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  1. 1. Introduction Social responsibility is a concept well known in the corporate world and beyond that. Business all over the world have practiced only profit making actions at past but not for long as the enterprise started to develop complexities and wideness in size and actions so was their reach getting bigger and bigger. A company‘s sense of responsibility towards the community and environment (both ecological and social) in which it operates called corporate social responsibility. Companies express this citizenship (1) through their waste and pollution reduction processes, (2) by contributing educational and social programs, and (3) by earning adequate returns on the employed resources. In contrast to this, Christian Aid (2004, as cited in Pendleton 2004) defines CSR as ―an entirely voluntary, corporate driven initiative to promote seas a substitute for regulation at either a national or international level.‖ Blowfield, 1995 indicates that through time, the definitions and explanations of CSR have become more positive, with increasing understanding of the benefits that can be obtained through successful implementation by organizations. * Corresponding author: halim.helal@gmail.com 1 Lecturer, Department of Business Administration, Northern University Bangladesh, Dhaka. 2 Senior Lecturer , Department of Business Administration, Northern University Bangladesh, Dhaka. 3 Lecturer, Department of Business Administration, America Bangladesh University, Dhaka. 1
  2. 2. Statement of the Problem Corporate Social Responsibility is a form of corporate self-regulation integrated into a business model. CSR it is about the relationship of corporations with society as a whole. The multinational companies are working all most every area of society that brings social welfare. Generally, they work in the area of human development, environmental development, urbanization, protection of customer rights, educational sector, and cultural sector, community development etc. In Bangladesh, there are so many banks are available that are performing CSR activities, especially; Dutch-Bangla Bank Limited is pioneer of them. Here it should be tried how Dutch-Bangla Bank Limited performed their CSR activities. 2
  3. 3. Rationale of the Study There are lot of reason and rationale behind the study. Now a day the business world is greatly influenced by their Corporate Social Responsibilities (CSR). It is also a modern marketing concept. Here it is very important to study about Corporate Social Responsibility (CSR) of different company, bank, and financial institution. In this regard as a renowned and large private online bank of Bangladesh the study of Corporate Social Responsibility (CSR) of DBBL is very important. The rationale behind this study is to gain knowledge about Corporate Social Responsibilities of DBBL. Objectives of the Study The main objectives of this study are as follows: i. To get a broader overview of CSR (Corporate Social Responsibility). ii. To identify the CSR activities served by Dutch-Bangla Bank Limited. iii. To critically synchronize the result of the performance or profit after practicing CSR of DBBL. iv. To gain familiarity with the banking activities and environment. Scope of the Study The Corporate Social Responsibility of Dutch-Bangla Bank Limited (DBBL) is the scope of the study. The study covers idea about Corporate Social Responsibility (CSR), various knowledge and activities about the Dutch-Bangla Bank Limited (DBBL), Corporate Social Responsibilities (CSR) of Dutch Bangla Bank limited. 3
  4. 4. Limitations of the Study The following limitations are apparent in the report— The main limitation of this report is that the officials did not disclose all data and information for the reason of confidentiality. The bank‘s employees were very much busy in banking hour. So it was very difficult to have them for equitable long time. Many personnel of DBBL were not co-operative to provide useful and relevant information. Lack of practical experience in the relevant field the researchers faced many problems in formulazing the data. Methodology of the Study In order to make the study more meaningful and presentable, two sources (eg. primary and secondary) of data and information will be used widely. 4
  5. 5. Research Design In order to conduct this study gathering information were designed in the following way: No questionnaire or schedule methods were applied here. Interview i.e. face to face communication with various responsible employees of the bank. Quantitative analysis of data collected. Intensive study in the relevant field. Literatures Review Alam S.M.S, et. al. (2010) in a paper entitled ―Corporate Social Responsibility of Multi National Corporations in Bangladesh: A Case study on Grameenphone‖ pointed out that CSR is still an evolving concept that enables corporate executives to create and apply self determined policies to best meet the needs and demands of its stakeholders. Azim et al. (2011) in a study named ―Corporate Social Disclosure in Bangladesh: A Study of the Financial Sector‖, Corporate social responsibility is not the only ethical dilemma that financial institutions face in an atmosphere of corrupt corporate practice. The literature recognizes that CSR practices differ from country to country (Adams, Hill & Roberts, 1998b) and between developed and developing countries (Imam, 2000). Furthermore the nature and patterns of CSR vary between types of industry (Gray, Javad, Power & Sinclair, 5 2001). Surveys of CSR practices in western countries reveal that companies place the greatest emphasis on disclosing human resource information such as employee numbers and remuneration, equal opportunities, employee share ownership, disability policies, and employee training (Gray et al., 2001). 5
  6. 6. Results and Discussion Dutch-Bangla Bank now performs their social responsibility in some selected sector. Its have a separate foundation called Dutch-Bangla Bank foundation. The bank donates mainly towards social awareness programs, medical and educational fields. DBBL also maintains the largest scholarship program in Bangladesh whereby college/university education tuition and expenses are fully paid for unconditionally by the bank. But they can expand their business and broaden their sector of social responsibility. CSR Spending of DBBL to Different Sectors (in 2010) Contribution of DBBL to different sectors in 2010 (Taka in million) The diagram indicates that DBBL contributes Tk.50.16 million in education sector , Tk.27.75 million in health sector, Tk.12.5 million in disaster sector, Tk.5 million in culture and sports sector and Tk.30.75 in miscellaneous sector out of total contribution in 2010. 6
  7. 7. Education Education is a pre- requisite for the overall development of the country. Keeping this view in mind, Dutch-Bangla Bank Limited has been giving priority to the education sector. Awarding scholarship and fellowship to meritorious students, helping development of infrastructural facilities, providing essential educational equipment etc. are some of the aspects included in the program. In 2010 DBBL spends Tk. 50.16 million in education sector. From the diagram we see that DBBL spends 27% amount for scholarship program, 64% for educational infrastructural development program, 1% for providing educational equipment, 7% for Ganit Utsab and 1% in miscellaneous purpose out of total Tk. 50.16 million in 2010. 7
  8. 8. Health Health is one of the prime parameters to achieve Millennium Development Goal (MDGH). Health needs are increasing day by day due to rapid growth of population. Dutch Bangla Bank has identified health care as a priority sector and helps create better health care facilities at a cheaper cost for disadvantaged population. In this connection Dutch Bangla Bank extended its support towards the following projects: In 2010 DBBL spent Tk. 27.02 million in health setor out of which 10% spent for cleft lip operation, 7% for cataract operation, 4% for V.V.F operation, 63% for health infrastructure development and 16% for donation for medical treatment. 8
  9. 9. Disaster Support Program to the Victim of Natural Calamities Dutch-Bangla Bank Limited stands by the distressed people at the time when natural calamities like cyclone, flood, tornado, landslide, river erosion, devastating fire etc. occur . DBBL provides support to the affected people in cash and kind for their rehabilitation. In 2010 DBBL donate Tk.12.5 million in this sector.The donation in kind includes food, medicine, water purifying tablets, blankets, GCI sheets etc. contribution of DBBL in this sector given bellow: Donation Donation to Liberation War Museum Liberation War Museum (Muktijuddha Jadughar) is an achieve of glorious liberation war. The museum authority has taken a project to rebuild and modernize it with all latest technological facilities for collecting, preserving and displaying the historical documents. DBBL appreciates noble initiative and provided financial assistance Taka 5,000,000 (Taka five million) ―Muktijuddha Jadughar Nirman‖ project. Donation to the family person killed by Afgan terrorists Donation Taka 5,00,000 was made to the window of Kazi Altaf Hossain, a Bangladesi engineer who went to Afgaisthan for earning his livelihood. He was abducted and gunned down by Afgan terrorists in December 2010. Donation to a family of a victim killed for resisting eve teasing Donation Taka 10,00,000 to the widow of Mizanur Rashid, a college teacher who was killed by stalker for trying to resist eve teasing at Lokmanpur, Natore. Donating pick up van for Police DBBL donated a double cabin pick up van at cost of Taka 2,00,000 to Dhaka Metropolitan Police for improving its transport facilities in performing duties efficiently and serving the people. Dutch- Bangla Bank Limited has donated a double cabin Pick-up Van to the DMP commissioner to quick mobility in performing their work. 9
  10. 10. Dutch-Bangla Bank distributes blanket Dutch-Bangla Bank Ltd. has taken up a programme to distribute 20,000 blankets worth Tk. 44 lac among the poor and needy villagers in Lalmonirhat, Gaibandha, Rangpur, Kurigram, Nilphamari and Pabna districts. Dutch-Bangla donation for Cancer Hospital Dutch-Bangla donate for Cancer Hospital Tk. 4 crore. Dutch-Bangla Bank authorities decided to donate Tk. 4 crore for construction of the first floor of the proposed Ahsania Mission Cancer Hospital (AMCH) to be established by Dhaka Ahsania Mission at Uttara in the city. DBBL has donated two modern ambulances to Anjuman Mufidul Islam Dutch-Bangla Bank Limited (DBBL) has donated two modern ambulances imported from Japan to Anjuman Mufidul Islam. Sports Sector and Other Sectors Sponsoring 11th South Asian games DBBL sponsored the prestigious ‗11th south Asian games Dhaka 2010’ which was held in Dhaka during January 29, 2010 to February 09, 2010. It was the largest sporting event in South Asia participated. The games were viewed by more than a billion people worldwide. 10
  11. 11. DBBL donate Tk. 3 crore to Bangladesh Olympic Association (BOA) DBBL donate Tk. 3 crore to Bangladesh Olympic Association (BOA) for constructing Bangladesh Olympic Bhaban to encourage development of sports and culture. Information Technology Dutch -Bangla Bank Limited (DBBL) undertakes a project with BASIS (Bangladesh Association of Software and Information Services) to award the best IT uses by Bangladeshi companies. In this regards, DBBL's contribution in supporting this event was 50% of the estimated cost with Tk. 6.25 Lac. Vote for Cox’s Bazar-‘Jago Bangladesh’ A two day Long campaign namely -‗Jago Bangladesh‘ was hold during the 27-28 march, 2009 with a view to mobilizing vote for Cox‘s Bazar sea beach to asertian the position in the seven wonders of the nature. 11
  12. 12. DBBL Mobile Banking products & services Mobile banking is a banking process that offers financial services like cash deposit, cash withdrawal, merchant payment, utility payment, salary disbursement, remittance inflow and outflow and government allowance disbursement through mobile gadgets. Initially the government has given its approval to 10 banks to operate mobile-banking. DBBL is the first bank to grasp the opportunity. Under the service, any mobile handset with subscription to any of the two partner cellular companies would be able to avail the service. On a Meet the Press programmed organized at a hotel in Dhaka after the kick start of the service, the central bank governor termed occasion as a milestone for the country‟ s banking sector. He said it would be a creative, cost-effective and secured banking service. What does DBBL Mobile banking offer? o Customer Registration o Cash-r (cash deposit) o Cash-out (cash withdrawal) o Foreign Remittance o Salary debasement o Person to Person Transfer (P2P) o Air time top up o Balance Inquiry Which Mobile can be registered? Customer having any mobile from any mobile Operator' can be registered or DBBL Mobile Banking at any numerated agent pot of Vie bank. What is my mobile account number? Your Mobile account number is your mobile number with an additional check digit for example if your mobile number is 01233445666 and check digit is 3 Then your account number will be 012334456683 12
  13. 13. Where to cash-in (cash deposit)? Customer can cash-in (deposit at any authorized agent of DBBL or DBBL Branch. How does it work? o Customer hands over cash to Agent o Agent inflates the transaction, from his/her mobile o Agent gets prompt menu and n reply agent enters customer‟ s mobile account number (including check digit) and amount o Agent enters his/her PIN o System credits customer‟ s account for the same amount o Agent issues a receipt to the customer o System sends a SMS to the customer‟ s mobile o For security reason customer needs o check the sending number of SMS at the amount SMS will be sent from 16216 or 01190016216 if the amount of money is not correct or the SMS send from different number then it would not be considered as correct. Where to cash-out (cash withdrawal)? Customer can cash-out (withdraw) at any authorized agent point of DBBl or DBBL Branch How does it work? o Customer asks the Agent or withdrawal of an amount from his or her mobile account o Agent initiates the transaction from his/her mobile o Agent gets prompt menu and in replay agent enters customer‟ s mobile account number (including check digit) and amount to withdraw o DBBL system sends prompt menu to the customer‟ s mobile (or by IVR Call "You are going o withdraw Tk. XXXX from your mobile account with DBBL if you want to continue, please enter your 4-digit pin o Customer enters his/her PIN o System debited customers account and sends an SMS to the customers mobile o Agent hands over money to the customer 13
  14. 14. How will you send foreign remittance? From the Nominated Exchange Houses of DBBL: you can send remittance from any nominated Exchange Houses of Dutch- Bangla Bank located all over the word The remitted money would be transferred to the beneficiary‟ s mobile account number within 24 hours and the beneficiary will immodestly receive SMS about the deposit to avail the service just provide the flowing information at the exchange house: o Amount o Beneficiary‟ s Name Bank Name (Dutch-Bangla Bank) and Mobile Account number From The Nominated Exchange Houses of Other Bank: You can send remittance ton the nominated exchange houses of other Bangladeshi banks, the remitted money will be deposited to beneficiary‟ s mobile account Within 2-3 working days and the beneficiary will immediately get an SMS about the deposit. To avail the serves, just provide the following information at the exchange houses: o Amount o Beneficiary‟ s Name. Bark Name Dutch-Bangla Bank) and Mobile Account Number. 14
  15. 15. Risk management RISK MANAGEMENT FRAMEWORK Risk is defined as potential losses or foregone profits that can be triggered by internal and external factors. Therefore, the objectives of risk management are identification of potential risks in our operations and transactions, in our assets, liabilities, income, cost and off–balance sheet exposures and independent measurement and assessment of such risks and taking timely and adequate measures to manage and mitigate such risks within a riskreturn framework. In DBBL, only calculated risks are taken while conducting banking business to strike a balance between risk and return. Risk is clearly identified, mitigated or minimized and if possible eliminated to protect capital and to maximize value for shareholders. It is also ensured that on balance sheet and off-balance sheet risks taken by the Bank are consistent with risk appetite and strategic objectives of the Bank. A wide range of tools and techniques are used to address & mitigate all kinds of inherent and potential risks in banking operations. The Bank attaches highest priority to establish, maintain and upgrade risk management infrastructure, systems and procedures. In this regard, sufficient resources are allocated to improve skills and expertise of relevant banking professionals to manage the risk effectively. The policies and procedures are approved by the Board and assessed on a regular basis to bring these to the level of satisfaction required to manage & mitigate the risks adequately and consistently. Ultimate responsibility for effective risk management lies with the Board of Directors of DBBL. The Board and its committees like Audit Committee and Executive Committee, set principles and limits, review and monitor various risks to assess adequacy of system and to ensure that the Bank is operating within approved systems & procedures. Management committees, like ALCO and Credit Committee, also oversee and ensure that sufficient risk management systems are in place and these are consistently applied to protect the interest of the Bank. 15
  16. 16. RISK MANAGEMENT PROCEDURE Approved predetermined policies & guidelines To ensure that risks are properly addressed and protected for sustainable development of the Bank, there are approved policies and procedures covering all the risk areas i.e. credit risks, operational risks and market risks. These are formulated taking into account Bangladesh Bank‘s Guidelines for Managing Core Risks on Credit Risk Management, Internal Control & Compliance, Asset and Liability Management, Foreign Exchange Risk Management and Money Laundering Risk Management as well as the business environment in which the Bank operates, specific needs for particular type of operations or transactions and international best practice. These policies are regularly reviewed and updated to keep pace with the changing operating environment, technology and regulatory requirement. Meticulous compliance with the established procedures are ensured to satisfy that the Bank is operating within approved procedures and limits and that risks are within tolerable limits to effectively ensure long term solvency and sustainable growth of the Bank. Risk management infrastructure Risk management procedures are approved, monitored, and mitigated at various stages of the Bank with a combination of Board, its committees, management committees, management units and Internal Control & Compliance Division as detailed below: Board of Directors Board oversees and approves all major risk management policies and parameters taking into account market condition, regulatory requirement and lessons learned in the past. While setting policies and parameters for credit, operational and market risks, a balance is maintained for ensuring smooth banking operations while protecting against down-side risk from potential loss or foregone income and to protect interest of shareholders and depositors. 16
  17. 17. Executive Committee (EC) of the Board Executive Committee is responsible to oversee that the management and its committees are operating within approved limits and authorities and that all major risks are managed & mitigated effectively and potential and actual losses arising from risks are within accepted limits. The Committee also approves credit proposals, administrative proposals and major purchases as recommended by the Management Credit Committee, Management Committee and Management Purchase Committee. Audit Committee of the Board Audit Committee independently monitors all activities of banking operations involving credit risks, operational risks and market risks through Internal Control & Compliance Division of the Bank. Risk based audit plan for IC &CD is approved by the Committee and its implementation is monitored on a regular basis to ensure that all risk factors are adequately addressed and any deviation is quickly corrected to ensure sustainable operation of banking activities. Management Committees Management Committees like Credit Committee, Asset-Liability Management Committee and Purchase Committee ensure compliance with all relevant risk management policies. Management units Management units like Credit Risk Management Division, Treasury Division, Credit Administration Division, Credit Monitoring & Recovery Division etc. ensure and monitor risk management system and compliance with all approved limits and procedures at operational level on a daily basis. Internal Control & Compliance Division Internal Control & Compliance Division on a regular basis independently verifies compliance with all approved risk management and internal control policies. Deviations are identified, reported and corrected to mitigate risk on a continuous basis and to ensure that the Bank is operating in compliance with all approved and established policies. Internal Control & Compliance Division directly reports to the Audit Committee of the Board. 17
  18. 18. CREDIT RISK Credit risk is the most significant and inherent risk in banking business. Every loan exposure or transaction with counterparty involves the Bank to some degree of credit risks. Credit Risk Management is at the heart of the overall risk management system of the Bank. It is designed and continuously updated to identify, measure, manage and mitigate credit risk to maintain and improve quality of loan portfolio and reduce actual loan losses and to ensure that approved processes are followed and appropriate due diligence are made in approving new credit facilities and renewals. Early warning system Operation and performance of loans are regularly monitored to trigger early warning system to address the loans whose performance show any deteriorating trend enabling the Bank to grow its credit portfolio in a sustainable way to ensure higher quality and lower risk with the ultimate objective to protect the interest of depositors and shareholders. Credit policy approved by the Board The Board approves the major policy guidelines, growth strategy, exposure limits for particular sector, product, individual company and group, keeping in view regulatory compliance, risk management strategy and industry best practice. Credit approval is delegated properly Credit approval authorities are carefully delegated to the Executive Committee of the Board and appropriate level of management to strike a balance between adequate control and flexibility in credit operations to ensure full transparency and accountability at all levels. Independent Credit Risk Management Division There is an independent risk management division to assess credit risks and suggest mitigations before recommendation of every credit proposal. 18
  19. 19. Separate Credit Administration Division for documentation A separate Credit Administration Division confirms that perfected security documents are in place before disbursement. DBBL is continuing a unique process of rechecking security documentation by a second legal adviser other than the lawyer who vetted it originally. Independent Credit Monitoring & Recovery Division and Management Recovery Committee An independent and fully dedicated credit monitoring and recovery division monitors the performance and recovery of loans, identify early signs of delinquencies in portfolio and take corrective measures to mitigate risks, improve loan quality and to ensure recovery of loans on time including legal actions. This department also monitors risk status of loan portfolio and ensures adequate loan loss provision. There is a dedicated and high-level management recovery committee to deal with the problem loans for early and most appropriate settlements. Adequate provision & suspension of interest Interest accrued on classified loan is suspended and adequate provision is maintained there-against as per Bangladesh Bank‘s Guidelines. Credit operations are subject to independent Internal Audit Internal Control & Compliance Division independently verifies and ensures, at least once in a year, compliance with approved lending guidelines, Bangladesh Bank guidelines, operational procedures, adequacy of internal control and documentation. Internal Control & Compliance Division directly reports to the Audit Committee of the Board. Reporting to Board /Executive Committee Overall quality, performance, recovery status, risks status, adequacy of provision of loan portfolio is regularly reported to the Board of Directors/EC for information and guidance. 19
  20. 20. MARKET RISK Market risk is the risk of losses in on and off-balance sheet positions arising from movements in market price such as changes in interest rate and price of equity, foreign exchange and commodity. Liquidity, interest rate and foreign exchange risks The Treasury Division manages the liquidity, interest rate and foreign exchange risks with oversight from Asset-Liability Management Committee (ALCO) which is chaired by the Managing Director including top management and senior executives of the Bank. The Committee meets at least once a month. The Board approves all risk management policies, sets limits and reviews compliance on a regular basis. The overall objective is to provide cost effective funding to finance the asset growth and trade related transactions, optimize the funding cost, increase spread with the lowest possible liquidity, maturity, foreign exchange and interest rate risks. Liquidity risk Liquidity risk is the risk that we may not meet our financial obligation as they become due. Liquidity risks also include our inability to liquidate any asset at reasonable price in a timely manner. It is the policy of the Bank to maintain adequate liquidity at all times and in both local and foreign currencies. Liquidity risks are managed on a short, medium and long-term basis. There are approved limits for credit-deposit ratio, liquid assets to total assets ratio, maturity mismatch, commitments for both in on-balance sheet and off-balance sheet items and borrowing from money market to ensure that loans & investments are funded by stable sources, maturity mismatches are within limits and that cash inflow from maturities of assets, customer deposits in a given period exceeds cash outflow by a comfortable margin even under a stressed liquidity scenario. 20
  21. 21. Interest rate risk Interest rate risk is potential reduction in net interest income caused by changes in the level of interest rates. In DBBL, it is ensured that the Bank is not subjected to undue interest rate risks due to interest rate mismatch and maturity mismatch. Fixed rate assets are not financed by floating rates liabilities or vice versa. Foreign exchange risk Foreign exchange risk is potential loss arising from changes in foreign currency exchange rate in either direction. Assets and liabilities denominated in foreign currencies have foreign exchange risks. In order to further strengthening the foreign exchange risk management, DBBL has strengthened and restructured its dealing room with the help of advanced technological equipment and experienced personnel. The Bank operates its foreign exchange and money market activities under a centralized and single functional area. Bank's Exchange Rate Committee meets on a daily basis to review the prevailing market condition, exchange rate, exposure and transactions to mitigate foreign exchange risk. OPERATIONAL RISK Operational risk is the risk of loss resulting from inadequacy or failure of internal processes, systems and people or from external events. Internal Control & Compliance risk The Board of Directors approved updated policy guidelines on Internal Control & Compliance Risk (ICC). Management thereby restructuring the organizational chart of the Bank in accordance with the instructions of Bangladesh Bank for managing core risks. In line with aforesaid policy guidelines, Bank's own working manual on ICC has been approved by the Board of Directors of DBBL and the manual is now in operation. 21
  22. 22. Internal Control & Compliance Division of the Bank under direct supervision of Audit Committee of the Board has been implementing detail guidelines on ICC risk management to assess and mitigate risks and as part of it the IC&CD has been divided into three (3) independent units; namely:i. Audit & inspection unit ii. Monitoring unit iii. Compliance unit The units have been functioning independently and separately with direct reporting lines to the Head of IC&CD. In addition, Departmental Control Function Check List has been introduced in the branches and divisions at Head Office under direct supervision of Monitoring Unit of IC&CD which ensures compliance with regulatory rules and regulations as well as general banking norms and procedures. Documental Check List has been brought in practice under supervision of dedicated units. Exceptions are addressed monitored and corrected on a regular basis. Policy guidelines on RISK BASED INTERNAL AUDIT (RBIA) system have been formulated and the branches have already been brought under RBIA networks. As per RBIA, marks have been allocated for rating of the branches in terms of business risk and control risk. The branches scoring higher are being subjected to more frequent audits. It is a Policy of the Bank to put all brances of the Bank under any form of audit once in a year and IC&CD has been working in that direction. All these activities of the Internal Control & Compliance Division are devoted to address and mitigate operational risks of the Bank in more effective way to ensure effciency and effectiveness of performance, ensure reliability and completeness of financial and management information and to ensure compliance with legal and regulatory requirements. 22
  23. 23. Money Laundering risk As prevention of Money Laundering had become a burning issue in the beginning of this century, Money Laundering Prevention Act, 2002 was enacted in our country to give tight rein on money laundering process. Bangladesh Bank too undertook a project in the year 2003 to review the global best practices in the risk areas in view of globalization of business and identified 5 (five) core risks for implementation by the banks which included, among others, Money Laundering risk. In line with the money laundering law and relevant guideline of Bangladesh Bank on Money Laundering risk, our Bank has already formulated guidelines on policies & procedures on prevention of Money Laundering. The prime objective of the guidelines is to combat Money Laundering which became rampant in recent years. As per the guidelines, Account Opening Form of our Bank has been redesigned with provision for obtaining particulars of Personal Identity of customer and Transaction Profile. The Bank has also undertaken enhanced due diligence in case of opening of accounts of Politically Exposed Persons( PEP) as per directive of Bangladesh Bank which is in line with recommendation of Financial Action Task Force of U.N. Anti Money Laundering units have been set up in all the branches under a central unit at Head Office. Basic training has been imparted to all the officers of the Bank on compliance with rules and regulations of Money Laundering Act so as to prevent opening of suspicious accounts and identify suspicious transactions. Legal risks In DBBL legal risks are covered by recognizing potential losses from litigation or possible litigation at an early stage and by formulating solutions for reducing, restricting and avoiding such risks and creating adequate provision thereagainst. 23
  24. 24. OTHER RISKS Business risk Business risk covers the risk of losses arising from lower non-interest income and higher expenses from the budgeted amount. The business risk is resulted from the market condition, customer behavior or technological development that may change compared to the assumptions made at the time of planning. Business risk in DBBL is managed by setting clear targets for specific business units in term of business volume, income, cost, cost / income ratio, quality of assets etc. with an ongoing process of continuous improvement. Reputational risk Reputational risk is defined as the risk of losses, falling business volume or income as well as reduced value of the company arising from business events that may reduce the confidence of the customers & clients, shareholders, investors, counterparties, business partners, credit rating agencies, regulators and general public in DBBL. The branches and operational divisions are directly responsible for reputational risks arising from their business operations. Reputational risks may also arise from other risks and even increase those risks. The management ensures that DBBL is aware of any changes in market perceptions as soon as possible. Accordingly, all business policies and transactions are subjected to careful consideration. DBBL takes necessary precautions to avoid business policies and transactions, that may result in significant tax, legal or environmental risks. Reputation risk is also factored into major credit decisions that may lead to credit proposal being declined. 24
  25. 25. Compliance risk The success of DBBL is largely dependent on the trust and confidence of our existing and potential customers, our shareholders, our staff, our regulators and the general public in our integrity and ethical standard. This confidence largely depends on meticulous compliance with applicable legal and regulatory requirements and internal policies of DBBL. The confidence also depends on conformity with generaly accepted market norms and standards in our business operations. The Board of Directors is primarily responsible for compliance with all applicable norms and regulations. The Board discharges its responsibilities itself and through delegation of authorities to Executive Committee and Audit Committee of the Board. The objective is to identify any compliance risks at an early stage that may undermine the integrity and the success of DBBL and to mitigate the risks in most appropriate way. CAPITAL PLAN AND MANAGEMENT The Bank is committed to maintain a strong capital base to support business growth, comply with all regulatory requirements, obtain good credit rating and CAMELS rating and to have a cushion to absorb any unforeseen shock arising from credit, operational and market risks. The capital maintenance and dividend policies are pursued taking into consideration the following factors Increased capital requirement for sustainable business growth. Keeping sufficient cushion to absorb unforeseen shock or stress. Cost effective options for raising Tier 1 and Tier 2 capital. Improving credit rating and CAMELS rating of the Bank. Meeting regulatory requirements. Meeting covenants of lenders. The Board is responsible to ensure capital management within a broad framework of risk management. The Bank has been pursuing a dividend policy that must ensure satisfactory return for shareholders as well as sustainable growth of the Bank with strong capital adequacy ratio to protect greater interest of depositors and shareholders. 25
  26. 26. As per BRPD Circular Letter No. 11 dated August 14, 2008, the total capital of the Bank should be raised to Taka 4,000 million latest by August 11, 2011 within which total paid up capital would be Taka 2,000 million. The Bank is well positioned to meet that requirement much earlier before the deadline. The Bank‘s Tier 2 capital is strengthened by subordinated debt obtained from FMO, revaluation of fixed assets and revaluation of held to maturity securities. Other alternative options to raise Tier 2 capital would be explored as and when necessary. PREPARATION FOR BASEL II ACCORD –STRENGTHENING RISK MANAGEMENT SYSTEM AND CAPITAL BASE OF THE BANK In order to make the banks in Bangladesh more shock absorbent as well as to cope with international best practice for risk management and, a sound and robust banking industry, Bangladesh Bank has taken measures to implement BASEL II from January 2009. BASEL Committee on Banking Supervision published a more comprehensive new package on capital adequacy requirement known as BASEL II for strengthening the capital adequacy, improving supervisory system to assess the adequacy of capital based on a thorough review of risks, reinforce risk management system and market discipline with the ultimate objective of having strong capital base that are commensurate with risk profile of the Bank comprising credit risk, market risk and operational risk that can ensure long term stability and solvency of banking company and banking sector as a whole. A National Steering Committee comprising senior officials from banking industry, Bangladesh Bank and Chartered Accountant Firms has been constituted. Furthermore, a Coordination Committee and a Basel II implementation Cell have been established. In the meantime, Bangladesh Bank has done two studies one is self-audit on Basel core principles for effective Bank supervision and the second one is quantitative impact study in order to assess readiness of the banks for implementation of Basel II. Under standardized approach, Basel II requires the recognition of External Credit Assessment Institutions for this a guideline has been prepared by BB and recognition process of credit rating agencies is under process. Bangladesh Bank has already issued Guidelines on Risk based capital adequacy for banks (revised regulatory capital framework in line with BASEL II) vide BRPD Circular No. 09 dated December 31, 2008. In line with Bangladesh Bank requirement, the Bank has already formed a Basel II Implementation Unit to ensure smooth and timely implementation of Basel II Accord. 26
  27. 27. Capacity building measures are underway so that the Bank is fully prepared to adopt the Accord in 2009. CRAB Ratings Banks Rating Report Dutch Bangla Bank Limited Rating Outstanding (29 June 2009) : A1 : ST-2 Long Term Short Term Validity : 1 (One year) Analyst: Nur Elahee Molla Financial Analyst nur_elahee@crab.com.bd Financial Highlights BDT in Million 2008 41,698.32 Non Performing Loan Deposits 29,403.12 1,363.17 Loans & Advances 2007 958.03 51,575.67 42,110.15 Investment 5,385.41 5,909.32 Net Interest Income 1,817.68 1,189.88 Non Interest Income 1,821.83 1,488.15 Net Profit Before Tax 1,776.08 1,022.25 ROAA (Before Tax) 3.23 2.16 Net Interest Margin 4.48 3.43 10.96 11.76 3.27 3.26 NPL Coverage Ratio 37.22 58.60 Deposit Lent out Ratio 80.85 69.82 Capital Adequacy Ratio Gross NPL Ratio 45,000 4.00% 40,000 3.50% 35,000 3.00% 30,000 2.50% 25,000 2.00% 20,000 1.50% 15,000 1.00% 10,000 5,000 0.50% - 0.00% 2001 2002 2003 2004 2005 2006 27 2007 2008
  28. 28. Total loan NPLs NPL Ratio Power (Total loan) 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2002 2003 2004 2005 ROAA (DBBL) 2006 2007 2008 ROAA (peer average) 1.0 RATIONALE Credit Rating Agency of Bangladesh (CRAB) Limited has assigned ‗A1‘ (Pronounced Single A One) rating in the Long Term and ‗ST-2‘ in the Short Term to Dutch-Bangla Bank Limited in view of the performance of the Bank for the business year 2008. Commercial banks rated in the long term A1 belong to ‗Strong Capacity & High Quality‘ Cohort. Banks rated A1 have strong capacity to meet their financial commitments but are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. A1 is judged to be of high quality and is subject to low credit risk. Commercial banks rated in the short term ST-2 category are considered to have the strong capacity for timely repayment of obligations. Banks rated in this category are characterized with commendable position in terms of liquidity, internal fund generation, and access to alternative sources of funds. Dutch-Bangla Bank Limited started its banking business in June 1996. Bank‘s paid up capital stood at BDT 1,000.0 million in 2008. Bank‘s paid up capital and statutory reserve stood at BDT 2,197.52 million at the end of 2008. Capital adequacy ratio declined from 11.76% in 2007 to 10.96% in 2008. Risk weighted assets to total assets ratio significantly increased to 69.40% in 2008 from 58.54% in 2007. However the implementation of Basel II will require more capital to ensure the solid position of the Bank. 28
  29. 29. Total loan and advances of DBBL stood at BDT 41,698.32 million in 2008 which was BDT 29,403.12 million in 2007 registering a growth of 41.42%, after a 3.46% decline in loan portfolio in 2007. The Bank had 44 obligors in 2008 (47 in 2007) to whom loans fallen under the large loan criteria set forth by the Bangladesh Bank were sanctioned. Total outstanding loans in these accounts were 38.34% of the portfolio. Total non-performing loan of DBBL stood at BDT 1,363.17 million in 2008 which was BDT 958.03 million in 2007 registering a growth of 42.29%. Fresh NPL of DBBL stood at BDT 1,859.32 million in 2008 which was around six and half times higher than that in 2007 (BDT 281.30 million). It should be mentioned that apart from cash recovery, the Bank had written off BDT 289.89 million and rescheduled BDT 1,010.39 million which reduced the closing balance in NPL to BDT 1,369.17 million in 2008. The new NPL generated during the year was 136.40% of gross NPL in 2008. The outstanding loans in SMA increased to 1.78% of total portfolio in 2008 which was only 0.50% in 2007. If the Bank fails to manage and reduce the level of non-performing loans in portfolio, its business and financial strength may be adversely impacted. The deposit mobilization of Dutch-Bangla Bank Limited reported 22.48% increase in 2008 after a slow growth in 2007 (4.98%) and stood at BDT 51,575.67 million which was BDT 42,110.15 million in 2007. DBBL has deep customer base gained through its large network (64 branches and 350 ATMs) which provides the Bank relatively stable deposit base. The less dependency on borrowed fund with declining trend (five-year period ended average was 2% of total funding) and more concentration on deposit mobilization indicates the future stability of the Bank. From the analysis of asset-liability management and maturity profile of deposit and call market operations it was found that the sound liquidity management system of DBBL would help the Bank to resist immediate liquidity shock. Net interest income dominated the revenue stream with a rate less than 50% over the last five years except 2005 (52.21%) resulting an average rate of 48.17% during the above mentioned period revealing stable and good quality earning of the Bank. DBBL reported operating income of BDT 3,639.51 million in 2008, which was BDT 2,678.04 million in 2007 registering a growth of 35.90%. DBBL‘s operating expenses as a percent of total assets (avg.) were slightly high compared to that of most of the private commercial banks 29
  30. 30. including its peer group over the observed period. The increasing trend of cost could be primarily attributed to its business expansion, establishment of new distribution channels including largest ATM network which will eventually raise the Bank‘s smooth earnings flow in the upcoming year. Pre tax profit (PTP) of the Bank stood at BDT 1,776.08 million in 2008 which was BDT 1,022.26 million in 2007 registering a growth rate of 73.74%. In 2008, DBBL‘s earnings were 3.23% of its average assets and 63.95% of its average equity capital. Among total investment of BDT 5,385.41 million, 99.65% was made on risk less government securities (BDT 391.20 million as T-Bill, BDT 4,971.53 million as T-Bond and BDT 3.68 million as Prize bonds). Only 0.35% of its total investment was in ICB‘s fifteen years‘ debenture (redemption) and BDT 4.00 million in CDBL. Therefore, DBBL did not assume any mark-to-market risk from its investment. The rating analysis also observes that DBBL strives to provide its customers the latest banking technology and delivery channels to provide seamless banking facilities to its valued customers through continuous development of its technology. The Bank gives high emphasis for the safeguard against any disaster situation in order to continue the operation, where it has two servers – one as Main Server and other as back up server. The Bank had the largest ATM network in the country comprising of 350 ATM units and 750 units of POS terminals (by end of 31 December 2008). The rating also considers DBBL‘s leading position in Corporate Social Responsibility (CSR) in the banking sector. DBBL views CSR as an integral part of its effort in conducting business in a responsible manner, which is reflected in its vision statement and practices. The Bank has formed a separate ICC Division segregated into Audit & Inspection unit, Monitoring unit and Compliance unit, though the ICC function was found to be constrained with manpower shortage. 30
  31. 31. Findings a) Dutch Bangla Bank Ltd. has greatest contribution in CSR activities. b) DBBL contributes mainly in education, health, disaster, donation sector. c) The Banking culture and environment is favourable also. d) DBBL extends free medical facilities under its ―Rural Health Service Program‖ to the members of the general public around the rural branches. e) DBBL promotes different socio-cultural and sports activities. 31
  32. 32. Recommendations DBBL can expand their business and broaden their sector of social responsibility by the following terms: • Primary school sector: primary school sector is very backward in our country. DBBL can nourish their social responsibility in this root sector. They can offer scholarship or patronize this sector and thus country can benefited as well as take a role of social responsibility by this sector. • SME sector: SME is also a root sector where this bank can apply credit formula or patronizing this sector. Thus it can probably expand its social image. They also can supply credit at a low interest rate that can improve this sector according to its social responsibility. • Microcredit sector: microcredit is very popular among root people in our country. The main advantage of microcredit is that a person can take loan without any security. If DBBL starts to give microcredit than it will help the people a lot. On the other hand it will increase the social image of DBBL. 32
  33. 33. Conclusion As a third world country Bangladesh has lot of problems. Government often find themselves helpless when it comes to solving of these problems. As business owners of this country are considered as a part of the affluent section of the society they can contribute more meaningfully towards of the betterment of the society. If more company came forward to contribute to the society like DBBL, it will help to create their social branding as well as helping the society. So we can say DBBL is a pioneer in Corporate Social Responsibility because the idea of CSR is vastly expanded by DBBL at first. On the other hand a market heavily segmented by the type and complexity of mobile phone usage might be good place to roll of WAP based mobile applications. According to the Gartner Group, mobile banking services will have to support a minimum of 50 different device profiles in the near future. However, currently the best user experience, depending on the capabilities of a mobile phone, is possible only by using a standalone client.. Mobile Application based banking is poised to be a big m-commerce feature, and if South Korea's foray into mass mobile banking is any indication, mobile banking could well be the driving factor to increase sales of high-end mobile phones. Nevertheless, Bank's need to take a hard and deep look into the mobile usage patterns among their target customers and enable their mobile services on a technology with reaches out to the majority of their customers. 33
  34. 34. Bibliography Annual Report of Dutch-Bangla Bank Ltd. 2010 and 2009. Bowie, N. (1995), ―New directions in corporate social responsibility,‖ in Hoffman, W. M., and Frederick, R.E. (Eds), Business Ethics: Readings and Cases in Corporate Morality, Third Edition, McGraw-Hill, New York. Brenkert, G.G. (1996), ―Private corporations and public welfare,‖ in Larmer, R.A. (Ed), Ethics in the Workplace: Selected Readings in Business Ethics, West Publishing Company Business Ethics (Ethical Decision making and cases, O.C Ferrell, John Fraedrich, Linda Ferrell) Six Edition Carroll, A. B. (1979), ―A three dimensional model of corporate performance,‖ Academy of Management Review, Vol. 4 Friedman, M. (1996), ―The social responsibility of business is to increase profits,‖ in Rae, S. B., and Wong, K.L. (Eds)., Beyond Integrity: A Judeo-Christian Approach, Zondervan Publishing House, Grand Rapids http://www.dbbl.com.bd http://www.waynevisser.com/chapter_wvisser_csr_2_0.pdf Khan A. R Business Ethics (2nd ed, 2009), Brothers Publication, Dhaka. Kothari, C.R (1996) Research Methodology, Methods and Techniques,Wishwa Prakashan, New Delhi, India. Rose Peter S. Commercial Bank Management, McGraw Hill Companies Inc. Boston, 1996 34