chapter04-1 est of new bank branch

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Chapter FourEstablishing New

Banks, Branches, ATMs,Telephone Services,and Web Sites

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin


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McGraw-Hill/IrwinBank Management and Financial Services, 7/e

2008 The McGraw-Hill Companies, Inc.,All Rights Reserved.

Key Topics

Establishing

New Banks

Branches

ATMs, Internet and Online Banking, MobileBanking

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Questions/Considerations for Organizers of New Banks Population and Geographic Boundaries of

Primary Service Area (PSA)

Competing Financial Institutions in PSA Number and Types of Businesses in PSA Traffic Patterns in PSA Population Growth in PSA Banking History in PSA Amount and Holders of Stock in New Bank Business and Banking Experience of Organizers Projections for New Bank in First 3 to 5 Years

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Establishing A New Bank


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Internal Factors that Affect Decision forNew Bank

Qualifications and Contacts of Organizers

Management Quality

Capital Pledged

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External Factors that Affect Decisionfor New Charter

Level of Economic Activity

Growth of Local Economic Activity

The Need for a New Bank

Local Competition in Supplying FinancialServices

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Desirable Sites for New Branches

Heavy Traffic Count Large Number of Retail Shops and Stores Above Average Age of Local Populations

Area Contains Substantial Number of Managers,Business Owners and Professionals Steady or Declining Number of Service Facilities

Operated by Competitors Above Average Population Growth Above Average Population Density Relatively High Target Population per Branch Above Average Levels of Household Income

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Establishing A New Branch


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Expected Rate of Return

The Decision of Whether to Establish a BranchOffice is a Capital Budgeting Decision.

The Present Value of the Net Future Cash FlowsShould Be Larger Than the Initial Outlay

Expected Rate of Return from Opening a New Branch

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n

n

rErErEwCashOutflo

NCFNCFNCF)](1[

.....)](1[)](1[ 2

2

1

1

Acceptance Criteria:E(r) k (Where k is the minimum acceptable return)



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Geographic Diversification

Reducing a Banks Overall Risk Exposure to its Total Return By Establishing Service Facilities in Different Market Areas Whose Individual Returns are Not Highly Correlated with the

Returns from a Banks Existing Market Locations

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)()1()()( OABT REWREWRE

OABOABOABT WWRWRWR ,22222

)1(2)()1()()(

1. Expected Return

2. Risk (Variance> Standard Deviation)



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Automation : ATMs

Less Costly to Set Up and Operate (about 36%compared to a human teller per transaction)

But Less Effective at Cross Selling, Less PersonalService, and More Vulnerable to Criminal Activity

Decision to Install ATM:

The Bank Examines the Present Value of the Stream ofCash Savings from the New ATM Machine

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Net PresentValue of the NewATM

Present Value of

the Stream ofCash Savingsfrom New ATM

Total CashOutlay for theNew ATM

= -


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The Internet and Customer Safety

Especially Vulnerable to Fraud and IdentityTheft

Authentication Factors Something a Customer Knows Something a Customer Has Something a Customer is

Move to Multi-Factor Authentication From

Single Factor Authentication Today

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Mobile phone penetration rate is very highin Bangladesh:

As of August 2011, Bangladesh has 79.677million subscribers in total and the penetrationrate was estimated at 48.199% over a populationestimate of 158 million

12 bank already got licenses Easy access to rural areas

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Automation : Mobile Banking


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Guidelines To Establish ABanking Company In Bangladesh According to Section 31 of the Banking Companies

Act, 1991

Must obtain a license from Bangladesh Bank 1. Status of the new commercial bank. 2. Paid up capital requirement for a bank to be established: 3. Mode of payment: 4. Sponsors and share capital contribution: 5. Fit and Proper Test for Sponsors/Directors 6. Management of the proposed bank 7. Operation of the proposed bank. 8. Required documents/ information/ analysis to be

submitted to Bangladesh Bank Source: http://www.bangladesh-bank.org/

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1. Status of the new commercial bank: Public limited company incorporated inBangladesh

2. Paid up capital requirement for a bank to beestablished: Not be less than Taka 400.00 Crore Share capital will be formed with ordinary shares

only 3. Mode of payment:

Capital contribution shall be in a liquid form such as cash or approved securities

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Guidelines To Establish ABanking Company In Bangladesh



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4. Sponsors and share capital contribution: Issue public shares within three (3) years The minimum shareholding stake of each sponsor shall be

Taka 1.00 crore and the maximum shall be 10% of theproposed banks total share capital. The sponsors' shares shall not be transferred within a periodof three (3) years

5. Fit and Proper Test for Sponsors/Directors Competence, integrity and qualifications of the Sponsors:criteria include:

(i) skills and experience in relevant financial operations (ii) no record of criminal activities or adverse regulatory

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6. Management of the proposed bank: Multi directorship is not allowed The Member of Board of Directors shall be restricted to 13 Not more than two members from a family Experience of CEO: at least 15 (fifteen) years in banking

7. Operation of the proposed bank: The ratio of urban and rural bank branch has to be 1:1 New Bank has to ensure finance at least 5% of its totallending into agricultural sector Proposed bank should take part in Corporate SocialResponsibility (CSR) activity.

The new bank should spent 10% or more of its previous yearsnet income to CSR.

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8. Required documents/ information/ analysis to besubmitted to Bangladesh Bank A bank draft in the amount of Taka 10 (Ten) lakh Name and address of the Applicant; Name, address, telephone number of the contact person; Feasibility Report on the proposed banking company (see Annex II), Biographical Reports (see Annexes III and IV) Proposed compensation package and other terms of contract of theCEO; Minutes of the shareholders (sponsors) meeting; Written agreement by the shareholders to organize the bankingcompany; Sponsors have to submit a business plan Draft Memorandum and Articles of Association; Joint Venture agreement, in case of foreign equity participation.

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chapter04-1 est of new bank branch

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