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Chapter- 01

Introduction

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1.1. Origin of the Report
This report is prepared as an assignment for our Working Capital Management (F-405) course.
While preparing the report, we gave our best effort to incorporate the theoretical aspect of the
subject while emphasizing on the practical implementation of them.

1.2. Objective of the report

The Objectives of our report are-

To fulfill the partial requirement of our course of Working Capital Management.


To achieve the deep knowledge about working capital financing provided by a bank.
To gain practical knowledge of the banks working capital management.

1.3. Methodology
We used the information that we collected from the City Banks website and from the book.

1.4. Limitations of the study

The limitations are-

Lack of Experience
Lack of knowledge
Time management
Lack of information

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Chapter - 02
Company
Background

2.0 Company Overview

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2.1 History of the City Bank Limited

City Bank is one of the oldest private Commercial Banks operating in Bangladesh. It is a top
bank among the oldest five Commercial Banks in the country which started their operations in
1983. The Bank started its journey on 27th March 1983 through opening its first branch at B. B.
Avenue Branch in the capital, Dhaka city. It was the visionary entrepreneurship of around 13
local businessmen who braved the immense uncertainties and risks with courage and zeal that
made the establishment & forward march of the bank possible. Those sponsor directors
commenced the journey with only Taka 3.4 crore worth of Capital, which now is a respectable
Taka 330.77 crore as capital & reserve.

City Bank is among the very few local banks which do not follow the traditional, decentralized,
geographically managed, branch based business or profit model. Instead the bank manages its
business and operation vertically from the head office through 4 distinct business divisions
namely

Corporate & Investment Banking


Retail Banking (including Cards)
SME Banking
Treasury & Market Risks

Under a real-time online banking platform, these 4 business divisions are supported at the back
by a robust service delivery or operations setup and also a smart IT Backbone. Such centralized
business segment based business & operating model ensure specialized treatment and services to
the banks different customer segments. The bank currently has 88 online branches and 10 SME
service centers and 1 SME Agro center spread across the length & breadth of the country that
include a full fledged Islami Banking branch. Besides these traditional delivery points, the bank
is also very active in the alternative delivery area. It currently has 77 ATMs of its own; and ATM
sharing arrangement with a partner bank that has more than 550 ATMs in place; SMS Banking;
Interest Banking and so on. It already started its Customer Call Center operation. The bank has a
plan to end the current year with 100 own ATMs.

2.2 Vision

The Financial Supermarket with a Winning Culture Offering Enjoyable Experiences.

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2.3 Mission

Offer wide array of products and services that differentiate and excite all customer
segments
Be the Employer of choice by offering an environment where people excel and leaders
are created
Continuously challenge processes and platforms to enhance effectiveness and efficiency
Promote innovation and automation with a view to guaranteeing and enhancing
excellence in service
Ensure respect for community, good governance and compliance in everything we do

2.4 Values

Result Driven
Accountable & Transparent
Courageous & Respectful
Engaged & Inspired
Focused on Customer Delight

2.5 Strategic Priorities

Making business strategy flexible to keep the bank on track for a sustainable growth
Having a strong customer focus and build relationships based on integrity, superior
service and mutual benefit
Continuing to provide new products and services to customers with support of superior
information technology platforms
Maintaining sound capital base to support growth
Ensuring responsible corporate governance through conformity with the law
Pursuing balance sheet growth through selective lending and by offering value
proposition
Leveraging balance sheet growth through improved productivity, recovery and cost
rationalization
Ensuring effective risk management for sustainable growth in shareholders value
Focusing on Corporate Social Responsibility
Improving quality of human resources by strengthening their competencies
Ensuring City Bank brand is recognized as the Most Reputed Financial Institution Brand
in Bangladesh.

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2.6 Core Business

City Bank has established itself as a leading private commercial bank in the country with
established leadership in Corporate Banking and growing focus on SME and Consumer
businesses. The bank provides both conventional and Islamic banking products and services. The
bank offers a wide range of depository, loan and card products and a variety of services to cater
virtually for every customer segment. From Student Banking to Priority Banking to AMEX
credit card, City Bank has almost all banking products in its collection. The product basket
features different types of Savings and Current Accounts, Personal Loans, Working Capital
Loans, Debit Cards, Credit Cards, Pre-paid Cards, Internet Banking, Corporate Banking, SME
Banking, Investment Banking, Treasury & Syndication services etc.

2.6.1Compliance Activities

To establish a compliance culture across the organization through effective control


To establish regulatory guidelines and instructions within the organization
To ensure adherence to legal and regulatory requirements
To establish, guide and review internal process control system and documentation
To establish Regulatory and external auditors recommendations in the organization
To monitor effectiveness of compliance system of the organization and to guide for
improvement.

2.6.2 The City Bank at a glance

Name The City Bank Limited


Legal Status Public Limited Company
Date of Incorporation March 14, 1983
Formal Inauguration March 27. 1983
Chairman Mr. Mohammed Shoeb
Vice-Chairperson Mrs. Tabassum Kaiser

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Managing Director & CEO Sohail R. K. Hussain
Company Secretary Md. Kafi Khan
Authorized Capital Tk. 1,750,000,000
Paid Up Capital Tk. 1,571,130,000
Reserves Tk. 4,293,104,278
Total Assets Tk. 76,466,801,564
Total Manpower 2,424
Number of Branches 87
Number of SME Business Centers 14
Number of SME Service Centers 10
Number of ATM Booth 46
Web Site www.the citybank.com
Registered Office 136, BirUttamShawakatSarak(Gulshan Avenue)
Gulshan-2Dhaka-1212, Bangladesh

2.6 Product and services

Retail Banking Transactional account


Term deposit account
Foreign currency account
Rates and charges
Loan
Others(City Foreign Exchange, Non funded
business)
Card Debit Card
Credit Card
Prepaid Card
Treasury Overnight deposits
Term deposits
Foreign exchange
Local currency spot and forward
Derivatives
Wholesale Banking Working capital finance
Trade finance

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Islamic finance
Project finance
Investment banking
Structured finance
Cash management
SME Banking City Muldhon
City Sheba
City Munafa
City Agro
City SME Centers

2.7 Performance indicator of City Bank limited:

Performance evaluation for the City banks within various years.

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Shareholder equity

17850 23118 25509


17961 18525

2012
2013
2014
2015
2016

Shareholders' equity is listed on a company's balance sheet and measures its net worth. A
company's shareholders' equity is calculated by subtracting a company's total liabilities from its
total assets, which are also listed on a company's balance sheet. Here we have seen the equity is
increasing for the City Bank. It is the indicator of maximizing the companys wealth. There is a
huge change in the year of 2014, 2015 and 2016.

When an increase occurs in City Banks or capital, the overall result is an increase to the City
Banks stockholder's equity balance. Shareholder's equity may increase from selling shares of
stock, raising the company's revenues and decreasing its operating expenses.

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Price earning ratio

22.3
18.5
13.2
8.6
5.9

2012 2013 2014 2015 2016

The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its
current share price relative to its per-share earnings. The price-earnings ratio can be calculated as:

Market Value per Share / Earnings per Share

For example, suppose that a company is currently trading at $43 a share and its earnings over the last 12
months were $1.95 per share. The P/E ratio for the stock could then be calculated as 43/1.95, or 22.05.

Here we have seen the price earnings ratio is decreasing year by year for the City Bank. It is not because
of the future of this companys is not bright rather than it proves that the price is decreasing within
market maturity City banks operation in Bank industry.

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Dividend paid

25%
22%
20% 20%

10%

2012 2013 2014 2015 2016

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of


profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit
in the business (called retained earnings) and pay a proportion of the profit as a dividend to
shareholders.

The dividend paid by the City Bank is increasing it denotes the share is being attractable to the
shareholders day by day. City bank is earning by paying dividend by buy back shares, with the
intention of boosting its share value. The third option is to pay out some of the profits to
shareholders in the form of cash dividends. Dividend payments are the most direct way to put
company profits into the hands of the shareholders.

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Deposit

118727
113729
107497
94099
83818

2012 2013 2014 2015 2016

Bank deposits consist of money placed into banking institutions for safekeeping. These deposits
are made to deposit accounts such as savings accounts, checking accounts and money market
accounts. The deposit is increasing for the City Bank. Every financial institution needs to generate a
steady stream of new customers, yet one of the easiest and most steady sources of new business and
related revenue is to reach out to current customers for additional business.

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Chapter- 03
Theoretical Background

3.1 Working capital

Working capital is the capital which is required to meet day to day operations which depends on
whether it is a service company or manufacturing company. Working capital is a measure of both
a company's efficiency and its short-term financial health.

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Working capital is calculated as

Working Capital = Current Assets - Current Liabilities

3.2 Types of working capital:

There are two approaches to categories types of working capital. Here they are

Working capital

Basis of concept Basis of time

Gross working Net working Permanent Temporary


capital capital working capital working capital

1. Basis of concept: According to basis of concept working capital is two types.


Gross working capital:

Gross working capital is the sum of all of a company's current assets (assets that are
convertible to cash within a year or less). It includes assets such as cash, checking and
savings account balances, accounts receivable, short-term investments, inventory and
marketable securities.

Net working capital:

Net working capital is the aggregate amount of all current assets and current liabilities. It
is used to measure the short-term liquidity of a business, and can also be used to obtain a

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general impression of the ability of company management to utilize assets in an efficient
manner. It is the difference between the current assets and the current liabilities.

2. Basis of time
Permanent Working Capital:

It is otherwise called as fixed working capital. Permanent working capital implies the base
investment amount in all types of current resources which is maintained at all times to carry on
business activities. Even though, there is a need of having minimum level of current assets at all
times in order to carry on the business activities effectively.

Temporary Working Capital:

It is otherwise called as fluctuating or variable working Capital. There is a close relationship


prevailing between temporary working capital and the level of production and sales. There is no
uniform production and sales throughout the year. If heavy order is received for production and
there is a large amount of credit sales, there is a need of more amount of temporary working
capital. At the same time, if production is carried on in anticipation of demand in near future,
temporary working capital is required. In nutshell, temporary working capital is an extra working
capital required to support the changing production and sales activities.

3.3 Working capital management

Working capital management refers to a company's managerial accounting strategy designed to


monitor and utilize the two components of working capital, current assets and current liabilities,
to ensure the most financially efficient operation of the company. The goal of working capital
management is to ensure that a firm is able to continue its operations and that it has sufficient
ability to satisfy both maturing short-term debt and upcoming operational expenses.

3.4 Sources of working capital finance

Bank overdraft

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A bank overdraft is when someone is able to spend more than what is actually in their bank
account. It is the most useful and appropriate type of working capital financing extensively used
by all small and big businesses. It is a facility offered by commercial banks whereby the
borrower is sanctioned a particular amount which can be utilized for making his business
payments. The borrower has to make sure that he does not cross the sanctioned limit. The best
part is that the interest is charged to the extent the money is used and not on the sanctioned
amount which motivates him to keep depositing the amount as soon as possible to save on
interest cost. Without a doubt, this is a cost effective working capital financing.

Factoring

Factoring is a way for businesses to fund cash flow by selling their accounts receivables to a
third party at a discount. The third party here is known as the factor who provides factoring
services to business. The factor would not only provide financing by purchasing the accounts but
also collects the amount from the debtors. Factoring is of two types with recourse and without
recourse. The credit risk of nonpayment by the debtor is borne by the business in case of with
recourse and it is borne by the factor in the case of without recourse. Factoring facility
arrangements tend to be restrictive and entering into a whole-turnover factoring facility can lead
to aggressive chasing of outstanding invoices from clients, and a loss of control of a companys
credit function.

Income received in advance

Income received in advance is seen as a liability because it is money that does not correlate to
that specific accounting or business year but rather for one that is still to come.

Advances received from customers

A liability account used to record an amount received from a customer before a service has been
provided or before goods have been shipped.

Instalment credit

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Instalment credit is a form of finance to pay for goods or services over a period through the
payment of principal and interest in regular payments.

Commercial papers

A commercial paper is an unsecured promissory note. Commercial paper is a money-market


security issued by large corporations to get money to meet short term debt obligations and is only
backed by an issuing bank or corporations promise to pay the face amount on the maturity date
specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings
will be able to sell their commercial paper at a reasonable price.

Letter of credit

A letter of credit is a document that a financial institution issues to a seller of goods or services
which guarantees that the issuer will pay the seller for goods/services the seller delivers to a
third-party buyer. The issuer then seeks reimbursement from the buyer or from the buyers bank.
The document is essentially a guarantee to the seller that it will be paid by the issuer of the letter
of credit regardless of whether the buyer ultimately fails to pay. In this way, the risk that the
buyer will fail to pay is transferred from the seller to the letter of credits issuer.

Inventory Financing

These loans are secured with the business` inventory acting as the security. Finance for working
capital may be acquired through its inventory although the business cannot sell it until the loan is
repaid because the lender has the right to the inventory until the loan has been repaid.

Line of Credit

This is a form of a loan agreement between the bank and the borrower that enables the borrower
to acquire some amount of the funds on demand, but the borrower does not have to take the loan.
A business may secure working capital through this service if it has recurring expenses at regular
intervals.

Working Capital Loans:

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Working capital loans are as good as term loan for a short period. These loans may be repaid in
installments or a lump sum at the end. The borrower should take such loans for financing
permanent working capital needs. The cost of interest would not allow using such loans for
temporary working capital.

Purchase / Discount of Bills:


For a business, it is another good service provided by commercial banks for working capital
financing. Every firm generates bills in the normal course of business while selling goods to
debtors. Ultimately, that bill acts as a document to receive payment from the debtor. The seller
who requires money will approach the bank with that bill and bank will apply discount on the
total amount of the bill based on the prevailing interest rates and pay the remaining amount to the
seller. On the date of maturity of that bill, the bank will approach the debtor and collect the
money from him.

Bank Guarantee:
It is primarily known as non-fund based working capital financing. Bank guarantee is acquired
by a buyer or seller to reduce the risk of loss to the opposite party due to non-performance of
agreed task which may be repaying of money or providing of some services etc. In essence, a
bank guarantee is revoked by the holder only in case of non-performance by the other party.
Bank charges some commission for same and may also ask for security.

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Chapter- 04
Working Capital Finance by City
Bank Limited

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4.1 Working capital finance by City Bank Limited

Business Enterprises engaged in manufacturing/ trading/ service business are eligible to avail
Working Capital loan to meet day to day expenses for processing of manufacturing and selling
product & services. Working capital products include both fund and non-fund based products.
Fund-based working capital products include secured over draft, cash credit, packing credit,
short-term loans payable on demand bank guarantees. Non-fund based products include bank
guarantee, performance guarantees and bid bonds are also supporting the business of the
customers.

a) Overdraft:

A convenient and flexible form of short-term financing for routine operating expenses and
overheads of any company.

b) Guarantees and Bonds:

City Bank issues a full range of Performance Guarantees, Advance Payment Guarantees,
Financial Guarantees and Bid bonds for supporting the underlying business of our customers.

c) Letter of Credit:

When buying goods from overseas suppliers, any company will wish to receive the goods as
ordered in the right quantity, on time and at the designated place. It will also wish to make
payments only after receipt of the required documents including the title of goods.

City Bank solves this needs by issuing a documentary credit on customers behalf. A
documentary credit is Banks guarantee of payment for a shipment of goods against specific
documents as stipulated on it.

By using a Letter of Credit, City Bank will only make payment after receipt of titles and other
documents that should fully comply with the terms of the credit. So firms can enjoy a safer and
cheaper alternative to making advance payment or deposits.

d) Back-To-Back Letter of Credit:

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A Back-to-Back Letter of Credit is issued against the export credit (the master credit), but the

terms and conditions may not the same as the export credit. Firm must submit own draft and

invoice, together with the other shipping documents presented by its supplier to secure payment

under the export credit. After processing, it will have the export proceeds to pay the supplier and

the balance credited to your account.

e) Shipping Guarantee:

To operate business efficiently, it is vital that goods be cleared expeditiously. By issuing a

shipping guarantee in the shippers favor, City Bank facilitates prompt clearance of goods until

bills or lading is received.

f) Import Financing:

City Bank will be able to provide financing solutions to pay for the suppliers documents under

letter of credit or import collections. Open account invoice financing is also available.

g) Short Term or Short Term Revolving Loan

Firms may anytime need fund to utilize for a very short time due to either emergency or short

term projects. In such case, City Bank is there to facilitate them. This can be a Short-Term Loan

or a Short Term Revolving Loan. Firms can get it either for your inland business or cross-border

payment in foreign trade.

h) City Munafa

There are around 106,000 Small and Medium Enterprises in Bangladesh according to a market

survey. Based on the estimate, there is a total funding requirements of BDT 200 Billion. A lot of

banks are financing for their working capital, fixed asset purchase and other business purposes

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through complicated or less friendly credit analysis methods by taking land or building as

primary collateral. City Bank would like to offer simply structured, process based, yet risk

mitigating banking product to the SMEs. CBL MUNAFA has been designed based on the

above objectives to achieve.

It is a terminating loan facility (EMI based) for working capital, fixed asset purchase, or any

other business purpose. Bank would finance against net cash flow of the socio economic entity

derived from cash flow of any creditworthy business and secure the lending against lien of CBL

fixed deposit amounting 50% of loan volume. The product will allow the bank to capture the

existing market opportunity.

4.2 Key Features of working capital loan:

Key Features of the loan are-

Competitive interest rate.


Flexible security arrangement.
Complete business solution.
Considerations of cash transactions besides bank statement.
Quick approval process.

Category / Loan type:

Cash Credit (Hypo)

Cash Credit (Pledge)

O/D (General)

Customer Eligibility:

Must be a growing Business Concern.

At Least 2 Years Business History.

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Must be a Current Account Holder of the Bank.

Up dated clean CIB Report.

Security:

Registered Mortgage of Land & Building

Hypothecation/Pledge of stock in trade.

Personal Guarantee of the Owner(s)/ Directors.

Corporate Guarantee of the Related Business Concern(s)

Other Securities as acceptable to the Bank

Documents Required:

Valid Trade License.

Up to date TIN Certificate.

Bank statement for last 6 months

CIB report of the borrower

Regulatory papers

4.3 Lending rate charges by City Bank

Sectors Category Revised mid


rate
Working capital loan to large Loans against raw material, work in process 8.5%
industry and finished goods for manufacturing and
non-manufacturing firms.
Working capital loan to SME Working capital loans to enterprises engaged 12%
in manufacturing and non-manufacturing
agricultural inputs, trading, agro-processing
units, fertilizer dealers/distributors
Working capital loan to Large- Working capital loans to enterprises engaged 10.5%
Medium Enterprise and in manufacturing and non-manufacturing
commercial customer agricultural inputs, trading, agro-processing

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units, fertilizer dealers/distributors

Short-term working capital Short-term working capital loan to 8.5%


loan corporate/100% collateral based working
capital/one of facilities to large corporate of
any industry.
Export financing Working capital loans to 100% export oriented 7%
(direct- export) enterprises against lien on LC.
Import financing Post - import financing to trader- importers 16%
against goods imported

4.4 Charges for guarantees:

Issuance of Guarantee without 100% Cash 0.60% per qtr maximum or part thereof with a
Margin/FDR min of BDT 2000 Flat BDT 500

Issuance of Guarantee at 100 % cash Margin Flat BDT 500

Issuance of Guarantee at 100% in the form of City Flat BDT 1,000 per year
Bank FDR

Issuance of Guarantee at 100% in the form of @0.60% per qtr maximum or part thereof with
Other Bank FDR a min of BDT 2000

Shipping guarantee to carrier 1.BDT 500 for guarantee amount upto BDT
5.00 lac
2.BDT1000 for guarantee amount upto
BDT10.00 lac
3.BDT2000 for guarantee amount above
BDT10.00 lac
Miscellaneous (Including Stamp Cost) BDT 350.00

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