than problem at hand. In this report the external
data is used to collect the information about the financial growth of Exim Bank
Ltd and Eastern Bank Ltd. The external data have been collected from the
external source such as published materials, internet etc.
Annual Report, Audit Reports of Exim Bank Ltd and Eastern Bank Ltd.
Relevant books, Research papers, Newspapers and Journals.
Website of both the banks.
Bangladesh Bank Report.
Bangladesh Economic Review.
Unpublished data from the branch.
1.6
Limitation of the Study
It is not easy task to collect data and information about our requirement. So the
study suffers from various limitations, some of these are mentioned below:
In the study areas, the authorities are not willing to express accurate data
easily for the reason of their confidentiality.
Due to time limitation many of the aspects could not be discussed in the
present report.
Because of the limitation of information some assumption was made. So
there may be some personal mistakes in the report.
Almost all the personnel were apparently too busy to assist us with their
valuable support.
The study was limited only to the EXIM BANK Limited & EBL.

CHAPTER -02
Organization Part 1
Overview of EXIM Bank Ltd.
2.1 Historical Background of EXIM Bank Limited
EXIM Bank Limited was established under the rules & regulations of
Bangladesh bank & the Bank companies Act 1991, on the 3rd August 1999
with the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a
long dream of floating a commercial bank which would contribute to the

social-economic development of our country. He had a long experience as a

good banker. A group of highly qualified and successful entrepreneurs joined
their hands with the founder chairman to materialize his dream. Indeed, all of
them proved themselves in their respective business as most successful star
with their endeavor, intelligence, hard working and talent entrepreneurship.
Among them, Mr. Nazrul Islam Mazumder became the honorable chairman
after the demise of the honorable founder chairman.
Its very beginning, EXIM Bank Bangladesh limited was known as BEXIM Bank,
which EXIM for Bangladesh Export Import Bank Limited. But for some legal
constraints the bank renamed as EXIM Bank, which means Export Import
Bank Of Bangladesh Limited. The bank starts its functioning from 3rd August
1999 with Mr. Alamgir Kabir, FCA as the advisor and Mr. Mohammad
Lakiotullah as the Managing Director. Both of them have long experience in
the financial sector of our country. By their pragmatic decision and
management directives in the operational activities, this bank has earned a
secured and distinctive position in the banking industry in terms of
performance, growth, and excellent management. By their pragmatic
decision and management directives in the operational activities, this bank
has earned a secured and distinctive position in the banking industry in terms
of performance, growth, and excellent management. The authorized capital
and paid up capital of the bank are BDT 350.00 Crore and BDT 267.75 Crore
respectively.
Considering the inherent desire of the religious Muslims, EXIM Bank has all of
its conventional banking into Shariah based Islamic banking in July 2004 and
initially started Islami Banking practice and in two Branches in the same year.
The Islami Banking branches perform their activities under the guidance and
supervision of a body called SHARIAH COUNCIL
2.2 Vision & Mission
Vision
The gist of EXIM Bank Limiteds vision is Together towards Tomorrow. EXIM
Bank Limited believes in togetherness with its customer, in its march on the
road to growth and progress with services. To achieve the desired goal, there
will be pursuit of excellence at all stages with a climate of continuous
improvement, because, EXIM Bank Limited believes the line of excellence is
never ending. Banks strategic plans and networking will strengthen its
competitive edge over others in rapidly changing competitive environment.
Its personalized quality service to the customers with the trend of constant
improvement will be cornerstone to achieve our operational success.
Mission
The Bank has chalked out the following corporate objectives in order to
ensure smooth achievement of its goal:
To be the most caring, customer friendly and service oriented bank.

To create a technology based most efficient banking environment for

its customers.
To ensure ethics and transparency in all levels.
To ensure sustainable growth and establish full value of the
shareholders.
Above all, to add effective contribution to the national economy.

Eventually the Bank emphasizes on:

Providing high quality financial services in export and import trade

Providing efficient customer service
Maintaining corporate and business ethics
Making its products superior and rewarding to the customers
Display team spirit and professionalism
Enhancement of shareholders wealth

2.3Objectives of EXIM Bank Limited

To receive, borrow or raise money through deposits, loan or

otherwise and to give guarantees and indemnities in respect of all
debts and contracts.
To establish welfare oriented banking systems.
To play a vital role in human development and employment
generation to invest money in such manner as may vary from time
to time.
To carry on business of buying and selling currency, gold and other
valuable assets.
To extend counseling and advisory services to the
borrowers/entrepreneurs etc. in utilizing credit facilities of the bank.
To earn a normal profit for meeting the operational expenses,
building of reserve and expansion of activities to cover wider
geographical area.

2.4 Values of EXIM Bank Limited

To be one EXIM by holding and guiding the following values:
To have a strong customer focus and to build relationship based on
integrity, superior service and mutual benefit.
To strive for private and sound growth.
To work as a team to serve the best interests of the organization.
To work for continues business innovation and improvements.
To value and respect people and make decisions based on merit.
To provide recognition and reward on performance.
To value open and honest communication.

2.5 Shariah Auditing

This is the civil supervisory aspect that shapes the Banks main feature. Its
existence is part of the Shariah Supervision procedures. One of its main tasks
is to check the Shariah compliancy in the Banks transactional procedures in
accordance to the Fatwas issued in that regard, under the guidance of the
Shariah Supervisor. The Shariah auditor is assigned the task of revising the
Banks transactional procedures throughout the year to check the extent to
which the staff members and the different departments have abided by the
regulations. Advices and Fatwas issued by the Fatwa & Shariah Supervision
Board, forums, & banking conferences. As well as, assuring that all the
contracts that states a right for the Bank or an obligation on the Bank is
certified by the Fatwa & Shariah Supervision Board.
2.6 Banking with Principles
Export Import Bank of Bangladesh Limited is the 1st bank in Bangladesh who
has converted all of its operations of conventional banking into shariah-based
banking since July/2004. We offer banking services for Muslims and nonMuslims alike allowing our customers choice and flexibility in their savings
and investments. Our products are approved by our Shariah Board comprising
of veteran Muslim scholars of our country who are expert in all matters of
Islamic finance. The process by which Noribas investments are designed and
executed allows the Bank to offer a combination of Shariah compliance and
capital markets expertise that is unique throughout the world. Noriba is
committed to the strict adherence to the requirements of the Shariah as a
result of sole focus on Shariah-compliant investments and the full supervision
of its financial products and transactions by the Noriba Shariah Board. Noriba
experts specifically design each of the Banks investment vehicles with the
approval of the Noriba Shariah Board. Once the given product or transaction
has been arranged, the Noriba Shariah Board carefully screens it for
compliance before giving final approval for its implementation. This control
mechanism guarantees that all aspects of Noribas final products and banking
transactions are in adherence with the guidelines of the Shariah.
2.7 Performance of EXIM Bank
EXIM Bank Ltd. was incorporated as a public Limited company on the 2nd
June 1999 under Company Act 1994. The Bank started commercial banking
operations effective from 3rd August 1999. During this short span of time the
Bank has been successful to position itself as a progressive and dynamic
financial institution in the country. The Bank widely acclaimed by the business
community, from small business/entrepreneurs to large traders and industrial

conglomerates, including the top rated corporate borrowers from forwardlooking business outlook and innovative financing solutions.
Capital
The bank started with an authorized capital of Tk. 100 million in 1999 and as
on 31st December 2004 paid up capital stood at Tk. 627.75 million. The paid
up capital stood at Tk. 2677.75million as on 31st December 2008.
Analysis of Capital Structure
Capital structure of EXIM Bank has changed from year to year. The
components of the capital structure are paid-up capital; proposed issue of
dividend, share premium, statutory reserve, proposed cash dividend, retained
earnings and other reserve. Authorized and paid up capital of EXIM Bank:

Overall Performance of EXIM Bank Limited

Amount in million Taka

S
L

PARTICULARS

PAID UP CAPITAL

TOTAL CAPITAL

SURPLUS/SHORTAGE OF CAPITAL

TOTAL ASSETS

TOTAL DEPOSIT

INVESTMENT AS A % OF TOTAL
DEPOSIT

INVESTMENT (GENERAL)

8
9
1
0
1
1
1
2

TOTAL CONTINGENT LIABILITIES

AND COMMITMENTS
RETURN ON INVESTMENT AND
DEPOSIT
RETURN ON CLASSIFIED
INVESTMENT AND TOTAL
INVESTMENT
PROFIT AFTER TAX AND
PROVISION
COST OF FUND

2010
6832.2
7
13957.
4

2011

2012

2013
11566.
35
21198.
7
5258.5
6
195452
.52
165733
.25

113070
.98
94949.
4

129874.4
2
107881.2
1

10514.
86
18214.
31
1561.1
4
167056
.63
140369
.66

98.26%

92.42%

84.22%

86.79%

118219
.99
63950.
48

143847
.38
60119.
38

84.22%

86.79%

4.27%

3.67%

93296.
65
55098.
36

9223.56
16109.56

99699.63
54929.92

3476.0
1

2009.37

2157.6
3

1913.3
9

7.10%

9.15%

9.96%

10.21%

1
3
1
4
1
5
1
6
1
7
1
8
1
9
2
0

PROFIT EARNING ASSEST

NON PROFIT BEARRING ASSET

97901.
97
15169.
01

109707.5
20166.92

RETURN ON INVESTMENT (SHARE

& BONDS)
RETURN ON ASSETS (AFTER TAX)

3.54%

1.65%

INCOME ON INVESTMENT (SHARE

& BONDS)

131147
.17
35909.
46

159705
.77
35746.
74

1.94%

2.63%

1.45%

1.06%

183.79

312.38

EPS

3.77

2.18

2.05

1.65

RETURN ON ASSET AFTER TAX

3.54%

1.65%

1.45%

1.06%

P/E RATIO

11.34

12.76

10.14

7.8

Investments (General)
Total Investment (General) of the Bank stood at Tk.143,847.38 million as on
31 December 2013 against Tk.118,219.99 million as on 31 December 2012
registering a growth of 21.68%. As on 31 December 2013 Classified
Investment to total Investment ratio was 3.67% which was 4.27% as on 31
December 2012. Bank maintained required provision against Investment
(General) for the year 2013. Investment (General) has increased significantly
over the years due to the existence of innovative Investment products.

INVESTMENT (GENERAL)
160000
143847.38

140000
120000

118219.99

100000
80000
60000

93296.65

99699.63

68609.91

40000
20000
0 2009
1

2010
2

Mode-wise Investment

2011
3

2012
4

2013
5

Bank has launched a number of Shariah based Investment products under

different mode of Investment which help meeting demand of all types of
customer.

SL

PARTICULARS

2012

1
2
3

BAI-MUAZZAL
BAI-MURABAHA
BAI-SALAM
IZARA BILL BAIA
(COMMERCIAL)
IZARA BILL BAIA (STAFF)

45404.59
21436.73
3368.18

IN MILLION TAKA
GROWT
2013
H
56154.57 23.68%
22458.66
4.77%
4175.05
23.96%

43007.03

53085.45

23.43%

1066.05
369.75

1701.43
575.26

59.60%
55.58%

1948.42

2290.71

17.57%

4
5
6
7

BAI-AS-SARF (FDBP)
MUSHARAKA DOCUMENTARY BILL
(MDB)

MUDARABA IMPORT BILL (UPAS)

766.7

2079.89

MURABAHA IMPORT BILL (MIB)

469.48

1079.52

10

QUARD

383.05
118219.
99

246.84
143847.
38

TOTAL

171.28
%
129.94
%
-35.56%
21.68%

Operating Profit & Net Profit

The bank always strives to achieve meaningful financial performance since its
inception. Strong capital base, wide branch network, innovative products,
quality services, support from stakeholders are helping the bank to make
significant performance. During the year 2013, the bank earned an operating
profit of Tk.4,927.89 million despite some downturn in the economy. Net
profit after tax stood at Tk.1,913.39 million in 2013 after making provision for
investment, provision for other assets and provision for tax.

SL

PARTICULARS

2012

INVESTMENT INCOME

17307.83

PROFIT PAID ON DEPOSITS,

BORROWING ETC.

12271.79

NET INVESTMENT INCOME

COMMISSION, EXCHANGE &
BROKERAGE
OTHER OPERATING INCOME
TOTAL OPERATING INCOME
TOTAL OPERATING EXPENSES
PROFIT BEFORE PROVISIONS
TOTAL PROVISION
PROFIT BEFORE TAXES
PROVISION FOR TAXATION
PROFIR AFTER TAX
EARNINGS PER ORDINARY SHARE

5036.04

AMOUNT IN MILLION
GROWT
2013
H
20417.5
17.97%
15458.8
25.97%
8
4958.62
-1.54%

2023.68

2020.16

-0.17%

1025.98
8085.7
2751.35
5334.35
1645.9
3688.45
1530.82
2157.63
1.87

1177.05
8155.83
3227.94
4927.89
1680.57
3247.33
1333.94
1913.39
1.65

14.72%
0.87%
17.32%
-7.62%
2.11%
-11.96%
-12.86%
-11.32%

3
4
5
6
7
8
9
10
11
12
13

CHAPTER -03
Organization Part 2

Overview of Eastern Bank Ltd.

3.1 Historical Background of Eastern Bank Limited

In pursuance of the Bank of Credit and Commerce International (Overseas) Limited in

Bangladesh (Reconstruction) Scheme, 1992, framed by the Bangladesh Bank and approved by
the Government of Bangladesh, the Eastern Bank Limited was formed as a public limited
company incorporated in Bangladesh with primary objective to carry on all kinds of banking
business in and outside the country. Eastern Bank Limited had also taken over the business,
assets and liabilities of erstwhile Bank of Credit and Commerce International (Overseas) Limited
branches in Bangladesh with effect from 16th August, 1992.
3.2 Vision & Mission

To become the bank of choice by transforming the way we do business and developing a truly
unique financial institution that delivers superior growth and financial performance and be the
most recognizable brand in the financial services in Bangladesh.
EBL dreams to become the bank of choice of the general public including both the consumer and
the corporate clients. It has adopted a new logo that looks very dynamic in its attractive colors
that reflect all the changes that are taking place in EBL.

We will deliver service excellence to all our customers, both internal and external.
We will constantly challenge our systems, procedures and training to maintain a cohesive and
professional team in order to achieve service excellence. We will create an enabling environment
and embrace a team-based culture where people will excel. We will ensure to maximize
shareholders value.

3.3Objectives of Eastern Bank Limited

The EBL Management Team or Management Committee (ManCom) comprises of a group of fifteen
people and each of them comes with an international working background and are committed in
leveraging their experiences to take EBL to greater heights by ensuring top line revenues with dynamic
capabilities.
EBL ManCom is unique in being able to envision the need of the business by bringing in a mixture of
advanced technology solutions know-how and revamping the organizational make- up for maximum
profitability.
The objective of EBL ManCom is to drive the business to maximize the operational excellence and
efficiency through acquisition of talent, developing systems, processes and people and through blending
in of these to let customers revel in with fulfillment and permanency.

3.4 Values of Eastern Bank Limited

SERVICE EXCELLENCE

We passionately drive customer delight.

We use customer satisfaction to accelerate growth.
We believe in change to bring in timely solution.

OPENNESS

We share the business plan.

We encourage two way communications.
We recognize achievements, celebrate results.

TRUST

We care for each other.

We share learning/ knowledge.
We empower our people.

COMMITMENT

We know our roadmap.

We believe in 'continuous improvement'.
We do not wait to be told.

INTEGRITY

We say what we believe in.

We respect every relationship.
We do not abuse information power.

RESPONSIBLE CORPORATE
CITIZEN

We are tax-abiding citizen.

We promote protection of the environment for our
children.
We conform to all laws, rules, norms, sentiments and
values of the land.

3.5 Strategies of Eastern Bank Limited

Making business strategy flexible to keep us on track for a sustainable growth.

Ensuring responsible corporate governance through conformity with the law and by
conducting all our actions honestly, responsibly and ethically. Creating a corporate culture in
which performance is rewarded equitably and sustainably. Bringing the attitudes and goals of
our staff in line with the needs of our clients and the overall economy. Designing products
and services that must meet clients financial needs and objectives, beneficial for the
environment and also provide adequate financial return for the bank. Pursue balance sheet
growth through selective lending and by offering value proposition. Leveraging balance sheet
management through improved productivity, recovery and cost rationalization.

3.6 Performance of Eastern Bank Limited

Over the years, the Bank has shown its resilience facing odds and challenges under
volatile operating environment. The year 2014 was no exception. Some of the

major challenges that affected the financial industry were low credit appetite,
excess liquidity in the market and rising trend of NPL. In face of these challenges,
the bank deployed a strategic repositioning or realigning of business concentration,
took an approach of cost rationalization, and gave more emphasis on service
excellence (0-5 Days service delivery commitment) and product innovations
Operating Income (+7%)
The banks total operating income comprise of two major items: net interest
income (NII) and non-interest income (NoII). In 2014, NII accounted for 40%
while NoII accounted for 60% of total operating income (33% from investment
income, 26% from fees, commission and FX income and 1% from other operating
income). Investment income increased signifi cantly by 61% in 2014 to BDT 3,343
million (Investment income share in total operating income increased from 22% in
2013 to 33% in 2014) while our net interest income decreased by 18% in 2014 to
BDT
4,009 million (NII share in total operating income decreased from 52% in 2013 to
40% in 2014)
Net Interest Income (-18%)
Round the year 2014, bank experienced a mismatch between loan and deposit
growth, which affected our net interest income. In 2014, bank interest income
decreased by 11% while bank interest expense decreased by 8% for following
reasons:
Interest Income (-11%)
Banks interest income from loans, the principal component of interest income,
decreased by 11% or BDT 1,647 million mainly for following reasons:
Although loans and advances increased by 15% to BDT 118,291 million at
year-end 2014 from BDT 102,910 million at year-end 2013, there was an observed
stagnancy in credit growth during first half (H1) of 2014 and a positive turnaround
from the third quarter of 2014.
Weighted average return on loans and advances decreased to 12.43 percent in
December 2014 as compared to 14.57 percent in the previous year mainly due to
lower credit appetite and rise of NPL (interest income is transferred to suspense
account on classification).
Interest Expense (-8%)

Banks interest expense on deposits, the principal component of interest expenses,

decreased by 8% or BDT 765 million mainly for following reasons:
2014 experienced continued fall in interest rate and the bank cut deposit rates
by 0.50% to 2.50% on different buckets to reduce cost of deposit by 183 bps.
Weighted average cost of deposit as on December 2014 was 7.26 percent
compared to 8.84 percent in the previous year, mainly due to the banks utmost
efforts on booking savings deposit (43% growth in 2014) to get rid of high cost
deposit and decreased concentration of fixed deposit (4% growth in 2014). In
2014, due to excess liquidity in money market and lower spread, bank shifted
investible resources from money market placement to short term Govt. securities
(classified as HFT), which resulted the higher investment income but not
placement income (a component of NII) while borrowing expense was booked
under the head of interest expense. Beside these lower spreads in 2014 (5.17% in
2014 compared to 5.73% in 2013) also caused the negative growth of net interest
income in 2014 by 18% to BDT 4,009 million.

Investment income (+61%)

Bank investment income is usually generated from fixed income securities,
secondary market portfolio, and preference share and bond and also dividend
income from subsidiaries. Overall investment income increased significantly (61%
or BDT 1,272 million) with substantial contribution from fixed income securities
as loanable funds were parked in safer govt. treasury securities due to lack of
adequate credit demand in the market. Average daily money market turnover stood
at BDT 21,760 million in 2014 compared to BDT 23,007 million in 2013 showing
negative growth of 5.42% by keeping average daily spread of 4.17%. This negative
growth in money market turnover resulted from shifting of huge fund to
government securities with the objective to optimize return. Although EBL is not a
Primary Dealer (PD), EBL is very active in the secondary Govt. Securities trading
in both buy side and sell side and this trading activity generated a substantial
amount of revenue for the bank. Total secondary market trading
turnover was BDT 18,300 million, yielding net capital gain of BDT 341.53 million.
Investment income from quoted securities (in the form of dividend and capital

gain) increased by 4% to BDT 95 million in 2014, compared to 2013. Bank

received BDT 65 million as dividend income from the subsidiaries in the year
2014, which was BDT 39 million in 2013.

Loans and Advances (+15%)

In 2014, total loan and advances registered a growth of 15% and stood at BDT
118,291 million at year- end. With a share of around 74% in corporate lending,
EBLs credit exposure is well diversified and spread over more than 15 sectors
such as textile and RMG, agriculture, pharmaceuticals, telecom, ship-breaking,
transportation, electronic goods and service industries, etc. Retail and SME
together constitute the rest 26% of the loan portfolio. During the year 2014, our
working capital loan like demand loan and other short term loan increased in
commensurate with the nature of sources of funds. Classifi ed loans as a
percentage of total loan portfolio increased to 4.36 % at the end of 2014 compared
to 3.59% at the end of 2013. However, full provision was made against classified
loans. Despite adverse business conditions, serious efforts were being made to
bring down the amount and percentage of classified loans by exploring all options
including legal actions and out of court settlements depending on the merit of the
cases.

CHAPTER -04
Investment Division of EXIM bank Vs. Loan & Advance of
EBL
4.1 Investment Division of EXIM Bank Ltd.
For any bank, loans and advances constitute the largest portion of asset
section in Balance Sheet. Investment division of financial institutions plays a
vital role in developing the national economy. Without such support
development for a country like Bangladesh were difficult to imagine. The
main objective of EXIM Bank Limited is to boost up the economy by proving
adequate support to the market through its investment division.
Investment Products
Corporate Finance
Commercial Finance
Industrial Finance
Project Finance
Lease Finance
Syndicate Finance
Hire Purchase Finance
Real Estate Finance
Loan and Investment Policy Of EXIM Bank
In a bank all loans are its investment but all investments are not loans. Banks
make both loans and investment for different purposes. The dual purposes of
loans and investments are liquidity and profitability. More loans mean more
risks and more profit while more investments mean more liquidity but less
profit. Investments are made in more liquid and less profitable instruments
while loans are made at higher profit on less convertible security. Investments
are generally made in government instruments with strong liquidity. More
investments in highly secured and liquid instruments would ensure safety
with less profit while more loans could make a bank vulnerable but very
profitable. Thus a balance between liquidity (investment) and profitability
(loans) needs to be arrived at judiciously by each and every bank.
General Policy Guidelines
EXIMBank makes loan to reputed clients.
Encourages lending to socially desirable, nationally important and
financially visible sector.
Satisfactory security and collateral is required including source of
repayment both primary and secondary source.

EXIMBank may consider term loans with maturity up to five years.

EXIMBank extends credit facilities to the area, which the branch
located and size and ability of its staff to supervise and monitor the
same also considered.
Maximum size of the loan portfolio.
The Banking Corporation Act 1991 restricts lending to any single
obligor or a group of companies up to 155 of the capital funds without
having approval from Bangladesh Bank. With the Bangladesh Bank the
maximum limit can go up to 100% of the capital of the bank.

Types of Loans and Advances

There are two types which are given below1. Industrial credit: Industrial credits are given for industrial purpose.
The sector where some processes are involved is called industry,
such as shape of material. Industry can be two types
a) Manufacturing industry- cement, steel factory etc.
b) Service industry- hotel, transport etc.
Industrial credit is given for two purposes:
Term loan- fixed assets financing.
Working capital- current assets financing.
2. Commercial Credit: Commercial credits are given for trading
purpose where no process is involved. EXIM lends support towards
development of trade, business and other commercial activities in
the country.
Forms of Loans and Advances
The making of loans and advances has always been prominent and
profitable function of a bank. Sanctioning credit to customers and others
out of the funds at its disposal is one of the principle services of a modern
bank. Advances by EXIM Bank are made in different forms Such as:

Overdraft
Cash Credit
Term Loan
Staff Loan
Bills Portfolio
Packing Credit
Bank Guarantee
Commercial Loan

Commercial Loan

PAD(Payment Against Documents)

LIM(Loan against Imported Merchandise)
LTR(Loan against Trust Receipts)
Types of Borrower

Single/individual
Joint holder
Proprietorship firm
Partnership firm
Private Limited Company

Mode of Investment
1. Mudaraba
It is a form of partnership of profit where one party provides funds
while the other provides expertise and management. The first party is
called the Sahib-al-Maal and the latter is referred as the Mudarib. Any
profits acquired are shared between two parties on a pre-agreed basis,
while capital is due to the breach of trust by the mudarib
2. Bai-Muazzal
Bai-Muazzal may be defined as a contract between a buyer and a
seller under which the seller sells certain specific goods permissible
under Islamic Shariah and the law of the country to the buyer of an
agreed fixed price payable at a certain fixed future date in lump sum
or within a fixed period by fixed installments. The seller may also sells
goods purchased by him as per order and specification of the buyer.
3. Bai-Murabaha
Bai-Murabaha may be defined as a contract between a buyer and a
seller under which the seller sells certain specific goods (permissible
under Islamic Shariah and the law of the land) to the buyer at a cost
plus agreed profit payable in cash or any fixed future date in lump sum
or by installments. The profit marked up may be fixed future lump sum
or in percentage of the cost price of the goods.
4. Musharaka
Musharaka is a contract of partnership between two or more
individuals or bodies in which all partners contribute capital,
participate in the management, share the profit in proportion to their
capital as per pre-agreed ratio and bear the loss, if any in proportion
to their capital/equity ratio.
5. Izara Bill Baia
Izara bill baia is a special type of contract which has been developed

through practice. Actually, it is a synthesis of three contracts Shirkat,

Izara and Sale. When two or more persons supply equity, purchase an
asset own the same jointly and share the benefit as per agreement
and bear the loss in proportion to their respective equity, the contract
is called Izara Bill Baia Contract.
6. Wazirat Bill Wakala
Wazirat Bill Wakala may be defined as a contract between a buyer and
a seller under which the seller sells in advance in the certain
commodities sells products permissible under Islamic Shariah and the
law of the land to the buyer at an agreed price payable an execution
of the said, contract and the commodities/products are delivered as
per specification, size, quality, quantity at a future time in a particular
price. In other word Wazirat Bill Wakala is a sale where by seller
undertake to supply some specific commodities or products to the
buyer at a future time in exchange of an advance price fully paid on
the spot.
7. IBP
Payment made through purchase of inland bills/cheques to meet
urgent requirement of the customers falls under this type of
investment is adjustable from the proceeds of bills/cheques purchased
for collection. It falls under the category Commercial Lending.
8. FDBP (Foreign Documentary Bill Purchased)
Payment made to customers through purchase/negotiation of foreign
documentary bills falls under this head. This temporary investment is
adjustable from the proceeds of the shipping/export documents. It falls
under the category Investment on Export
9. LDBP (Local Documentary Bill Purchased)
Payment made against documents representing sell of goods to local
export oriented industries that are deemed as export and which are
denominated in Local Currency/Foreign currency falls under this head.
This temporary liability is adjustable from proceeds of the bill. Lending
Risk Analysis (LRA) the principal function of the Bank is to lend.
Lending comprises a very large position of Banks total assets and
forms the backbone of the Bank. Sound lending is very important for
profitability and success of a bank. For the sake of sound lending it is
necessary to develop a sound policy and modern lending techniques
have to be adopted to ensure that loans are safe and the money will
come back within the time set for repayment.
Documents Required For Procuring Loan Proposal

The client should supply the following documents:

TIN certificate of the client.

Bank statement for last two years.
Up to date trade license.
Present liability position of the company and owners.
Name and address of the Sister concern
Export and import performance.
Personal information in a prescribed form.
Balance sheet for the last three years.
Memorandum and Articles of the Association signed by the Managing
director.
Profile of directors and partners.

Loan Disbursement
Loan is allowed for a single purpose where the entire amount may be
required at a time or in a number of installments within a period of short
span. After disbursement of the loan amount, there will be only repayment by
the borrower. A loan once repaid in full or in part, cannot be drawn again by
the borrower. Entire amount of loan debited to the loan account in the name
of the customer and is paid to him through his STD/CD Account. Sometimes
loan amount is disbursed in cash.

4.2 Investment Division of EBL

EBLs capital market operations are conducted by Investment Banking Unit. IBU capitalizes the
huge growth potential therein and diversifies the business to maximize the risk adjusted return.
This unit makes investment in the capital markets and contributes towards fee-based income and
capital gains by taking acceptable level of risk.
EBL Investment Banking Unit, within a very short span of time, has been active in doing the
followings:

Managing own portfolio

Participation in Pre-IPO Placements
Participation in Book-Building Process
Sponsoring Mutual Funds
Trustee Services
Acting as Main Banker for IPO
Acting as Banker to the Issue
Participation in IPO Underwriting
Investment and Loan policy of Eastern Bank

EBL revised structure and strategies to meet the challenges of rapidly evolving technology based
banking services, growing competition in the financial service industry, changes in customers
need. These changes are designed to promote growth, enhance customer services, enrich asset
quality, arrange low cost funds and maximize banks earnings.
EBL made concrete plans to restructure the entire gamut of Eastern Bank Ltds banking
standards and its transaction viz corporate, consumer, treasury, trade services etc. This enables
the bank to operate with greater efficiency in all respects thus resulting the better revenue
generation compared to past years.
In 2002 EBL made significant progress in upgrading our asset portfolio by booking high quality
accounts (blue chip local corporate and multinational). The effort was ongoing EBL also
introducing new monitoring standards, credit approval guidance and initiated the process to
establish a separate credit administration unit to ensure greater control. This brought better
management of asset relationships.
The loans and advance of the bank stood at tk 11,861 million indicating an increase of 3.65% as
against tk 11,288 million of preceding year.
The loan facilities that offered by EBL are:

Cash credit (hypo)

Cash credit scheme
Lease financing
Hire purchase
Staff loan
Fast loan
Auto car loan
Loans for professional
Flexi loan
Executive loan
Loan against trust receipt (LTR)
Sight of letter of credit
Demand loan
Time loan
Term loan etc.

Types of loan made by banks:

Bank loans may be divided into seven broad categories of loans, delineated by their purposes:

1.

2.
3.
4.
5.

6.
7.

Real Estate loan: REL, which are secured by real property-land, buildings and other structures
and which includes short term loans for construction and land development and longer term loans
to finance the purpose of farmland, homes, apartments, commercial structure and foreign
properties.
Financial institution loans: FIL includes credit to bank, insurance companies, finance
companies and other financial institution..
Agricultural loans: AL extended to farm and ranch operation to assist in planting and
harvesting crops and to support the feeding and care of livestock.
Commercial and industrial loans: C & IL granted to business to cover such expenses as
purchasing inventories, paying taxes and meeting payrolls.
Loans to individuals: Loans to individuals, including credit to finance the purchase of
automobiles, mobile homes, appliances and other retail to repair and modernize homes, cover the
cost the medical care and other personal expenses, either extended directly to individuals or
indirectly through retail dealers.
Miscellaneous loans: ML, which includes all those loans not classified here, including
securities loan.
Lease financing receivables, where the bank buys equipment of vehicles and lease them to
its customers.

LOAN FACILITY PARAMETERS

Facility parameters (e.g., maximum size, maximum tenor, and covenant and security
requirements) are clearly stated. As a minimum, the following parameter (mentioned in the
guideline) is adopted:
Bank does not grant facilities where the banks security position is inferior to that of any
other financial institution.
Assets pledged as security is always properly insured. In fact, EBL ensures 110%insurance
on the hypothecated security for a particular facility. The bank also has its own list of
insurance companies from which the client can take insurance.
Valuations of property taken as security is performed prior to loans being granted. Also
recognized 3rd party professional valuation firm is appointed to conduct the valuations.

CREDIT ASSESSMENT

A thorough credit and risk assessment is conducted prior to the granting of loans, and at least
annually thereafter for all facilities. The results of this assessment are presented in a Credit
Application that originates from the relationship manager/account officer (RM), and is approved
by Credit Risk Management (CRM). The RM is the owner of the customer relationship, and is
held responsible to ensure the accuracy of the entire credit application submitted for approval.
RMs are familiar with the banks Lending Guidelines and should conduct due diligence on new
borrowers, principals, and guarantors.It is essential that RMs know their customers and conduct
due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who
they represent themselves to be. The bank has its established Know Your Customer (KYC) and
Money Laundering guidelines which are adhered to at all times.
Credit Applications summarize the results of the RMs risk assessment and include, as a
minimum, the following details:
Amount and type of loan(s) proposed.
Purpose of loans.
Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
Security Arrangements
In addition, the following risk areas are also addressed:
Borrower Analysis
The majority shareholders, management team and group or affiliate companies is assessed. Any
issues regarding lack of management depth, complicated ownership structures or inter-group
transactions are addressed, and risks mitigated.
Industry Analysis
The key risk factors of the borrowers industry are assessed by the RM. Any issues regarding the
borrowers position in the industry, overall industry concerns or competitive forces is addressed
and the strengths and weaknesses of the borrower relative to its competition should be identified.
Supplier/Buyer Analysis
Any customer or supplier concentration is reported in the credit application, as these could have
a significant impact on the future viability of the borrower.
Historical Financial Analysis
An analysis of a minimum of 3 years historical financial statements of the borrower is presented

in banks specified format. The analysis should address the quality and sustainability of earnings,
cash flow and the strength of the borrowers balance sheet. Specifically, cash flow, leverage and
profitability must be analyzed.
Adherence to Lending Guidelines
Credit Applications should clearly state whether or not the proposed application is in compliance
with the banks Lending Guidelines.
Mitigating Factors
Mitigating factors for risks identified in the credit assessment is identified and reported in the
application.
Loan Structure
The RM makes sure that the amounts and tenors of proposed financing are justified based on the
projected repayment ability and loan purpose. Excessive tenor or amount relative to business
needs increases the risk of fund diversion and may adversely impact the borrowers repayment
ability.
Security
A current valuation of collateral is obtained and the quality and priority of security being proposed
is assessed. Loans are not granted based solely on security. Adequacy and the extent of the
insurance coverage are also taken into consideration.
Name Lending
In this case bank also follows the prudential guidelines which says Credit proposals should not
be unduly influenced by an over reliance on the sponsoring principals reputation, reported
independent means, or their perceived willingness to inject funds into various business
enterprises in case of need. These situations should be discouraged and treated with great
caution. Rather, credit proposals and the granting of loans should be based on sound
fundamentals, supported by a thorough financial and risk analysis.

APPROVAL PROCESS
The approval process segregates the work of Relationship Management/Marketing from the
approving authority. The responsibility for preparing the Credit Application rests with the RM
within the corporate/SME banking department. Credit Applications are recommended for approval

by the RM team and forwarded to the approval team within CRM and approved by individual
executives.
The recommending or approving executives take responsibility for and are held accountable for
their recommendations or approval.

CHAPTER -05
Findings & Conclusion
7.1 Findings
Since this report focuses on the differences between Islamic banking and
conventional banking studying two different banks (EXIM bank ltd as an
Islamic Bank and EBL as conventional bank) It finds out numerous differences
in various areas. These are;
Differences of philosophy & principles
Terminology: Exim bank Ltd vs. EBL
Loan and credit department in Exim bank Ltd is termed as investment
division whereas is loan and advance in EBL. The following table shows
same division used in different terminologies:
Modes of Investment in EXIM Bank
Limited
Mudaraba
Bai-Muazzal
Bai-Murabaha
Musharaka
Izara Bill Baia
Wazirat Bill Wakala
FDBP (Foreign Documentary Bill
Purchased) LDBP (Local Documentary Bill
Purchased)
BAIM (hypo) Vs. Cash credit
Overdraft: Exim Bank Ltd Vs. EBL

Modes of Loan & Advance in Eastern

Bank Limited

BAIM (FO) Vs.Loan against DPS/APS

Izara/Izara Bill Baia Vs.Term loan

Conclusion
Reference