Chapter 1

Introduction

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1.1 Introduction
A bank is a financial institution and a financial intermediary that accepts deposits and channels
those deposits into lending activities, either directly or through capital markets. A bank connects
customers with capital deficits to customers with capital surpluses. Commercial bank offers a
broad range of deposit accounts, including checking, savings and time deposits and extends loans
to individuals and business. Banks are just one part of the world of financial institutions,
standing alongside investment banks, insurance companies, finance companies, investment
managers and other companies that profit from the creation and flow of money. As financial
intermediaries, banks stand between depositors who supply capital and borrowers who demand
capital.
A commercial bank is a retail financial institution that helps community members open current,
fixed, monthly and savings accounts and manage money market accounts. It also provides
customers with deposit, withdrawal and transfer services. Bank customers can also carry out
retail banking business through an automatic teller machine (ATM) or online.
Beyond the everyday services, commercial banks also offer customers loans for various
purposes. And the banks help business owners manage their accounts, including checking,
savings and loans. The sources of funds in commercial banks are varied.
Southeast Bank Ltd.s main sources of financing are basically the deposits, Shareholders capital,
retained earnings, reserve funds and central bank financing.

1.2 Objectives
1.2.1 General Objectives:
.
The objective of the report is to bring into the light of Southeast Bank Ltd.s different sources of
funds through which it continues its operation and activities. It covers the Organizational
Overview Southeast bank ltd, source of financing and analysis of cost in source funds. It also
covers Southeast bank's Products and Services provided by Southeast Bank Ltd.
The report also aims at acquiring firsthand knowledge about to know about the banking sector of
Bangladesh as well to suggest ways and means to improve the sources of funds.
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1.2.2 Specific objectives:

Specific objectives of the report are:

To know the banking products for the customers of FSIBL.

To highlight how it is financing itself means Sources of Financing.

To review the sources of financing.

To identify any problems on the operation of banking products of FSIBL.

To make recommendation for FSIBL and conventional banking.

1.3 Scope of the Study

This report will be dealing with the overview of Southeast Bank Ltd. & mainly deals with How
Southeast Bank Ltd. is financing itself. The topic is fixed. But in this report I have tried to cover
overview of Southeast Bank Ltd., objectives, functions, and other things. This report has also
mentioned some factors of determining cost of sourcing and cost in sources of funds of this bank.
The empirical part includes only the published information and current practices of the Southeast
Bank Ltd. included.

1.4 Methodology
Methods followed to perform a job or conducting activities to complete a task is called
Methodology. Both qualitative and quantitative methods were applied for preparing this report.
The data were analyzed and presented by Microsoft excel and shows percentage, graphical
presentation and different types of charts.
Sources of data:
a) Primary data: Collecting data directly from the practical field is called primary sources
of data. Face to face conversation with the respective officers and staffs of the branch
helped me to collect information. Practical work experience also very helpful.
b) Secondary data: The secondary data were collected to clarify different conceptual
matters from internet and annual report used. Different internal and external sources are
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to collect information. Internal sources such as banks annual report, group business
principal manual, credit risk grading manual and business instruction manual prior
research report. Besides different books and periodicals related to banking sector,
Bangladesh bank report, website, newspapers are used as external sources to collect
information.

1.5 Limitations of the Report

In spite of best efforts there were limitations that acted as barriers to conduct the study. On the
way of my study, I have faced the different problems which may be termed as the
Limitation/short coming of the study. The main constraints of the study are insufficiency of
information, which was required for the study. There are various information the bank officials
cannot provide due to security and other corporate obligations. Besides all the information about
different internal sources of funds are not available.
I have limited access to data collection from its data base. Due to the limitations of time and to
protect the organizational confidentiality many aspects of the report are not in depth. Being
public limited company, the private commercial banks like Southeast Bank Limited keep some
information restricted like the actual amount of classified loans. Financial Statements only
portray the figures/numbers and their break down but do not clarify the justification in most of
the time. All customers are not proactive or knowledgeable to share information.

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Chapter 2
Organizations Overview

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2.1 Bank Profile

Southeast Bank Limited, A Bank with Vision, emerged in the Commercial Banking Industry of
Bangladesh in 1995. It was incorporated on March 12, 1995 as a public limited organization
according to the Companies Act 1994. The commencement of its banking operations occurred on
May 25, 1995 by the Principal Branch located at 1, Dilkusha Commercial Area, Dhaka.
From May 25, 1995 due to its efficient client service and schemes the bank has been deeply
appreciated by the business consumers ranging from small investors to the giant entrepreneurs
and industrial conglomerates. In addition to that, its policy inspires and allows the top-rated
corporate customers for having progressive and innovative business perspectives by providing
credit facilities. Thus within this 17 years of its operation it achieved a remarkable success
maintaining capital adequacy requirement of Bangladesh Bank. Gradually it has been able to
create an image and earn significant reputation in the country's banking sector as a Bank with
Vision.
Through different activities Bank intends to raise income per share for the shareholders.
Southeast Bank Limited assures customer satisfaction through services and has developed a
relationship of reliability with customers, which has stood the test of time for the last seventeen
years.

2.2 Vision of Southeast Bank Limited

The development of a company lies on its mission, which is directly reflected through its vision
and the vision statement should be established first and foremost. Southeast Bank has
substantiated their vision statement through the success of their long-term goals. Its managers
and executives agree and work as one to make the bank as a pioneer banking institution in
Bangladesh.
Mission of Southeast Bank Limited:
A business mission incorporates priorities, policies, and performance plans. Southeast Bank is
extremely concerned about their mission because divergent views among managers can only be
revealed and resolved through the mission statement.
The mission of the bank is stated below:

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High quality financial services with the help of latest technology.

Fast and accurate customer service.

Balanced growth strategy.

High standard business ethics.

Steady return on shareholders' equity.

Innovative banking at a competitive price.

Commitment to the society and the growth of national economy.

Attract and retain quality human resource.

Commitment to Corporate Social Responsibility

2.3 Core Strengths

Core Strength is basically the power that takes a bank to the zenith of eminence. Southeast bank
has achieved this success through the following strengths:
Transparent and Quick Decision Making

Satisfied Customers

Skilled Risk Management

Efficient Team of Performers

Internal Control and Compliance

Diversification

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Chapter 3
Sources of Bank Funds

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3.1 Sources of Bank's Funds

A bank is a business firm. Its main aim is to earn profit. In order to achieve this objective it
provides services to the customers. It offers a variety of interest bearing obligations to the public.
These obligations are the sources of funds for the bank and are shown on the liability side of the
balance sheet of a commercial bank. The main sources which supply funds to Southeast bank ltd.
are as follows:
i.
ii.

Banks own funds

Borrowed funds

Sources of Funds

Banks Own
Funds

Borrowed
Funds

Figure: Category of sources of fund

Lets have some theoretical knowledge about these sources:

3.1.1 Banks own funds

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Banks own funds are mainly of three types:

(a) Paid up capital.
(b) Reserve fund.
(C) Portion of undistributed profit.

Paid up capital:
It means banks own paid up capital. The amount with which a banking company is
registered is called nominal or authorized capital. It is the maximum amount of capital which
is mentioned in the capital clause of the memorandum of association of the company.
Capital is further divided into(i)
(ii)

Paid up capital and

Subscribed capital.

Reserve fund:
Reserve is another source of fund which is maintained by all commercial banks. At the time
of declaring dividend, a certain portion of the profit is transferred to the reserve fund. This
reserve belongs to the .shareholders and at the time of liquidation, the Shareholders are
entitled to these reserves along with the capital. The main purpose of setting aside part of
profit is to meet unforeseen expenses of the bank. The Banking Companies Ordinance has
made it obligatory (binding) for every banking company incorporated in Pakistan to create a
reserve fund.

Profit:
Profit is another source to a bank for the purpose of business. Profits signify the credit
balance of the profit and loss account which has not been distributed. The accumulated
profits over the years increase the working capital of the bank and strengthens its financial
position.

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3.1.2 Borrowed Funds

The borrowed capital is a major and an important source of fund for any banking business. It
mainly comes from deposits which are accepted on varying terms in different accounts. Banks
borrowing is mostly in the form of deposits. The larger the deposits of bank, the larger will be its
(use) fund for employment and so higher are its profit.

Borrowing from central bank

The commercial banks in times of emergency borrow loans from the central bank of the
country. The central bank extends help as and when financial help is required by the
commercial banks. It may grant accommodation to scheduled banks by way ofi) Rediscounting or purchase of eligible bills; and
ii) Loans and advances against certain securities

Borrowing from interbank

The interbank lending market is a market in which banks extend loans to one another for a
specified. Such loans are made at the interbank rate (also called the overnight rate if the term
of the loan is overnight).These arei.
ii.
iii.

Interbank deposit sources

Interbank call money
Repurchase agreement

Borrowing from international financial institution:

These are provide by the international institution like, International Monetary Fund (IMF),
World Bank and its affiliated bodies, ADB, IDB and other foreign agencies/development
partners.

Deposits
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Public deposits are a powerful source of funds to a bank. There are three types of bank
deposits (i) current deposits (ii) saving deposits and (iii) time deposits. Due to the spread of
literacy, banking habits and growth in the volume of business operations, there is a marked
increase in deposit money with banks.
i.

Current Deposit:
In deposit terminology, the term Current Deposit refers to a deposit to a bank account or
financial institution without a specified maturity date. These types of Current Deposit
account generally only earn demand deposit interest. Interest is very low for current
account.

ii.

Saving deposits:
A deposit account held at a bank or other financial institution that provides principal
security and a modest interest rate. Depending on the specific type of savings account, the
account holder may not be able to write checks from the account (without incurring extra
fees or expenses) and the account is likely to have a limited number of free
transfers/transactions. Savings account funds are considered one of the most liquid
investments outside of demand accounts and cash. In contrast to savings accounts,
checking accounts allow you to write checks and use electronic debit to access your funds
inside the account. Savings accounts are generally for money that you don't intend to use
for daily expenses
iii. Time Deposit:
A time deposit also known as a term deposit, is a money deposit at a
banking institution that cannot be withdrawn for a certain "term" or period of
time (unless a penalty is paid). When the term is over it can be withdrawn or
it can be held for another term. Generally speaking, the longer the term the
better the yield on the money. A certificate of deposit is a time-deposit
product

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 Other sources
Bank also raise funds by issuing bonds, debentures, cash certificates etc. etc. Though it is not
common but is a dependable source of borrowing.
i.

Bonds
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt
and, depending on the terms of the bond, is obliged to pay interest (the coupon) to use
and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to
repay borrowed money with interest at fixed intervals

ii.

Debenture
A type of debt instrument that is not secured by physical asset or collateral. Debentures are
backed only by the general creditworthiness and reputation of the issuer. Both corporations
and governments frequently issue this type of bond in order to secure capital. Like other
types of bonds, debentures are documented in an indenture.

iii.

Cash certificates
Cash certificates and recurring deposits are similar types of banking investments. The terms
are used most often in relation to the services that Indian banks provide their customers.
These deposits are not directly related to stock market or bond speculation, but instead give
investors a way to earn interest on money in a safer setting.

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 Graphical shows of different funds of Southeast bank ltd from

Year 2010-2014:
(Figures in million Tk)
Particulars

Paid up capital

2014

2013

2012

2011

2010

9,169.50

8,732.86

8,732.86

8,317.01

6,930.84

18,292.59

13,074.71

10,864.68

10,683.05

10,265.96

189,472.54

177,519.4
6

152,901.2
4

127,178.2
2

107,253.1
9

Operating Profit

8,289.76

6,700.20

5,495.19

6,085.67

6,769.26

Net Profit after tax

3,836.94

3,378.82

1,648.72

1,912.19

2,763.93

Reserve Fund
Deposit

In this graph, the different types of sources of funds of Southeast bank ltd. has been shown. All
types of funds showing an increasing patterns. These are the main fund generally banks uses as
their primary sources of funds.

Figures in million Tk
200,000.00
180,000.00
160,000.00
140,000.00
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
0.00

2014

2013

2012

2011

2010

Graph: Year wise different types of sources funds of Southeast Bank Ltd.
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 Graphical shows of different types of liquid assets held by

Southeast bank ltd.:

Every bank must maintain the liquidity ratio prescribed by the Bangladesh Bank. This funds very
important for a bank as these are uses as the sources of liquid assets. The liquid assets of
Southeast bank ltd. to meet the customer demand are given belowParticulars
Cash in hand
Money at call and short notice

Amount (in million Tk)

1598.091
548.3

Balance with Bangladesh Bank

13859.38

Balance with other banks

5766.256

Treasury Bills

3637.815

Price bonds

7.8788

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Amount (in million Tk)

13859.38

14000
12000
10000
8000
6000
4000
2000
0

5766.26
1598.09

3637.82

548.3

7.88

Graph: Different types of liquid funds of Southeast Bank Ltd.

3.2 Factors determine the cost of sourcing of bank funds

1. Cost of funds:
Cost of funds are the expenses incurred on obtaining funds from
various sources in the form of share capital, reserves, deposits, and
borrowings. Thus, it generally refers to interest expenses .Lower the
cost of funds, higher the profitability.

2. Cost Interest Rate Risk:

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The risk of loss due to a change in interest rates. Interest rate

risk is important to transactions like interest rate swaps. In such
a transaction, the party receiving the floating rate will receive a
smaller amount should the floating rate decrease. Interest rate
risk is also important to bonds; if interest rates rise, the prices of
bonds fall. This affects the secondary market for bonds; for
example, if one purchases a bond with a 3% interest rate and
the prevailing rate rises to 5%, it becomes difficult or
impossible to resell the bond at a profit. Finally, interest rate
risk is important also a factor which influenced the cost of
sourcing of bank funds.
3. Yield on funds:
The funds raised by the bank through various sources are deployed in various assets. These
assets yield income in the form of interest. So, higher the interest, greater the profitability and if
yield of fund is good then cost of fund will low.

4. Spread:
Spread is defined as the difference between the interest received (interest income) and the
interest paid (interest expense) in funding. Higher spread indicates more efficient financial
intermediation and higher net income so if the interest income is more than cost of capital will
low and banks always sources fund for gaining certain profit. Thus, higher
spread leads to higher profitability and decrease the cost of funding.

5. Level of technology:
Use of upgraded technology normally leads to decline in the operating costs of banks and it also
affects the cost of funding. This improves the profitability of banks.
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6. Nature of Deposits:
Deposits trade with the banks are of various types like time deposits, demand deposits, short
term deposits, etc. larger demand deposits /short term deposits also influenced the cost of
funding.
Cost of funding is always been calculated by banks by keeping all above elements in mind
because all these elements affects the cost of funding by bank directly or indirectly.

3.3 Analysis of cost in source of bank funds

Cost arises in each and every source of banks funding but in some it is high and some it is less
as per our analysis CRR and SLR also influenced on the cost of bank funding if they borrow
money from the central bank then they have to repos on borrowing and cost of funding is high
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the minimum cost of funding is very low if bank uses their owns fund (Paid up capital, Reserve
fund, Portion of undistributed profit) but it is not possible for the bank to use always their owns
fund they have to borrow fund from the external parties So as per our analysis Public deposits
are a powerful source of funds to a bank where cost of funding is nominal .
Sources of Banks fund where Cost is minimum
The primary source of funding of banks accepting deposits by the publics is the best source of
funding and it also have very low cost in comparison to all other sources so:

Current Deposit
Saving deposits
Time Deposit

To justify that let we analyzed some of the key factors through which it is cleared that
accepting public deposits having a minimum cost in source of banks funding

Expenses incurred on obtaining funds from accepting a deposits, generally low. Lower
the cost of funds, higher the profitability.
The funds raised by the bank through deposits are deployed in various assets. These
assets yield income in the form of interest. So, higher the interest, greater the profitability
and then cost of fund will low.

Bank allows very low rate of interest on deposits and charged high rate of interest on
lending so spread is also higher. Higher spread indicates more efficient financial
intermediation and higher net income so if the interest income is more than cost of capital
will low and banks always sources fund for gaining certain profit. It results in decreasing
the cost of funding.

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 Deposits trade with the banks are of various types like time deposits, demand deposits,
short term deposits, etc. larger demand deposits /short term deposits also influenced
the cost of funding. Means as per the types of deposit cost may be differ.
Interest rate risk is important at the time of sourcing of bank funding. The risk of loss due
to a change in interest rates. Interest rate risk is important to transactions like interest rate
swaps. In such a transaction, the party receiving the floating rate will receive a smaller
amount should the floating rate decrease. So risk involvement cost is also a major
concern of thinking for banks at the time of funding.

If we analyze others sources of funding then they are more risk full and risk involvement is also
high and bank have to pay high rate of interest for funding so as per our analysis the primary
source of funding accepting public deposits is the good source of banks funding and it also
involved very less operating and risk involvement cost.

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Conclusion
Banking systems have been with us for as long as people have been using money. Banks and
other financial institutions provide security for individuals, businesses and governments, alike.
In general, what banks do is pretty easy to figure out. For the average person banks accept
deposits, make loans, provide a safe place for money and valuables, and act as payment agents
between merchants and banks.
Banks are quite important to the economy and are involved in such economic activities as issuing
money, settling payments, credit intermediation, maturity transformation and money creation in
the form of fractional reserve banking.
To make money, banks use deposits and whole sale deposits, share equity and fees and interest
from debt, loans and consumer lending, such as credit cards and bank fees.
In addition to fees and loans, banks are also involved in various other types of lending and
operations including, buy/hold securities, non-interest income, insurance and leasing and
payment treasury services.

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