Group Presentation on Modern Banking Systems

Department of Management Information Systems University of Dhaka

 Submitted To:

 Submitted By:

Akram Hossain Lecturer, Department of Management Information Systems University Of Dhaka

Farhana Tashin ID No:05 Farzana Sharmin ID No:18 Farzana Alam ID No:33 Syeda Umma Kulsum ID No:49 Anika Tarannum Ahmed ID No:57

Modern Banking Systems

 Bank play a significant role in the economic development. The

overall economic of a country is absolutely dependent on the efficient banking system. Industrial, agricultural and commercial progress of a country is not possible without a good and modern banking system. A Modern Banking System: provides an inexpensive media of exchange through its cheques etc. finances trade and industry acts as Reservoir of funds acts as the custodian of customers valuables acts as the correspondent and representative of its customers, other banks and financial institutions.

1. 2. 3. 4. 5.

Classification of Modern Banking Systems

Organizational Characteristics + Techniques= Hybrid System
Organizational Characteristics Techniques

Branch Banking

Unit Banking

Deposit Banking

Investment Banking

Merchant Banking

Mixed Banking

Chain Banking

Holding Company Banking

Branch Banking

A popular banking system first developed in the United Kingdom. In Branch banking system, the bank has a head office which controls and directs the branches located in multiple locations. The branches may be located in the same city or town of a country or even in abroad.

Branch Banking

Advantage: Branch banking system possesses huge financial resources and enjoys the benefits of large-scale operations. Drawback: There is excessive centralization and branches have to look up to the head office for many issues.

Unit banking
 single office  particular area  Collect deposit from small community  Place deposit in bigger bank in bigger

city  Correspondent banking: Remittance facility with help from larger bank

Branch banking vs. unit banking

Advantages of branch banking:  Scale operation  Risk diversification  More coverage  Utilization of fund  Area development Disadvantages of branch banking:  Control problem  Delayed decision  Centralized economic power  Diversion of funds  Uneconomic expansions

Chain banking  2 or more unit bank controlled by an individual or members of the same family  Maintain separate identity Holding company banking  2 or more unit bank held as subsidiaries by a holding company  Holding company may or may not be involved in banking business

Chain/holding company banking: for and against

Advantages:  Pool greater resources  Economics of scale  Serve locality effectively
 Disadvantages:  Lack of control  Misutilization of

funds  Concentrated economic power

Deposit banking
 Taking deposit from public  Deposits are Payable by cheques  Use the deposit as they like, mainly

lending  Ex: modern joint stock banks

Investment banking
 Providing assistance to commercial

organizations  In raising long term capital  Sale of share, stock and bonds  Middleman: between corporate bodies and general public

Classification
 Originator: bring out new issue of

securities  Underwriters: buy entire issue if no response from investors  Retailers: arrange sale of securities & private placement of shares through negotiation

Mechanism of operation
 Preliminary negotiation with issuing

corporation  Detailed report about- product, assets, ownership, capital & purpose of issuing  Agreeing to bring out new issue as underwriter- Form underwriting syndicate  Arrange Sell of share at market

Usefulness
To business & industry:  Provide necessary long term capital To the general public:  Independent and indepth analysis gives idea to desirability of shares

Investment banking in Bangladesh

 Started in 1976  1st bank: Investment Corporation of

Bangladesh  Three major products: Mutual Fund Investors Account Unit Certificate

Investment banking in Bangladesh

 some commercial banks also carry out

investment banking functions in Bangladesh.  The Securities and Exchange Commission (SEC) issues certificate of registration  The SEC has a code of conduct for issue managers, underwriters and portfolio managers  is empowered to suspend or cancel the certificate of registration for violation of code of conduct .

Capital requirement for Investment banking in Bangladesh

 institutes intending to operate as issue

manager - a capital of at least Tk 2.5 million.  institution to become eligible for the certificate for operating as underwriter or portfolio manager is Tk 10 million.

Types of investment banks in Bangladesh

open-ended Closed-ended

open-ended
 referred to as mutual funds  repurchase shares in any quantity as

and when holders offer them for sales.  amount of shares of the open-ended investment companies in market changes continually in response to public demand.

Closed-ended
 sell only a specific number of ownership shares.  An investor wanting to acquire shares must find

another investor who wishes to sell.  Investment companies do not take part in the transaction.  issue debt and equity securities including preferred stock, regular and convertible bonds stock warrants for raising funds.

Merchant bank
Merchant banks are that type of bank, which does following type of worksFinancing domestic trade Advising on amalgamation, mergers,

take overs. Leasing finance Investment management

Functions of Merchant bank

Important functions of merchant banks are
 Underwriting initial public offering of shares.  Promoting or financing domestic or overseas

projects  Extending assistance to raise foreign currency n loans  Taking deposits [Continued]

Functions of Merchant bank

 Participating in money market  Assisting In raising in of capital  Providing advice and consultancy  Providing counseling on mergers, take-over  Maintaining relations with the government

Merchant Banking Operations in Bangladesh

 Underwriting:  Issue Management  Portfolio Investment Management

Services  Merger and Adcquisition:Merchant

Customers of Merchant banking:

1.Any Bangladeshi over 18 years of age 2. Any Corporate body (ies) 3. NRB (s) through NITA Account

Qualities of merchant bankerEssential qualities of a merchant banker are followingHe must have expertise He must have integrity He must be capable of building and maintaining banker customer relationship.

Merchant banking in Bangladesh

 Janata Ban  City Bank  Eastern Bank  Southeast Bank  One Bank  National Bank  ICB Capital Management
 Alfa Capital Management  Cosmopolitan Traders Private     

Limited  Prime Finance and Investment  Alliance Financial Services  Jamuna Bank

Limited IDLC Finance Limited Uttara Finance and Investment Limited Bangladesh Mutual Securities Limited Lankabangla Finance GSP Finance Company

 Mutual Trust Bank  Green Delta Insurance

Potentiality of merchant banking in Bangladesh:

Procurement of government benefits Management of issue/underwriting Finance syndication Management of portfolio

Mixed banking
Meaning: Commercial banking and investment banking combined together Before the development
 Commercial banks - short-term financing;  investment banks - long-term financing  idea of mixed banking -gradually losing ground.

Demerits of Mixed banking

 1. It reduces liquidity of the bank. A large part of the funds of

the bank is raised from deposits, which are repayable either on demand or after a short period.  it may not be able to pay the depositors when they demand back their money  3. During periods of depression, banks suffer heavy losses when the securities of companied lose their value because of fall in demand for the sale of securities held by it. Banks with poor reserves may fail.
 In Bangladesh commercial banks are found to cautious about

term lending .they closely monitor their portfolio to avoid too much involvement in the area.

Discount houseThe banks which take money on deposit

from the banks and commercial sector and lend those on short-term basis to government/public bodies and commercial houses are referred as to discount banks. The securities discounted are generally treasury bills, government bonds, commercial bills etc

Origin:
 The origin of discount houses dates

back to the eighteenth century when some banks started specializing in lending money to business houses by discounting of bills of exchange arising out of purchase & sales on credit.

Role as broker:
 Discount houses play the role of brokers

in the money market. These are in fact bridges between the people and institutions having surplus of short-term funds and those needing funds for short-term requirements

Discount business in Bangladesh:

 No specialized bank exists in Bangladesh

which does discounting of bills only. The central Bank, under its own norms, allows bill discounting facilities to the commercial banks. Commercial banks also, within rules, do this business partly.. however, discounting facilities extended by them are mainly limited to the export bills.

Bangladesh: structure of the banking system

Number and Types of Banks

 Sonali Bank is the largest among the NCBs  Pubali is leading in the private ones.  Among the 12 foreign banks, Standard

Chartered is the largest  financial sector Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank Grameen bank

Number and Types of Banks

Banks NCBs PCBs DFIsF CBs Total No. 4 28 5 12 49 Branches Net assets (in Billions) 3616 1214 31 1177 6038

Services
 Accounts  Savings Bank Account  Special Services  Savings Bank Account  Automated Teller Machine (ATM)  Internet Banking

Thank you