Strategies for Procurement of No Cost

May 20, 2018 Commerce

At the beginning of the 21st century, the biggest banks in the industrial world have become complex financial organizations that offer a wide variety of services to international markets and control billions of dollars in cash and assets. Supported by the latest technology, banks are working to identify new business niches, to develop customized services, to implement innovative strategies and to capture new market opportunities. With further globalization, consolidation, deregulation and diversification of the financial industry, the banking sector will become even more complex.

Although, the banking industry does not operate in the same manner all over the world, most bankers think about corporate clients in terms of the following: • Commercial banking – banking that covers services such as cash management (money transfers, payroll services, bank reconcilement), credit services (asset-based financing, lines of credits, commercial loans or commercial real estate loans), deposit services (checking or savings account services) and foreign exchange; • Investment banking – banking that covers an array of services from asset securitization, coverage of mergers, acquisitions and corporate restructuring to securities underwriting, equity private placements and placements of debt securities with institutional investors. Over the past decade there has been an increasing convergence between the activities of investment and commercial banks, because of the deregulation of the financial sector.

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Today, some investment and commercial banking institutions compete directly in money market operations, private placements, project finance, bonds underwriting and financial advisory work. Furthermore, the modern banking industry has brought greater business diversification. Some banks in the industrialized world are entering into investments, underwriting of securities, portfolio management and the insurance businesses. Taken together, these changes have made banks an even more important entity in the global business community. In today’s competitive world, information is the most fundamental criteria to success. Knowing one’s surrounding in the existing market provides a competitive advantage which can enable better planning and risk diversification.

The objective of the report is to increase awareness within employees in terms of products available in the Banking sector so as to improve product mix and maximize customer satisfaction by catering to their needs appropriately. Rather than the conventional services provided by Banks, this particular report intends to elaborate on the strategies for procurement of No Cost and Low cost Deposit between United Commercial Bank Limited and Standard Chartered Bank Limited to better understand and implement newer strategies.  United Commercial Bank Limited (UCBL) is a first-generation private commercial bank established in Bangladesh in the year 1983 under the Companies Act. Since inception, it has committed to provide high quality financial services to the people of this country to accelerate economic development of the nation.

As such, it has been working for stimulating trade and commerce, accelerating the pace of industrialization, boosting export, creating employment opportunity, alleviating poverty, raising standard of living of the people etc and thereby contributing to the sustainable development of the country. At present, the bank has a network of 127 branches in both rural and urban areas of the country. Since inception, the Bank has been making significant profit every year and this has been possible due to significant credit growth of the bank Mercantile Bank Limited Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services and to contribute socio-economic development of the country. The Bank commenced its operation on June 2, 1999 with the vision of making finest corporate citizen.

Mission of the bank is become most caring, focused for equitable growth based on diversified deployment of resources, and nevertheless would remain healthy and gainfully profitable Bank. The main strategic objectives are achieve positive Economic Value Added (EVA) each yea, to be market leader in product innovation, to be one of the top three Financial Institutions in Bangladesh in terms of cost efficiency and to be one of the top five Financial Institutions in Bangladesh in terms of market share in all significant market segments we serve. Mercantile Bank Limited is one of the efficient commercial bank in Bangladesh with 86 Branches, 50 ATMs and employing over 2000 people.

After establishment the bank increasingly invested in people, technology and premises as its business grew in relation to the country’s thriving economy. They currently provide both Consumer Banking and Wholesale Banking Services, ranging from Personal ; Corporate Banking to Institutional Banking, Treasury and Custodial services. Extensive knowledge of the market and essential expertise in a wide range of financial services underline their strength to build business opportunities for corporate and institutional clients in Bangladesh. Continuous upgrading of technology and control systems has enabled the bank to offer new and improved services such as Phone banking, I-banking, e-Lending etc.

A new found focus on low-cost deposits is the most striking aspect of commercial banks. Demand deposits or savings and current accounts are key to banks’ profitability, particularly at a time they cannot raise their lending rates due to intense competition. So, the best way to keep the net interest margin (NIM) intact is to bring down the cost of deposits. This is possible by rapidly expanding the portfolio of savings and current accounts. Term deposits that have tenure between a few years and are an expensive liability for a bank as the interest paid on such deposits can be as high as 11%. As a matter of fact, some of the banks pay up to 13% interest on bulk term deposits. In contrast, no interest is paid on current accounts.

These accounts, normally kept by high net worth individuals and entrepreneurs, besides corporations, allow a consumer to make many transactions daily. Banks insist on a minimum balance for such deposits. As for savings accounts where banks pay 4. 5% interest, in reality, the actual cost of savings accounts is less than this as banks pay interest on the minimum balance kept between 10th and the last day of a month. The average cost of savings accounts is less than 3% and overall the cost of demand deposits could be even less than 2%, depending on the combination of current and savings accounts of a particular bank.

For the last couple of years (4 to 5 years), United Commercial Bank has successfully conducted and implemented deposit campaign for a certain period of time once in a year. During the campaign, deposit mixing strategy has been initiated and accordingly complied. Usually hunting of no cost/low cost is 75% of the total targeted campaign amount. UCBL has relatively successfully executed their campaign target in the last couple of years. Remuneration like Cash incentive, special increment, accelerated promotion, letter of appreciation has been given to the deserving employees for their outstanding contribution during the campaign period resulting mutual benefit for the employees as well as Banks. Different promotional souvenir gifts, booklets have significant impact on the deposit campaign.

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