Internship Report On Investment Management of SIBL and AIBL- A Comparative Study

Social Islami Bank Limited is a commercial bank with 64 branches across major cities in Bangladesh and 1252 full time employees on year end 2010. It was incorporated as a Public Limited Company under Companies Act, 1994 on July 5, 1995 as an interest-free Shariah bank in Bangladesh. The Bank started commercial banking operations from November 22, 1995 with an authorized capital of Tk 1,000 million divided into 1 million ordinary shares of Tk 1,000 each. The initial paid up capital was Tk 118.36 million fully subscribed by its 38 sponsors including 3 Arab nationals. The bank renders all types of commercial banking services and it conducts business on the Islamic principles of musharaka, Murabaha, bai-muazzal and hire purchase transactions. The bank offers banking services through deposit and investment accounts, trade financing, collection of bills, money transfers, lease of equipment and consumers' durable, hire purchase and installment sale of capital goods, investment in low-cost housing and real estate management, and financing projects in agriculture, transport, education and health sectors. It is involved in opening and introducing various savings and investment schemes for the unemployed poor and the educated.

The investment procedure followed by Social Islami Bank Ltd. consists of a set of sequential activities, wherein both bank officials and potential borrowers play significant role. The investment process formally starts with an investment application from a client who must have an account with the Bank. The branch manager first interviews the borrower and makes a preliminary assessment. Then the customer provides relevant financial information to the bank for credit analysis. For corporate customer, financial statements for the last three years have to be supplied to the bank officials. For new company, projected financial statements are used for financial appraisal. Meanwhile the bank sends inquiry to the Credit Information Bureau of Bangladesh Bank in prescribed format to know whether the borrower has classified loans with other banks.
If the CIB report obtained from Bangladesh Bank signifies that the customer is a good borrower, the bank starts processing of the investment proposal. At this stage the bank conducts investment analysis. The bank uses financial spread sheet analysis which consists of the analysis of balance sheet, profit & loss account, cash flow statement. The outcomes of the financial spread sheet analysis are various ratio analyses. The investment analysis is undertaken for the quantitative measurement of the risk associated with an investment.
After investment analysis if the borrower is found sound for investment, the bank proceeds to prepare the investment proposal. If the credit line is within the discretionary power of the branch manager then the investment line is approved and otherwise it is sent to the corporate office. Corporate office investment committee reviews the investment proposal and if finds everything in order, sends it to the managing director who approves the investment line. In case of the investment amount being more than one crore, Board approves investment.
After board approval the sanction advice is sent to the borrower who returns the duplicate copy duly signed meaning that he/she accepts the terms and conditions of the bank’s investment policy. Once the investment is disbursed, monitoring starts formally. Monitoring of an investment is very essential because of high default rate in Bangladesh.

The total duration of time required to complete the investment process varies with the nature of investment, collection of information, nature of information, analysis of information, preparation of the proposal, corporate office scrutiny, board approval, preparation of sanction advice, creation and collection of charge documents and actual disbursement of investment.

Classified investment as a percentage of total investment of SIBL as on 31.12.2010 was 4.76% which is very high. SIBL has strengthened its investment portfolio management through diversification of its investment among the different industries. For every economic sector the Board has imposed a ceiling to avoid concentration of investment to a single industry and hence to reduce the risk of the overall investment.

Investment is the main income generating activity for all banks and involves both risk and profit. But a sound investment process supported by quantitative analysis, qualitative judgment and a separate investment-monitoring cell can reduce the risk to a certain extent. So far Social Islami Bank Limited could maintain a very good investment portfolio and its investment process is reasonably sound.

In this report I also include the investment mode, its investment principles and polices and investment procedure of Al-Arafa Islami Bank Ltd. and finally I tried to compare the performance of investment of both banks by using some ratios analysis, regression analysis and other investment performance related data analysis.