Auditors’ Report
To the Shareholders of Bangladesh Shilpa Bank
We
have audited the accompanying Balance Sheet of Bangladesh Shilpa Bank as of 30 June, 2006 and the related Profit
and Loss Account, Cash Flow Statement, Statement of Changes in Equity and Statement
of Liquidity together with the notes 1 to 33 for the year then ended. The
preparations of these financial statements are the responsibility of the Bank’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with Bangladesh Standards on Auditing (BSA).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
Our
audit revealed the following:
i. Long time outstanding Debenture (Principal + interest) was
amounting to Tk. 114,304,741. But provision has been made for Tk. 69,161,538
only against the above amount. No provision has been made for the balance
amount of Tk. 45,143,203 and the amounts appeared to us not realizable.
However, out of the total debenture Tk. 11.43 crore a sum of Tk. 9.8 crore
lying with Beximco Synthetics Ltd. & Beximco Denims Ltd., which is under
the process of rephasement.
ii. As per BSB’s books of accounts “Balance with Bangladesh Bank”
held by DCBO (Dhaka Commercial Branch Office) as on 30.06.06 was amounting to
Tk. 192,775,075 but as per Bangladesh Bank confirmation, the balance of the
same account is Tk. 37,598,574. Out of the difference of Tk. 155,176,501, a sum
of Tk. 2,027,135 remained unreconciled till the date of our audit, which will
be reconciled by the bank shortly as reported by the Bank management.
iii.
Income tax deducted at source since 1986-87 to the tune of
Tk. 195,775,918 has not been credited by the tax department, for which no
adjustment has been made in the accounts. It is reported that initiative has been
taken to adjust the amount.
iv. No dividend has been received since long from few companies’
shares against the investment of Tk. 740,000.
v. On our verification it is observed that deposits and other
accounts of liability side include Tk. 2,006,916 being unclaimed by the
depositors over ten years. Where as section 35 of the bank companies Act. 1991
dictates that such unclaimed liabilities should be transferred to Bangladesh
Bank, it is yet to be implemented.
vi. Under the head ‘other liabilities ‘ inter office current
account of DCBO shown debit balance of Tk. 281,381,310 remained
unreconciled. As such accuracy of the
balance are subject to confirmation by respective branches.
vii. Deferred tax as per BAS 12 not yet
implemented.
viii. No statutory reserve has been created on
net profit during the year under audit.
Except the fact stated above, the financial
statements give a true and fair view of the financial position of the Bank as
of 30 June, 2006 and of the result of its operations and its cash flows for the
year then ended and comply with the Bank Companies Act 1991, the Rules and
regulations issued by Bangladesh Bank and the other applicable laws and
regulations.
Except
for the matters as mentioned above we further report that :
i) we have obtained all the information and explanations which
to the best of our knowledge and belief were necessary for the purposes of our
audit and made due verification thereof ;
ii) in our opinion, proper books of account as required by law
have been kept by the Bank so far as it appeared from our examination of those
books and proper returns adequate for the purposes of our audit have been
received from branches ;
iii) the Bank’s Balance Sheet and Profit and Loss Account dealt
with by the report are in agreement with the books of account and returns ;
iv) the financial statements have been drawn-up in conformity
with the Bank Companies Act, 1991 and in accordance with the accounting rules
and regulations issued by the Bangladesh Bank ;
v) the expenditure was incurred for the
purposes of Bank’s business ;
vi the financial position of the Bank at
vii) adequate provision has been made for advances and other
assets which are, in our opinion, doubtful of recovery;
viii) the records and statements submitted by
the branches have been properly maintained and consolidated in the financial
statements ;
ix) the financial statements conform to the prescribed standards
set in the accounting regulations issued by the Bangladesh Bank after
consultation with the professional accounting bodies of
x) the information and explanations required by us have been
received and found satisfactory ;
xi) 80% of risk weighted assets of the bank
as at
xii) we were not aware of any other matters which are required to
be brought to the notice of the shareholders.
Khan Wahab Shafique Rahman & Co. Rahman Mostafa
Alam & Co.
Chartered
Accountants
Chartered Accountants
Dated
:
Bangladesh
Shilpa Bank
Notes
to the Financial Statements
For
the year ended
1.0 Background
Information :
1.1 Establishment
and Status of the Bank :
Bangladesh Shilpa Bank (BSB) was established on 31
October, 1972 under the Bangladesh Shilpa Bank Order, 1972 (as amended 1st
November, 1992 ) and owned by the Government. Bangladesh Shilpa Bank has 15
branches all over
1.2 Nature
of Business :
Bangladesh Shilpa Bank as the prime development
financing institution of the country extends financial assistance both in local
and foreign currencies for setting up new industries and rehabilitation of sick
industries. Besides, the bank started full-fledged commercial banking function
from 1993.
1.3 Employees Benefit :
Employees benefit as per Provident Fund, Employees
Benevolent Fund and Superannuation Fund has been provided adequately. Gratuity
as per IAS-19 in not applicable for this Bank.
Significant Accounting
Policies :
2.1 Basis
of Preparation of Financial Statements
These financial statements have been prepared under
the historical cost convention on a going concern basis in accordance with
Bangladesh Accounting Standards and in the format prescribed by the Bangladesh
Bank vide BRPD Circular # 03 dated
2.2 Consolidation
of accounts :
A separate set of records for consolidating the trial
balances for the Branch offices and Loan Accounting Department is maintained at
the Central Accounts Department, Head Office from which financial statements of
the bank are drawn up.
2.3 Fixed Assets and Depreciation:
* Fixed assets other than land are stated at cost less
accumulated depreciation. Land is stated at cost.
* Depreciation is being charged on fixed assets other than
motor vehicles & Computer on
reducing balance method. Depreciation on motor vehicles & Computer is being
charged on straight-line method.
|
Building/Premises |
2.5% |
|
Furniture & Fixtures |
10.0% |
|
Electric/Gas Installation |
20.0% |
|
Typewriters, Ceiling Fans, Office Equipment |
20.0% |
|
(including Computer) & SBBL Gun |
|
|
Motor Cars, other Vehicles |
20.0% |
Depreciation at the applicable rates is charged
proportionately on additions made during the year from the month of their
acquisition.
Upon retirement of items of fixed assets the net book
values are eliminated from the accounts and the resulting gains or losses, if
any, are transferred to Profit and loss Account.
Repairs and maintenance costs of fixed asset are
charged to Profit and Loss Account when incurred.
2.4 Revenue Recognition :
Loans
and Advances :
i. Interest on unclassified loan and advance is calculated on
a daily product basis but charged and accounted for quarterly basis and in some
cases yearly on accrual basis.
ii. No
interest is charged on loan classified as bad and loss.
iii. Interest is charged on classified loans and advances as per
BCD Circular # 34 of 1989, BCD Circular # 20 of 1994, BCD Circular # 12 of
1995, BRPD Circular # 16 of 1998 and BRPD Circular # 9 of 2001 and such
interest is not included in income and credited to interest suspense account.
iv. Interest suspense and penal interest, if any, calculated on
classified advances is taken as income in the year of receipt of such interest
from the defaulting borrowers.
2.5
Other
Information:
i) No
income was generated from interest fluctuation and foreign exchange dealing.
ii) No
assets were pledge as security for liabilities because no securities were held by Bangladesh Bank
and Government against these loans.
iii) No
assets and liability has been set off during the year under audit.
iv) Value
of pledge collaterals amounting to Tk. 280.07 crore comprising of land & buildings.
v) Core
Risk management has been introduced by the Bank Management. Details has been
shown on Note 2.25.
Investment :
i. Income on investment, other than shares in different
limited companies have been accounted for on accrual basis.
ii. Dividend/other
operating income is recognized at the time when it is realized.
iii. Commission charged to customers on letters of credit and
letters of guarantee are credited to income at the time of effecting the
transactions.
2.6 Loans
and Advances :
i. Loans and advances have been stated at gross value as per
requirement of The Bank Companies Act, 1991.
ii. Provision for loans and advances are made on the basis of
information furnished by the branches and of instructions contained in
Bangladesh Bank. BCD Circular # 12 dated
General provision on
unclassified loans and advances 1%
Provision on Special
Mentioned Accounts 5%
Provision on substandard
loans and advances 20%
Provision on doubtful
loans and advances 50%
Provision on bad/loss
loans and advances 100%
iii. Loans and advances are written off to the extent that there
is no realistic prospect of recovery as per BRPD Circular # 2 dated
2.7 Events
after Balance Sheet Date :
After the balance sheet date, no significant
changes/transactions has taken place which would further require adjustment to
or disclosure in the financial statements except as stated below:
i. The bank has paid an amount of Tk.20.33 crore to Bangladesh
Bank, which was previously borrowed from Bangladesh Bank.
ii. The
bank has paid an amount of Tk.2.65 crore to Govt. as DSL.
iii. Recovery
upto 30.09.07 stands at Tk. 12.34 crore.
2.8 Foreign
Currency Translation:
a. Foreign
Currency Transaction :
i. Transactions
in foreign currencies are translated into BDT currency at the rate of exchange prevailing on the date of such
transactions and resulting gains or losses
are credited/charged to Profit & Loss Account.
ii. Monetary assets and liabilities in foreign currencies are
expressed in taka terms at the rate of exchange ruling on the balance sheet
date except other than those in pre-liberation Pakistani currency which have
been translated at Tk.1 = Pak Rupee 1.
b. Forward foreign exchange contracts valued at forward rates
applicable to their respective maturities.
2.9 Share
Capital :
The Authorized Capital of the bank is two billion
taka divided into two million shares of taka one thousand each of which cent
percent has been subscribed and paid-up by the Government.
2.10 Statutory
Reserve :
An amount of Tk. 5,90,37,341 has been transferred to
Statutory Reserve out of profit.
2.11
General
Reserve :
No reserve has been created on profit during the year
under audit.
2.12
Special
Reserve :
No reserve has been created on net profit during the
year under audit.
2.13 Reserve
for Unforeseen Losses :
No reserve for unforeseen losses has been created on net
profit during the year under audit.
2.14 Provision
for Taxation :
Provision for taxation amounting to Tk. 4,97,25,330.00
has been made on net profit after adjustment of accumulated loss as per
prevailing taxation rule.
2.15 Provision
for Bad and Doubtful Debts :
Required provision for bad and doubtful debts has
been made as per Bangladesh Bank's BCD Circular # 34/89, 20/94, 21/94, 12/95,
BRPD Circular # 16/98 and BRPD Circular No 05/06.
2.16
Pension
Plan :
With the introduction of BSB Employees Service
Regulation 1984, vide the Official Gazette published on 26 December, 1984 by
the Finance Division of the Ministry of Finance, the Pension and
Death-Cum-Retirement Benefit Scheme, General Provident Fund (GPF) Scheme, etc.
have been implemented extending benefits thereof to all full time employees of
the Bank who became members of the said schemes. The fund is being managed and
administrated by a separate trust formed for the purpose.
2.17 Special
Assistance Fund :
In accordance with the Industrial Policy 1986, a
Special Assistance Fund (SAF) has been created by BSB as the prime DFI of the
country to provide concessional loans to projects:
a. Based
on local innovation and invention of products and processes;
b. Utilizing
locally manufactured capital goods; and
c. For
production of capital machinery and other non-traditional items.
2.18 Quasi-Equity
:
This was created as per Government decision in 1982
by converting Taka counterpart fund of the 3rd, 5th, 6th and 8th UK Credits.
2.19 Investment
:
a. Investments have been shown under two broad categories :
Government Securities and Other Investments.
b. Investments in shares and securities have not been revalued
at the end of the financial year.
c. The current and long-term investment in securities have been
shown at cost price which is lower than the market price.
2.20 Deposits
and Other Accounts :
Deposits and other accounts includes bills payable
and have been analyzed in terms of the maturity grouping showing separately
other deposits and inter-bank deposits. Unclaimed deposits for 10 years or more
held by the Bank have been shown separately.
2.21 Reconciliation Position:
a. NOSTRO
A/c.
There are three NOSTRO accounts being maintained with
Foreign Banks as on 30 June, 2007.
b. Inter Branch Transactions:
To maintain inter branch transactions a number of
current accounts are being maintained among Loan Accounting Department, Central
Accounts Department of Head office and fifteen branches namely LAD Current
Account, CAD Current Account and Inter Branch Account.
2.22 Audit
Committee :
2.22.1 Member
:
An audit committee has been constituted by the Board
of Directors of the Bank in its 400th meeting held on 06 April 2003 which
position as on 30-06-2007 as under :
|
Sl. No. |
Name |
Qualification |
Status with the Bank |
Status with the Committee |
|
1 |
Mr. Md. Aminul Islam Bhuiyan |
BA(Hons.) MA, MS |
Chairman |
Chairman |
|
2 |
Dr. Mohammad Ayub Mia |
BA(Hons.) MA, PhD |
Director |
Member |
|
3 |
Begum Dilruba |
MSc, MA |
Director |
Member |
|
4 |
Mr. Abdul Awal Chowdhury |
BA(Hons.) MA, PGDBA |
Secretary |
Member |
2.22.2
Meetings :
During the Year 2006-07, 1 (one) meeting of the Audit
Committee was held on 28/06/07.
2.22.3
Activities :
The committee reviews the policy and planning
executed by the Board of Directors for smooth operation of the bank. The committee
acknowledges their responsibility for the system of internal controls,
effectiveness and suitable monitoring procedures, proper accounting policies,
compliance with the regulations, computerization system, management information
system, different risk management of the bank, etc. The committee also ensures
the implementation of International Accounting Standards (IAS) and other
applicable laws at the time of preparation of the annual financial statements.
The committee meets with the external auditor and top management of the bank at
the time of reviewing the annual financial statements. The committee also
reports to the Board of Directors on the findings detected by the Internal
Audit Division, External Auditors and Bangladesh Bank Inspection Team on a
regular basis.
2.23 AUDIT
NOTE :
Audit Approach :
We conducted our audit in accordance with the related
International Standard on Auditing (ISA) as adopted and issued by the Institute
of Chartered Accountants of Bangladesh. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.
Staffing and
extent of examination :
i) Our audit team comprised of 2 (Two) qualified persons and 8
(eight) audit staff who have worked for a period 45 (forty-five) days for
completing the audit task. Our examination includes checking on a test basis of
evidence supporting the accounts and disclosures in the financial statements.
2.24 Name of the Directors and
the entities in which they have interest as on 30 June, 2007 :
|
Sl. No. |
Name |
Status with the Bank |
Name of the firms/companies in which interest as proprietor, partner,
director, managing agent, guarantor, employee, etc. |
|
1 |
Mr. Md. Aminul Islam Bhuiyan |
Chairman |
- |
|
2 |
Mr. Md. Amanullah |
Managing Director |
Investment Corporation of |
|
3 |
Dr. Mohammad Ayub Mia |
Director |
- |
|
4 |
Mr. Elias Ahmed |
Director |
- |
|
5 |
Mr. Md. Wazed Ali Khan |
Director |
- |
|
6 |
Mr. Mahbub Ahmed |
Director |
- |
|
7 |
Mr. Amalendu Mukherjee |
Director |
- |
|
8 |
Syed Monjurul Islam |
Director |
- |
|
9 |
Begum Dilruba |
Director |
- |
2.25 Risk
Management:
The bank is primarily subject to interest rate,
credit and currency risks. The policies and procedures for managing these risks
are outlined in the notes below. The bank has designed and implemented a
framework of controls to identify, monitor and manage these risks, which are as
follows:
Credit
Risk Management:
Credit risk is the risk that one party to a financial
instrument will fail to discharge and obligation and cause the other party to
incur a financial loss. Concentration of credit risk arises when a number of
counter parties are engaged in similar business activities or activities in the
same geographical region or have similar economic features that would cause
their ability to meet contractual obligations to be similarly affected by
changes in economic, political or other conditions.
Concentration
of Credit Risk:
Out of the total financial assets of Tk. 8,164
million, the financial assets that were subject to credit risk associated to
total credit. The bank's major credit risk is concentrated in textile sector.
To manage credit risk, the bank applies credit limits to its customers and
obtains adequate collaterals.
Credit risk is the risk that one party to a financial
instrument will fail to discharge an obligation and cause the other party to
incur a financial loss. Credit risk in the Bangladesh Shilpa Bank's Portfolio
is monitored, reviewed and analyzed by the Credit Risk Management (CRM).
CRM determines the quality of the credit portfolio
and assists in minimizing potential losses. To achieve this objective, CRM
formulates appropriate credit policies and procedures for the bank to ensure
building and maintaining quality credits and an efficient credit process.
Bangladesh Shilpa Bank has formed Asset Liabilities
Committee (ALCO) to screen out the banks/financial institutions and determine
the maximum risk exposure on each of them. ALCO also assesses, recommends and
controls cross border/country risk.
To manage the Non-Performing Loans (NPLs), Bangladesh
Shilpa Bank has in place comprehensive remedial management policy, which
includes a framework of controls to identify weak credits and monitoring of these
accounts.
Interest
Rate Risk Management :
Interest risk is the risk that the value of a
financial instrument will fluctuate due to change in the market interest rates.
The risks are inherent on deposits, liabilities, loans / advances and investments
of the Bank.
The Assets and Liabilities Committee of Bangladesh
Shilpa Bank regularly reviews the total portfolio of the bank to ensure that
risks are minimized and remain within acceptable limits.
Liquidity Risk Management :
Liquidity risk is defined as the potential loss
arising from the Bank's inability to meet its contractual obligations when due.
Liquidity risk arises in the general funding of the Bank's activities and in
the management of its assets. Bank maintains sufficient liquidity to fund its
day to day operations, meet customer deposit withdrawals either on demand or at
contractual maturity meet customers demand for new loans participate in new
investments when opportunities arise and repay borrowing they mature. Hence
liquidity is maintained to meet known as well as unanticipated cash funding
needs.
Important factors in assuring liquidity are funded on
the Bank's good reputation, the strength of its earning and its strong
financial position and credit rating. Liquidity risk is managed in accordance
with a framework of liquidity policies, contracts and limits approved by ALCO.
These policies controls and limits to ensure that Bank maintains well
diversified sources of funding as well sufficient liquidity to meet all its
contractual obligations when due.
The bank can meet the liquidity crisis by taking call
loan, short term deposit from other Bank and Financial Institutions.
2.26 General
:
Figures have been rounded off to the nearest taka.
Prior years' figures which are shown for comparison
purpose, have been rearranged, wherever necessary, to conform to the
presentation of current year.