Annual Report 2018

SERVICE UNBOUNDED SERVICE UNBOUNDED

Customer satisfaction is the ﬁrst priority of IFIC Bank. We have undertaken time-tested and robust initiatives to meet and surpass our customers’ expectations. So long our customers have graced us by visiting our branches and service centres. Henceforth, our motto is to reach out to the customer 24/7 to make banking easy and pleasant. This will be delivered through time honoured bricks and mortar presence as well as through digital platforms. We are also opening banking booths to be in your neighbourhood and extending our ﬁrm hands through a robust digital platform. We are creating a virtual banking service proposition by setting a 24/7 interactive Customer Care Centre. By keeping you in mind we have launched need based and customer friendly products like ‘Aamar Account’, ‘IFIC Home Loan’, ‘IFIC Agami’ and customer centric services like One Stop Service Model. We have also developed our Customer Care Centre into a One-Stop Touch Point. Hence, we are committed to be around you, all time, to deliver an unbounded banking experience. 2018 Highlights

Deposits Assets $ 226,333 m $ 283,073 m +13.1% +11.8%

Investments Loans & Advances 206,930 m $ 31,304 m $ +12.4% +15.4%

Mortgage Loan Market $ 29,114 m Capitalization +11.1% $ 14,592 m

Investment in Human Capital $ 29 m Participants 3,697 211 Training Programs

CRAR ROE $ 12.63% $ 7.36%

Operating Proﬁt PBT PAT $ 3,895 m $ 2,859 m $ 1,570 m

Total Equity $ 22,116 m +7.7%

1 IFIC Bank I Annual Report 2018 2 IFIC Bank I Annual Report 2018 Contents

3 IFIC Bank I Annual Report 2018 CONTENTS

Rationale of the Cover Inner Front Directors’ Report 34 2018 Highlights 01 Report of the Executive Committee 62 118 292 Letter of Transmittal 06 Report on the Market Discipline Important Events Activities of the Audit Committee 64 Vision 08 Market Discipline - Disclosures on Important Events 292 Report of the Risk Management Committee 67 Mission 08 Risk Based Capital 118 Corporate Governance Practices 69 Core Values 09 Report on Sustainable Finance 135 Compliance Report on BSEC’s Notiﬁcation 72 Report on Risk Management 138 CEO and CFO’s Declaration to the Board 86 Corporate Social Responsibility 155 296 Certiﬁcate of Compliance Auditors 87 10 Products and Services 158 Branch Network Ethical Principles Branch Network of IFIC Bank Limited 297 Codes of Conduct 10 Branch Network of Nepal Bangladesh Business Ethics 12 88 159 Bank Limited, Nepal 305 Management Discussion And Analysis HR Compliance 12 Financial Statements Branch Network of Oman Exchange Strategic Priority 13 Management Discussion And Analysis 89 LLC, Oman 308 Independent Auditor’s Report 160 Cautionary Statement Value Added Statement 95 Branch and Booth of IFIC Money Transfer Regarding Forward Looking Approach 14 Consolidated and Separate (UK) Limited, UK 309 Market Value Added Statement (MVA) 96 Financial Statements 165 Global Network of Correspondent Banks 310 Economic Value Added Statement 96 Financial Highlights of the Bank 257 15 DuPont Analysis 96 Financial Statements of Off-shore Banking 259 Human Capital 96 IFIC Profile

Corporate Profile 15 Global Corporate Structure 16 264 313 102 AGM Notice Milestones in the Development 17 Financial Statements of the Subsidiaries Branding and Promotional Activities IFIC Securities Limited Notice of the 42nd AGM 313 Branding and Promotional Activities 102 Directors’ Report 265 Attendance Slip 315 18 Media Highlights 104 Independent Auditor’s Report 267 Proxy Form 317 Information on Corporate Governance Financial Statements 269 Composition of Board of Directors 19 IFIC Money Transfer (UK) Limited Executive Committee of the Board 19 107 Directors’ Report 285 Audit Committee of the Board 19 Shareholders’ Information Independent Auditor’s Report 286 Risk Management Committee of the Board 19 Directors’ Shareholding Status 108 Financial Statements 288 Group Photo of Board of Directors 20 Distribution of Shareholding 108 Directors’ Profile 22 Five Years Performance 109 Deputy Managing Directors’ Profile 24 Five Years Graphical Presentation 111 Senior Management Team (SMT) 25 Market Price Information 114 Senior Managment 26 Financial Calendar 115 Chairman’s Message 27 Redressal of Investors’ Complaints 115 Managing Director & CEO’s Review 30 Glimpses of the 41st AGM 116

4 IFIC Bank I Annual Report 2018 CONTENTS

5 IFIC Bank I Annual Report 2018 Letter of Transmittal

6 IFIC Bank I Annual Report 2018 All Shareholders of IFIC Bank Limited Bangladesh Bank Bangladesh Securities and Exchange Commission Registrar of Joint Stock Companies & Firms Dhaka Stock Exchange Limited Chattogram Stock Exchange Limited

Annual Report for the Year ended on 31 December 2018

Dear Sir,

We are pleased to present before you a copy of the Annual Report 2018 along with audited Financial Statements including consolidated and separate Balance Sheet as at 31 December 2018, Profit and Loss Account, Cash Flow Statement, Statement of Changes in Equity, Liquidity Statement for the year ended on 31 December 2018 with the notes thereto of IFIC Bank Limited and its Subsidiaries for your kind information and record.

Yours sincerely,

Md. Mokammel Hoque, FCS Company Secretary

7 IFIC Bank I Annual Report 2018 Vision At IFIC, we want to be the preferred financial service provider through innovative, sustainable and inclusive growth and deliver the best in class value to all stakeholders.

Mission Our Mission is to provide service to our clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for. We are committed to the welfare and economic prosperity of the people and the community, for we derive from them our inspiration and drive for onward progress to prosperity. In an intensely competitive and complex financial and business environment, we particularly focus on growth and profitability of all concerned.

8 IFIC Bank I Annual Report 2018 Core Values Integrity : Upholding integrity in all that we do, always, everywhere. Fairness : Striving to offer the best to our customers equitably with transparency. Innovation : Encouraging and nurturing creativity. Commitment : Committed to excellence in customer service and maximization of stakeholders’ value through teamwork.

9 IFIC Bank I Annual Report 2018 Ethical Principles

Code of Conduct

Ethics is the integrity measures, integrity measure and a guiding and anyone else with whom we which evaluate the values, principle to operate the Bank and have contact. norms and rules that constitute to conduct daily business with All members of the Board of the base for individual and customers, vendors, competitors, Directors and its committees, social relationship, from a regulators and other agencies, employees of all levels and moral perspective. Professional the media, and anyone else who categories of IFIC Bank Limited, ethic regulates the relations has a stake in the Bank or with business partners and service between individuals within a whom the Bank has a contact. providers and receivers to and professional group and their IFIC Bank’s Code of Conduct/ from IFIC Bank are expected to relations with the community Ethics sets forth the guiding display the highest standards of whereas organizational ethic principles by which we operate professionalism and commitment defines the code of conduct in an our Bank and conduct our daily to ethics and integrity in all of organization. business with our customers, their conducts. It is also strongly vendors, competitors, regulator Code of Conduct/Ethics is the expected that they all in every and other agencies, the media,

10 IFIC Bank I Annual Report 2018 act and at all times would pay due meticulously and ensure ensures best practice to take respect, care and consideration information confidentiality of appropriate preventive measures to others and putting the public its clients with utmost security. against fraud and money interest first. Unless asked by any lawful and laundering and co-operate Member of all levels of the Bank competent court/authority, with other Banks and relevant are individually and collectively exchanging or disclosing of institutions, establishments and committed and responsible to information will be treated as government agencies for this excel the practice of corporate a serious violation of ethical purpose. standard, and shall be treated as governance principles in its Transparent & Accurate a breach of contract. institutions and activities by Reporting placing due attention and Conflict of Interest IFIC Bank Limited ensures its weights on the compliance Whatsoever the circumstances, Financial, Tax and other reports of best ethical standards and the employee must avoid all and communication is true, integrity as recommended by situations that might lead to a complete and accurate and must the regulators for enhancing its real or apparent material conflict not be misleading. Employees internal and external credibility between their interests and their will ensure that records, data and and establishing transparency. duties and responsibilities as information owned, collected, IFIC Bank always employs its employees of the Bank. Availing used and managed by him/her for resources, policies, procedures, any kind of undue or illegal the organization are accurate and processes, systems and benefit/facilities irrespective complete, maintaining highest recognizes the honesty, of any form, insider trading, degree of integrity. IFIC Bank integrity and sound judgment abusing confidential information Limited maintains transparency of its employees essential to its are treated as malpractice and of records as per the policy of reputation and success. These deviation from the required the organization in sufficient principles apply to all of the standard of services. details so that these may reflect accurately the Organization’s employees of IFIC Bank and all of Fair Dealing to Counter Parts its wholly owned subsidiaries to All relationships with external transactions. achieve its goal putting the public counter-parties are conducted Zero Tolerance to Violence in interest first. These principles are in professional and impartial the Workplace delineated below: manner. IFIC Bank Limited seeks IFIC Bank Limited strictly to outperform its competitors prohibits any acts of violence Responsibility As a financial institution entity, fairly and honestly through or threats of violence by any the responsibility of IFIC Bank superior performance and never employee against any other includes responsibility to its through unethical or illegal person at any time. Mutual shareholders, customers, business practices. Vendor understanding and respect community/society even selection and hiring decisions toward all employees is an commitment to the environment are made objectively and in the essential element for excellence to preserve the lawful benefits best interest of the organization in professionalism, existence and interests of its stakeholders. based on evaluation of integrity, of safe and healthy work place, Management makes best effort suitability, price, delivery of and maintenance of a corporate to maximize Bank profit fulfilling goods/service, quality and other culture, which serves the customer needs ensuring pertinent factors. Employee’s needs of the community. The customers satisfaction. While personal relationship with organization has to bear zero lending/financing apart from contractors, suppliers and tolerance for violence against business aspect, Bank has firm vendors shall be disclosed to the any member of the workforce or commitment to environmental appropriate level of authority its property at the time of entering into the and climatic protections Employee Conduct outside the negotiation and should not to support the process of Office Premises influence decisions made on sustainable economic growth of Employees and representatives behalf of the Bank. the country. of IFIC Bank Limited shall realize that their conduct outside the Property & Information of IFIC Anti-Money Laundering & workplace reflect on their place Bank Combating Terrorism Financing Key responsibility of an IFIC Bank Limited prohibits of employment and thus shall employee of IFIC Bank Limited business with drug traffickers, take necessary actions to ensure is to protect and safeguard the money launderers and other that the above mentioned service organization’s property following criminal activity very strictly. IFIC conduct must encompass the operational and IT security Bank formulates Anti-Money outside workplace activities as manual, policy & guideline Laundering guidelines and well so that behavior/actions do

11 IFIC Bank I Annual Report 2018 not compromise the business provide a work environment Commitment to the interests, safety and security or free from any harassment on Environment confidentiality of their place of ground of religion, age, gender, Environmental and climatic employment. family background, ethnicity, protections are among the most personal appearance etc. To pressing global challenges of Fair & Equitable Employment ensure energizing workplace, the the time. All of these are to be Opportunity IFIC Bank Limited is committed Bank is responsible to keep the taken into account in all areas of to ensure equal opportunity in workplace friendly, congenial, lending/financing. Emphasizing employment on the basis of transparent and co-operation on the areas of energy and meritocracy i.e. individual merit among all employees complying climate change while lending, and personal qualification. The with the laws, rules of the bankers would support the Bank is also committed to regulatory bodies. process of sustainable economic growth of the country.

Business Ethics IFIC Bank Limited believes business in accordance with the Concern for Stakeholders that Business Ethics Practices law and regulations and will not The Bank realizes the importance provides a foundation for the assist, encourage or support of proper conduct to various stability and sustainable growth any wrongful transactions or stakeholders with appropriate of the Bank and supports the activities. co-operation and mutual support. Bank’s effort in achieving its The Bank will treat its customers, Good Management and stipulated goals. The Bank, counterparties or competitors effective & efficient Internal therefore, encourages all parties with mutual good understanding Control to conduct business and perform The Bank will put in place of good and co-operation. their duties in accordance with management systems and risk Preservation of the Bank’s this Business Ethics Practices: management systems as well Reputation Honesty & Integrity as effective & efficient internal The Bank will uphold a good The Bank will adhere to honesty controls. reputation and will refrain from & integrity in conducting its engaging in any act that may Standards business. The Bank will comply with various jeopardize its reputation. Compliance with Laws and standards which are generally Regulations acceptable for conducting the The Bank will conduct its banking business.

HR Compliance To ensure transparency, lawful all applicable laws of the country The Bank has a transparent action and fair competition and promotes the same through placement process through among employees, IFIC Bank continuous training programs. which employee can achieve complies every applicable The Bank has specific their positions throughout HR laws and rules. As part of applicable policies for every HR the Bank. Moreover, the Bank establishment of compliance activity covering recruitment has separate disciplinary rules culture across the organization, to retirement among which namely IFIC Bank Employees IFIC Bank maintains HR Recruitment Policy, Promotion (Discipline and Appeal) Rules compliance in all organizational Policy, Leave Policy, Transfer 2003 which focuses on the levels. The Bank encourages the Policy, Reward & Recognition quasi-judicial proceedings for employee to abide by all of its Policy are to be mentioned. handling misconducts committed rules and regulations along with by any delinquent employee.

12 IFIC Bank I Annual Report 2018 Strategic Priority

SS To strive for sound business growth by ensuring customer satisfaction through quality and timely services

SS To manage and operate the Bank in the most efficient manner to ensure achievement of goals

SS To maintain adequate capital flow to support further growth

SS To ensure effective and efficient risk management for sustainable business growth

SS To diversify loan portfolio through structured finance and expansion of Corporate, SME, Agri and Retail businesses

SS To mount state-of-the-art technologies and adopt innovative ideas for financial inclusion

SS To groom human resources for serving customers efficiently

SS To increase brand visibility by creating positive image of the Bank

SS To be a trend-setter in serving the society and remain responsive to the environment

SS To ensure sound corporate governance practices

SS To facilitate mobility in banking by up-gradation of Internet and Mobile Banking

SS To add value for all stakeholders.

13 IFIC Bank I Annual Report 2018 Cautionary Statement Regarding Forward Looking Approach

This Annual Report and Financial to identify forward looking forex market condition, political Statements for the year 2018 statements. These statements condition of the country, contains certain forward looking are based on current plan, technological changes in banking statements with respect to the estimates and projections, and sectors, changes in consumer financial condition, results of therefore undue reliance should behavior and other factors that operations and business of the not be placed on them. Forward affects the overall operation of Bank. looking statements speak only as the banks. of the date they are made. These statements are not The Bank will not undertake any historical facts, including These statements may change obligation to revise or update statements about the Bank’s based on the domestic and global any one of the forward looking beliefs and expectations. Words economy and financial condition, statements contained in this such as ‘expects’, ‘anticipates’, natural calamities, movement Annual Report, regardless of ‘intents’, ‘plans’, ‘beliefs’, of interest rate of both lending whether those statements ‘seeks’, ‘estimates’, ‘potential’ and deposit, changes or are affected as a result of new and ‘reasonably possible’, adoption of regulatory policies, information, future events or ‘variations’ of these words and market volatility, changes in otherwise. similar expressions are intended the accounting policy, future

14 IFIC Bank I Annual Report 2018 Corporate Proﬁle

Name of the Company Off-shore Banking Unit (OBU) International Finance Investment and Commerce IFIC Bank Limited - OBU Bank Limited (IFIC) Federation Branch, FBCCI Building, 60 Motijheel C/A, Dhaka

Legal Form Auditors IFIC Bank Limited was incorporated in Bangladesh Howladar Yunus & Co., and registered with the Registrar of Joint Stock Chartered Accountants Companies & Firms as a public company limited by shares Legal Adviser Company Registration Number Ahsanul Karim C-4967, Dated: 08 October 1976

Authorized Capital Tax Consultants BDT 20,000.00 million Adil & Associates

Paid up Capital BDT 13,387.39 million Credit Rating Agency Credit Rating Agency of Listing Status Bangladesh (CRAB) Limited Listed with Dhaka Stock Exchange Ltd. (DSE) and Chittagong Stock Exchange Ltd. (CSE) in 1986 and 1997 respectively Chairman Salman F Rahman Market Category ‘A’ Category Vice Chairman Ahmed Shayan Fazlur Rahman Tax Payer Identification Number (TIN) 135055865054 Managing Director & CEO M Shah Alam Sarwar VAT Registration Number 19081167140 Head of ICC Business Identification Number (BIN) Ashim Chowdhury 000136288 Chief Financial Officer Subsidiary Companies Dilip Kumar Mandal, FCA IFIC Securities Limited IFIC Money Transfer (UK) Limited Company Secretary Md. Mokammel Hoque, FCS Registered Office IFIC Tower, 61 Purana Paltan No. of Employees GPO Box : 2229, Dhaka-1000 2,556 IP Phone No.: 09666716250 (Hunting) Fax: 880-2-9554102, Swift: IFIC BD DH No. of Branches E-mail: info@ificbankbd.com 147 Website: www.ificbank.com.bd No. of Shareholders 41,721

Investors’ Relation IFIC Tower (17th Floor) 61 Purana Paltan, Dhaka-1000 Hotline: 09666716250

15 IFIC Bank I Annual Report 2018 Global Corporate Structure

IFIC Securities Limited IFIC Money Transfer (UK) Limited Nepal Bangladesh A fully owned subsidiary Bank Limited in Bangladesh A fully owned subsidiary in United Kingdom A joint venture commercial Bank in Nepal

Oman Exchange LLC MCB Bank Limited, A joint venture Pakistan exchange company in Oman A commercial Bank in Pakistan

16 IFIC Bank I Annual Report 2018 Milestones in the Development

1976 Established as an Investment & Finance Company under arrangement of joint venture with the Govt. of Bangladesh.

1980 Commenced operation in Foreign Exchange Business in a limited scale.

Obtained permission from the Govt. to operate as a commercial Bank, Set up its ﬁrst overseas joint 1982 venture (Bank of Maldives Limited) in the Republic of Maldives (IFIC's share in Bank of Maldives limited was subsequently sold to Maldives Govt. in 1992).

1983 Commenced operation as a full-ﬂedged commercial bank in Bangladesh.

Set up a joint venture Exchange Company in the Sultanate of Oman, titled Oman Bangladesh 1985 Exchange Company (Subsequently, renamed as Oman International Exchange, LLC).

1987 Set up its ﬁrst overseas branch in Pakistan at Karachi.

1993 Set up its second overseas branch in Pakistan at Lahore.

1994 Set up its ﬁrst joint venture in Nepal for banking operation, titled Nepal Bangladesh Bank Ltd.

Set up its second joint venture in Nepal for lease ﬁnancing, titled Nepal Bangladesh Finance & 1999 Leasing Co. Ltd. (Which was merged with NBBL in 2007).

Set up a new Bank in Pakistan, NDLC-IFIC Bank Ltd. (Subsequently renamed as NIB Bank Ltd.) and the 2003 Overseas Branches of IFIC and a local leasing company, NDLC were amalgamated with and into it.

Acquired MISYS solution for real time online banking application. 2005 Core Risk Management implemented.

Launched VISA branded Credit Card (completed full range of Cards i.e. Debit, Credit & 2007 Prepaid by 2010).

2010 Set up Offshore Banking Unit (OBU).

2011 Established a fully owned subsidiary exchange company named IFIC Money Transfer (UK) Ltd.

2012 Inauguration of 100th Branch at Tejgaon-Gulshan Link Road in Dhaka.

2013 Achieved the Landmark of Tk 10,000 Crore Deposits.

2014 Launching of IFIC Mobile Bank.

2015 Crossed the Landmark of Tk 20,000 Crore in Foreign Trade Business.

2016 Inauguration of IFIC Tower at 61 Purana Paltan, Dhaka.

Launched an innovative product IFIC Aamar Account, combining beneﬁts of current & saving accounts, FDR, credit cards, etc. 2017 Became market leader in Home Loan product under retail banking segment. Introduced One Strop Service model in the branches for the ﬁrst time in Bangladesh.

IFIC Home Loan outstanding crossed the amount BDT 2,911.40 crore. 2018 Aamar Account stood at BDT 1,456.49 crore with a total of 99,399 accounts.

17 IFIC Bank I Annual Report 2018 Information on Corporate Governance

18 IFIC Bank I Annual Report 2018 Composition of Board and its Committees

Audit Committee Board of Directors of the Board

Chairman/Chairperson Chairman/Chairperson Salman F Rahman Rabeya Jamali

Vice-Chairman/Vice-Chairperson Members Ahmed Shayan Fazlur Rahman Anwaruzzaman Chowdhury Jalal Ahmed Directors Anwaruzzaman Chowdhury Secretary to the Committee Independent Director Md. Mokammel Hoque

Rabeya Jamali Independent Director Risk Management Committee Jalal Ahmed Govt. Nominated Director of the Board

A. R. M. Nazmus Sakib Chairman Govt. Nominated Director Jalal Ahmed Quamrun Naher Ahmed Govt. Nominated Director Members

Managing Director & CEO Rabeya Jamali M Shah Alam Sarwar A. R. M. Nazmus Sakib Company Secretary Quamrun Naher Ahmed Md. Mokammel Hoque Secretary to the Committee Md. Mokammel Hoque

Executive Committee of the Board

Chairman A. R. M. Nazmus Sakib

Member Quamrun Naher Ahmed

Secretary to the Committee Md. Mokammel Hoque

19 IFIC Bank I Annual Report 2018 From Left

M Shah Alam Sarwar Managing Director & CEO Ahmed Shayan Fazlur Rahman Vice-Chairman/Vice-Chairperson Quamrun Naher Ahmed Govt. Nominated Director Salman F Rahman Chairman/Chairperson

20 IFIC Bank Annual Report 2018 From Left

Jalal Ahmed Govt. Nominated Director Anwaruzzaman Chowdhury Independent Director Rabeya Jamali Independent Director A. R. M. Nazmus Sakib Govt. Nominated Director

21 IFIC Bank Annual Report 2018 Directors’ Profile

Mr. Salman F Rahman, MP is an eminent business personality of the country. He is the Vice-Chairman of BEXIMCO Group - the largest private sector group in Bangladesh. Founded in 1970 as a commodities trading company, the Group now has operations and investments across a wide range of industries including textiles, trading, marine food, real estate development, hospitality, construction, information and communication technologies, media, ceramics, aviation, pharmaceuticals and energy.

Mr. Rahman is the Honourable Member of the Parliament from Dhaka-1 Constituency and also an Adviser to the Prime Minister for the Private Industry and Investment sector in the rank of a Cabinet Minister without any financial perks.

He was the President of FBCCI, the apex organization of businessmen of the country. Currently, he is the Chairman of IFIC Bank Limited, GMG Airlines Limited and Abahani Limited. He is associated with many social and charitable organizations. Salman F Rahman Chairman/Chairperson

Mr. Ahmed Shayan Fazlur Rahman is the eminent young businessman represents the Beximco Group as Executive Director, the largest conglomerate in Bangladesh. He has completed his BBA with distinction from American University, Washington DC, USA. Mr. Rahman has 10 years of expertise in the various sectors like Pharmaceuticals, Fuel, Power & Energy, Textile, ICT & Telecom, etc. He plays vital role in advising the Group in formulating current business strategies as well as future growth potentials. Mr. Rahman is the son of Mr. Salman F Rahman, Vice Chairman and founder of the Beximco Group. Mr. Rahman is also instrumental in working with various international organizations and supporting charities both locally and internationally for the development of autism and other world issues. He is a Counselor of the Abahani Limited, the largest sporting club in Bangladesh. Being a great sports fan and advocate of promoting various sports in Bangladesh, Mr. Rahman has been instrumental in acquiring 100% of the Dhaka Dynamites franchise for the Bangladesh Cricket Premier League (BPL). Ahmed Shayan Fazlur Rahman Vice-Chairman/Vice-Chairperson Mr. Rahman is the Chairman, Advisory Committee for Bangladesh, Prince of Wales Trust, British Asian Sector. He is also Honorary Consul General of the Republic of Kazakhstan in Bangladesh and Member, Executive Committee, SAARC Youth Chamber. He is appointed as Director in the Board of IFIC Bank Limited as representative of M/s. New Dacca Industries Limited and currently, he is the Vice Chairman of the Bank.

Mr. Anwaruzzaman Chowdhury is an MBA from London, UK. He is the Chairman of Kipling in the UK. He is associated with many social and charitable organizations and trusts. He is a member of the Audit Committee of the Board of Directors of IFIC Bank Limited. He is a Director of IFIC Money Transfer (UK) Limited, UK and also an Alternate Director of Oman Exchange LLC, a joint-venture operation of the Bank in the Sultanate of Oman.

Anwaruzzaman Chowdhury Independent Director

Ms. Rabeya Jamali is an Advocate, Supreme Court of Bangladesh and Partner, Jamali & Morshed. She did her LL.B. (Honours) from the University of Dhaka, Dhaka, Bangladesh and LL.M. in Banking and Financial Law from Boston University, School of Law, Boston, MA, USA. She attended workshops, seminars and conferences at home and abroad. She is a member of the Bangladesh Supreme Court Bar Association. Ms. Jamali has core expertise in Commercial Contracts, Construction Contracts, Joint Ventures, SPV relating to infrastructural development projects, Private-Public Partnership Projects, Telecommunication related infrastructure, Power and Energy, Company Law, Financial and Banking Laws, Securities Laws and related Arbitration. She is the Chairman/Chairperson of the Audit Committee and a member of the Risk Management Committee of the Board of Directors of IFIC Bank Limited. She is the Director of IFIC Money Transfer (UK) Limited, UK and IFIC Securities Limited. She is also an Alternate Director of Nepal Bangladesh Bank Limited, Nepal.

Rabeya Jamali Independent Director

22 IFIC Bank I Annual Report 2018 Mr. Jalal Ahmed is an Additional Secretary to the Government of the People’s Republic of Bangladesh. He was nominated as Director to the Board of IFIC Bank Limited on 13 November 2012 by the Ministry of Finance, Government of Bangladesh. Mr. Ahmed did his Honours & Masters in Public Administration from the University of Dhaka. At present, he is the Executive Project Director of Skills for Employment Investment Program (SEIP), a Project of Finance Division, Ministry of Finance, Bangladesh. He is the Chairman of the Risk Management Committee and a member of the Audit Committee of the Board of Directors of IFIC Bank Limited. He is the Chairman of Nepal Bangladesh Bank Limited, Nepal, IFIC Money Transfer (UK) Limited, UK and IFIC Securities Limited. He is also an Alternate Director of Oman Exchange LLC, a joint- venture operation of the Bank in the Sultanate of Oman.

Jalal Ahmed Director

Mr. A. R. M. Nazmus Sakib is an Additional Secretary at the Ministry of Finance, Government of the People’s Republic of Bangladesh. He was nominated as Director to the Board of IFIC Bank Limited on 19 June 2012 by the Ministry of Finance, Government of Bangladesh. He is a post - graduate in Botany and also obtained M. Sc. Degree in Development Finance. He is the Chairman of the Executive Committee and a member of the Risk Management Committee of the Board of Directors of IFIC Bank Limited. He is the Director of IFIC Money Transfer (UK) Limited, UK and Oman Exchange LLC, a joint-venture operation of the Bank in the Sultanate of Oman.

A. R. M. Nazmus Sakib Director

Ms. Quamrun Naher Ahmed is an Additional Secretary at the Financial Institutions Division, Ministry of Finance, Government of the People’s Republic of Bangladesh. She was nominated as Director to the Board of IFIC Bank Limited by the Ministry of Finance, Government of Bangladesh. Ms. Ahmed did her Honours & Masters in Economics from the University of Dhaka. She also obtained M. Phil in Social Change from University of Science and Technology, Norway. She attended various Training, Seminars and Conferences at home and abroad. She is the Member of the Executive Committee and the Risk Management Committee of the Board of Directors of IFIC Bank Limited. She is the Director of IFIC Securities Limited, IFIC Money Transfer (UK) Limited, UK and Nepal Bangladesh Bank Limited, Nepal.

Quamrun Naher Ahmed Director

Mr. Shah A Sarwar joined IFIC Bank Limited as Managing Director on 02 December 2012. He started his career as Management Trainee of ANZ Grindlays Bank in 1982. Over the last 37 years in banking, Mr. Sarwar’s career evolved as a well-rounded banker with adequate exposure in General Management, Client Coverage, Corporate Banking, Risk Management, Operations and IT Management. He has core expertise in Creation of New Lines of Business, Business Process Re- engineering, Strategic and Change Management. He has optimum exposure & training in all areas of Banking in Australia, USA, UK, Hong Kong, UAE, Singapore, Sri Lanka and Pakistan. He is a Six Sigma Black Belt and certified in Credit Accreditation Process, International Trade Skill Assessment, Credit Skill Assessment and Credit in Context Course. He sits on the Board of Grameen Bank and previously held various senior management positions in multinational and private commercial banks such as Trust Bank Limited, Premier Bank Limited and Industrial Promotion & Development Company of Bangladesh Ltd. (IPDC), United Commercial Bank Ltd (UCBL), American Express Bank Ltd, Standard Chartered Bank and ANZ Grindlays Bank. M Shah Alam Sarwar With a distinctive academic record, he holds a Post-graduation degree with Honors in Managing Director & CEO Economics from the University of Dhaka and an MBA from Victoria University, Australia. He is a gold medal recipient as the best all-round cadet of Faujdarhat Cadet Collage and a National Debate Champion.

23 IFIC Bank I Annual Report 2018 Deputy Managing Directors’ Profile

Mr. Muhammad Mustafa Haikal Hashmi joined IFIC Bank Limited as Deputy Managing Director on July 01, 2013 and currently holding the responsibility of Chief Risk Officer (CRO) and Chief Anti-Money Laundering Compliance Officer (CAMLCO). He started his career as Probationary Officer of IFIC Bank Ltd. in 1986 and was enriched with adequate exposure in General Banking, Corporate Banking, Risk Management, ICC Operation, and Foreign Exchange Operation in home and abroad. He played various vital managerial roles in American Express Bank, Standard Chartered Bank, ANZ-Grindlays Bank, Banque Indosuez, Mashreq Bank, Dhaka Bank, Trust Bank etc. He completed his graduation & Post-graduation on Management Studies from University of Dhaka.

Muhammad Mustafa Haikal Hashmi DMD & Chief Risk Officer

Mr. Shah Md. Moinuddin, presently discharging responsibility as Deputy Managing Director and Head of International Division from March 01, 2015 joined IFIC Bank Limited on July 16, 1986 as Probationary Officer. During his long association with IFIC Bank for about 33 years, he has shown his credibility and dynamic leadership holding different managerial positions in different capacities. Mr. Moinuddin was posted at different Branches in different capacities during his long career including Principal Branch and Federation Branch Manager of IFIC Bank Limited. He completed his graduation & post-graduation from University of Dhaka major in Accounting.

Shah Md. Moinuddin DMD & Head of International Division

Mr. Nurul Hasnat has been discharging his responsibility as Deputy Managing Director and Head of Business since January 01, 2018. He joined IFIC Bank Limited as Executive Vice President on February 27, 2013. Mr. Hasnat has 30 years long Banking experience which started in BCCI in February, 1989. He also served in Eastern Bank, South East Bank and Trust Bank in different capacities. In IFIC Bank, he served as Branch Manager of Principal Branch, Federation Branch and Gulshan Branch and made notable contribution in their business portfolio. Mr. Nurul Hasnat completed his post-graduation on Human Resource Management and also completed specialized courses on International Trade from School of Finance, United Kingdom. Md. Nurul Hasnat DMD & Head of Business

Mr. Syed Mansur Mustafa is holding the position of DMD & Chief Credit Officer of the Bank since July 03, 2018. Earlier he joined as Senior Executive Vice President on April 06, 2015. He started his career as Probationary Officer of AB Bank in 1996 and also served for Trust Bank. Mr. Mustafa has an MBA from Institute of Business Administration and post-graduation in International Relation from University of Dhaka.

Syed Mansur Mustafa DMD & Chief Credit Officer

24 IFIC Bank I Annual Report 2018 Mr. Md. Monitur Rahman joined the Bank on August 30, 2018 as DMD and Chief of Operations & Information Technology. Mr. Rahman has long 25 years of experience in Standard Chartered Bank and National Board of Revenue. His core expertise is Technology and Operational Governance, Infrastructure Development, Project Management and Service Quality for Customer. Mr. Rahman has an MBA major in Finance from North South University and graduation major in Electrical & Electronic Engineering (EEE) from Bangladesh University of Engineering and Technology (BUET).

Md. Monitur Rahman DMD & Head of Operations & IT

Senior Management Team (SMT)

1. M Shah Alam Sarwar Managing Director & CEO Chairman

2. M. M. Haikal Hashmi DMD & CRO Member

3. Shah Md. Moinuddin DMD & Head of International Division Member

4. Md. Nurul Hasnat DMD & Head of Business Member

5. Syed Mansur Mustafa DMD & CCO Member

6. Md. Monitur Rahman DMD & COIT Member

7. K. A. R. M. Mostofa Kamal Head of Human Resource Management Member

8. Ashim Chowdhury Head of Internal Control & Compliance Member

9. Dilip Kumar Mandal Chief Financial Officer Member

10. Md. Mokammel Hoque Company Secretary Member Secretary

25 IFIC Bank I Annual Report 2018 Senior Management

Managing Director M Shah Alam Sarwar

Deputy Managing Director First Vice President Muhammad Mustafa Haikal Hashmi Sohel Mahmud Zahiduzzaman Shah Md. Moinuddin Md. Akbar Ali Md. Nurul Hasnat Mohammad Sahin Uddin Syed Mansur Mustafa Sharmilla Manzoor Md. Monitur Rahman Md. Ali Imam Khan Md. Selim Talukder Senior Executive Vice President A. T. M. Raziur Rahman Khan Abu Roushan Mohammad Mostofa Kamal Humaira Parveen Runi Ashim Chowdhury Md. Salah Uddin Syed Fazle Ahmed Md. Rafiqul Islam Vice President Iqbal Parvez Chowdhury Ahmed Sayeed Navedul Islam Executive Vice President A. M. Mahmud Hossain Md. Badrul Alam Md. Mostaque Hossain Chowdhury Ferdousi Begum Abul Kalam Mojibur Rahman M. Mozibar Rahman Anwara Begum Dilip Kumar Mandal Morshed Ali Helal Ahmed Tauheed Mahmud Hussain Md. Zulfiquer Ali Chakder Nazmun Nahar Begum Nurul Basher Abdul Mamun A. B. M Mohsin Kamal Molla Syed Hassanuzzaman Md. Nazmul Haque Talukder Hossain Shah Ali A. K. M Zahirul Islam Md. Mozammel Haque Senior Vice President Md. Mokammel Hoque Shaikh Sohail Khurshid Mohammad Rakibul Islam Mohammad Mahmood D. M. Rejaul Karim Mir Golam Mowla Md. Mosharraf Hossain Mridha Md. Abdullah Al Masum Mohammed Mizanur Rahman Mir Iqbal Hossain Madhubanti Kabir

26 IFIC Bank I Annual Report 2018 Chairman’s Message

27 IFIC Bank I Annual Report 2018 Dear Shareholders,

Assalamu Alaikum. utilizing the huge number of consumption economy. As another financial year comes active working population. Now let me come to the to an end, it gives me immense The Government has allocated performance of your bank. pleasure to welcome all of you, around 24 percent of the annual Last year, as an outcome of our valued shareholders, on budget to the HRD related inclusive banking, by pursuing behalf of the members of the sectors. excellence in customer care Board of Directors, to the 42nd With a view to attaining through customer relevance, by Annual General Meeting of your sustainable development, it innovating consistently to deliver Bank - IFIC Bank Limited and is very necessary to invest in technology driven solutions to to present to you the audited economic sector especially in the banking industry and through Financial Statements and Annual industry and production sectors. continuous product innovations, Report for the financial year The Government is working we have carved a veritable niche 2018. At the very outset, I would for the overall development of for ourselves in the eyes of our like to express my profound investment scenario for the customers. And it is thus that gratitude and sincere thanks for purpose of increasing domestic your point of view remains our your continued belief, passion, and foreign investment which point of consideration. support and patronage extended relates to development activities. to the Bank towards making IFIC a caring, reliable and successful Private sector is considered bank of the country. to be the main engine of the Per capita economic growth of the country. The Directors’ Report on Hence, utmost priority is given national Financial Statements & Internal to entrepreneurship and private Control, the Financial Statements investments, both domestic and income for the year ended on 31 foreign. Steps are also taken to reached December 2018 together with establish one hundred Special the Auditors’ Report thereon are Economic Zones throughout the already in your hands. The Annual US$1,751 country as well as setting up of Report gives a detailed overview in FY2017-18 a number of industrial parks to of your Bank’s performance promote IT sectors. during the year 2018 that has been presented through various Bangladesh has become a 100 Special quantitative and qualitative highly competitive location parameters. for investments in terms of Economic cost, human resources, size The Bangladesh economy has of domestic market, access Zones been able to maintain sustained to international market, throughout the country economic growth during trade facilitation, investment FY2017-18. According to the protection, and socio-political final estimate of Bangladesh stability. Consequently, foreign Bureau of Statistics (BBS), GDP The Bank also has a significant investment registered a growth growth for FY2017-18 reached involvement and proactive of 67.9 percent in 2018. 7.86 percent, significantly higher participation in benevolent than the growth of 7.28 percent The growth is driven by a activities. As a trend-setter, the in the preceding fiscal year. Major committed workforce, 64% of Bank is gradually organizing boost of growth has come from whitch are young by age. A robust its involvement in the more the broad agriculture and small economic performance and structured CSR initiatives, & medium scale manufacturing growing investments in social following the Guidelines of industry sector. The per capita sectors kept the country well on Bangladesh Bank. national income reached track to become a middle-income Our Management Team, like US$1,751 in FY2017-18, up by country by 2021 and a developed previous year, in 2018 also, US$141 a year earlier. one by 2041. maintained their winning Two-third of the total population The McKinsey & Company has streak, receiving national and is currently active. The rightly dubbed Bangladesh international accolades for Government is implementing as a fast-growing sourcing transparency, good governance, different types of development destination, emerging sustainability, people practices, programs to accumulate manufacturing and distribution brand management, CSR and IT demographic dividend by hub, and an expanding applications.

28 IFIC Bank I Annual Report 2018 We intend to grow our business credibility through fulfillment of another year of commendable in a sustainable manner by the promises. success and for their continued enhancing the quality and For the effective governance pursuit towards achieving the efficiency, exploring potential of the business of the Bank, Bank’s objectives despite the areas for new investment as well the Board of Directors strikes veritable challenges. as devising new products and a balance at a high standard of We endeavor to serve our focusing on customer service. effectiveness between driving customers with the highest level the business forward and of convenience, transparency controlling it prudently. and respect. We sincerely Management appreciate the trust they have Team possess the The Board of your Bank continues its effort to set the reposed on us and are looking right right tone from the top of the forward to maintain a long-term Bank and tracking progress relationship with them. competencies against potential key risks and A special word of thanks to our reputation issues. I am pleased shareholders again, who have to capitalize on these to report that your Board also been an integral part of the opportunities to maintain a continues to function well Company’s journey throughout and is very clearly focused the year. on its priorities. A strong higher growth Finally, I wish to place on record governance framework is my appreciation to my fellow trajectory for the Bank developed to support the long- Directors for their unstinted term sustainable growth of the support, guidance and insight Bank. The Board continues its which has helped us to steer the effort to set the On behalf of the Board, I wish organization towards the many to place on record our sincere successes it has achieved till right tone appreciation to the Government date. of the People’s Republic of We look to the next financial year from the top of the Bank Bangladesh, Bangladesh Bank, with confidence and resolute Bangladesh Securities and dedication. Let there be good Exchange Commission and other days ahead for all of us. May We are confident that the regulatory authorities, various the Almighty Allah bestow His Management Team possess financial institutions, banks choicest blessings upon us! the right competencies to and correspondents at home capitalize on these opportunities and abroad for their continued Allah Hafez. to maintain a higher growth support and guidance. trajectory for the Bank. As such, your Bank would concentrate My sincere appreciation is also to on sharpening its competitive the Managing Director & CEO, the edge by improving its business Management Team and the IFIC Salman F Rahman strategies and protecting its Bank Team for making 2018 yet Chairman

29 IFIC Bank I Annual Report 2018 Managing Director & CEO’s Review

30 IFIC Bank I Annual Report 2018 Dear Respected Shareholders,

I feel honored and privileged to the widening of trade deficit in have the opportunity to present FY18. The services and income The economy recorded a the summary of financial and account along with primary and operating performance of IFIC secondary income registered Bank Limited for the year 2018. a surplus of USD 8,478 million 7.86% growth of I am pleased to report that the in FY18. The Current Account bank has delivered yet another Balance turned negative by USD GDP in year of stable performance 9,780 million in FY18 and the with a vision to be the preferred Capital and Financial Account FY18 financial service provider through surplus widened to USD 9,368 compared to 7.3% in FY17 innovative, sustainable and million in FY18. The overall inclusive growth, and to deliver balance of payments surplus the best in class value to all turned into deficit of USD (-) stakeholders. IFIC Bank has 885 million in FY18 which was The services attained positive parameters USD 3,169 million in FY17. The towards its vision by dynamic foreign exchange reserves stood and income leadership and exercising at USD 32.9 billion at the end appropriate policies and risk of FY18, representing around 5 account management frameworks months of prospective import along with primary and provided by both the regulatory coverage. As opposed to the secondary income registered authority and the Bank. previous declining trend of a surplus of inflation since FY14, year-on-year Macroeconomic Scenario of inflation in FY18 increased to Bangladesh USD 8,478 The Bangladesh economy 5.8% compared to 5.4% in FY17. in has been able to continue a The rising trend in inflation in million persistent economic growth. FY18 was mainly driven by food The economy recorded a 7.86% inflation due to flood related FY18 growth of GDP in FY18 compared domestic shocks, depleting to 7.3% in FY17. This growth inventory and higher global was largely supported by strong commodity prices. The per capita national income reached at USD Net Interest Income reduced by domestic and external demand. 16.97% from BDT 5,492 million Export growth rose from 1.7% 1,751 in FY18, up by USD 141 from previous fiscal year. in Y2017 to BDT 4,560 million in FY17 to around 6.0% in FY18, in Y2018. At the end of Y2018 while import witnessed a massive IFIC Bank Performance Profit after Tax of the Bank stood growth of 25.2% in FY18 from Deposits of the Bank increased at BDT 1,570 million vis-à-vis to 9% in FY17, leading to an even to BDT 226,333 million in Y2018 BDT 2,068 million representing wider trade deficit. Export stood from BDT 200,206 million in 24.06% negative growth at USD 36,205 million in FY18 Y2017, indicating a growth of opposed to Y2017. from USD 34,019 million in 13.05%. Loans and Advances FY17. Import increased to USD rose to BDT 206,930 million in Capital Adequacy 54,463 million in FY18 from Y2018 from BDT 179,264 million At the end of December 2018, USD 43,491 million in FY17. In in Y2017, representing a growth total Shareholders’ Equity stood FY18, remittance inflows shot of 15.43%. at BDT 22,116 million, which is up by 17.3% compared with the 7.68% higher than that of 2017 Import of the Bank was BDT negative growth of 14.5% in mostly due to declaration of 101,642 million in Y2018 having FY17. The depreciation of Taka stock dividend at 12% in 2018. 3.81% rise while Export of the against US Dollar encouraged The Bank maintained Capital Bank was BDT 98,257 million in migrants to send home more to Risk-weighted Asset Ratio Y2018 having 10.80% growth. money in FY18 which contributed (CRAR) of 12.63% under Revised Total Remittance (inward) was to a higher rate of remittance Regulatory Capital Framework BDT 22,827 million in Y2018 inflow. The trade deficit widened for Banks in line with Basel III as having a rise of 16.65% from further to USD 18,258 million against minimum requirement of previous year. Overall Foreign in FY18 from USD 9,472 million 11.875% set by Bangladesh Bank Exchange Business increased by in FY17. The faster growth for the year ended 31 December 8.04% from BDT 206,154 million of import in comparison to 2018. in Y2017 to BDT 222,726 million export mainly contributed to in Y2018.

31 IFIC Bank I Annual Report 2018 Growth Initiatives Implemented risks to secure its capital, Commitments Towards the in 2018 resources and sustainable Employees profitability. These activities IFIC Bank is always committed SS In 2018, the Bank implemented One Stop include the analysis, evaluation, to enhance the quality and Service Model in its Branches acceptance and management capability of human resource for providing admirable of risks. Regarding supervision to attain sustainable growth. customer service. of risk management, the The Bank is making continuous Board of Directors performs efforts to strengthen the people SS The Bank highly promoted prime responsibility of the risk management practices of the the marketing and selling of supervision. IFIC conducts bank. The Bank ensures equal ‘Aamar Account’ – a unique its banking operations by opportunities for the employees Account where one can maintaining compliance and offer a diversified career maintain his deposit balance according to the Risk path so that they can reach with interest on daily product Management Guidelines of the their full potential. The Bank is basis and at the same time Bank which covers the risks providing training and workshop one can avail overdraft facility such as credit risk, foreign to the employees at home and up to a given limit. exchange risk, internal control abroad to meet their skill gaps. SS In 2018, IFIC Bank opened and compliance risk, anti-money IFIC organizes various employee 6 new Branches which laundering risk, information & engagement programs to created a total network of 147 communication technology risk, inspire the employees so that Branches in Bangladesh. asset liability management risk they can engage themselves etc. for higher productivity. Bank SS The Bank provided a has also created performance special focus on collateral culture among the employees based Home Loan Product through implementing KPI marketing and selling The Bank highly promoted the marketing and selling of (Key Performance Indicator) by giving competitive based Quarterly Performance interest rate and quick loan Appraisal system. Along with processing service which got ‘Aamar competitive pay and allowances, tremendous response from Account’ the Bank also provides Provident the market. Fund, Gratuity Fund and Leave SS In 2018, the Bank has – a unique Encashment facility to the implemented a good number employees. IFIC Bank provides of software in different areas Account enriched hospitalization of its operation to ensure where one can maintain his insurance and group life better customer service. Bank deposit balance with interest insurance facilities for the has also integrated a number on daily product basis and at employees and their family to of software with Bangladesh the same time one can avail ensure hospitalization and life Bank and Core Banking overdraft facility up to a given coverage. System to ensure fastest and limit. Responsibilities towards the secured banking services. society SS IFIC Bank Contact Center has IFIC Bank performed the been operating 24/7 servicing IFIC Bank is always following activities in 2018 to hours since 2012. By simply address the need of people for to dialing 16255 or 096667 committed making positive and significant 16255 customers can avail enhance the contributions to the society: banking service anytime from SS Professor Hasan Azizul and anywhere. IFIC Bank has quality Huq was conferred with the upgraded its contact center capability of IFIC Bank Shahittya Ratna solution to provide multiple Shammanona -2016 and two banking services and has human other writers won IFIC Bank developed a dedicated team Shahitto Purosker-2016 and to attain for ensuring service quality resource got their Prizes from the and complaint handling. sustainable Bank. Risk Management SS The Bank has provided The Bank vigorously tries to growth blankets to Prime Minister manage risk by taking calculative Relief Fund.

32 IFIC Bank I Annual Report 2018 SS IFIC Bank has donated to Platforms. IFIC Bank is Dhaka Stock Exchange and Research and Development upgrading its robust digital Chattogram Stock Exchange Collective (RDC) for channel solutions to improve for their continuous help and conducting research on customers’ Digital Banking support. I would like to express martyred intellectuals at experience. my earnest gratefulness and Dhaka University. thanks to the members of the SS The Bank will vigorously Board of Directors for their SS IFIC Bank has donated to promote the marketing and Prime Minister’s Shikkha selling of groundbreaking policy guidelines and adequate Shohayota Trust. products - ‘Aamar Account’ assistance to the Management and ‘IFIC Aagami’ in implementing those policy SS The Bank has given donation guidelines. Thanks are due to to University of Dhaka for SS IFIC Bank will reform its our respected shareholders, enhancement of IFIC Trust Contact Center into a one- valued customers and all other Fund. stop touch point for its our stakeholders for their confidence customers round the clock for SS The Bank has donated fund and belief in the Management of unbounded customer service to Biswa Shahitya Kendra the Bank. Finally, I wish to express experience. to sponsor its educational gratitude to my colleagues for activities. SS IFIC Bank will continue to their dedication and endeavor in give emphasis on promoting making 2018 a successful year SS IFIC Bank has given for IFIC Bank. assistance to Child Day Care ‘Home Loan’ product Center of Banks to meet its countrywide. operating cost. Concluding Remarks I am conveying my sincere Initiatives for 2019 gratitude to the regulatory SS In a Digital Bangladesh, authorities especially Bangladesh customers are opting for Bank, Bangladesh Securities M Shah Alam Sarwar Banking via Digital Banking and Exchange Commission, Managing Director & CEO

A Management’s Discussion and Analysis has been presented with detailed analysis of the Bank’s financial position and operations which is also disclosed separately in this Annual Report.

33 IFIC Bank I Annual Report 2018 Directors’ Report

34 IFIC Bank I Annual Report 2018 Directors’ Report

Respected Global and Bangladesh Economy, emerging market and developing Shareholders Bank’s performance, overall economies arising from country- , strength, growth trend and other specific factors, tighter financial Assalamu Alaikum. matters have been incorporated conditions, geopolitical tensions The Board of Directors of IFIC here. and higher oil import bills. Bank Limited with immense Among advanced economies, pleasure takes this opportunity 1. Global Economy and growth disappointed shows in of presenting the Directors’ its outlook the euro area and the United Report along with the Audited Kingdom. Slower export growth Financial Statements for the Global growth is forecast at after a strong surge in the final year ended 31 December 2018 3.7 percent for 2018– 19, 0.2 quarter of 2017contributed to you on the occasion of 42nd percentage point below the April notably to the euro area Annual General Meeting (AGM) 2018 WEO projection, and is set slowdown. Higher energy prices of the Bank. The Report and to soften over the medium term. helped dampen demand in Financial Statements of the However, its pace is less vigorous energy importers, while some Bank have been prepared in than projected in last April and it countries were also affected by accordance with the regulations, has become less balanced. political uncertainty or industrial standards & relevant sections The downward revision reflects actions. Aggregate growth in the mentioned in the Company surprises that suppressed emerging market and developing Act 1994, the Bank Company activity in early 2018 in some economy group stabilized in the Act 1991 (amended up to major advanced economies, first half of 2018. Emerging Asia 2018), Bangladesh Bank the negative effects of the continued to register strong circulars & guidelines and other trade measures implemented growth, supported by a domestic applicable rules & regulations or approved between April and demand-led pickup in the Indian of the respective Regulatory mid-September. It also indicates economy from a four-year-low Authorities. A brief overview of a weaker outlook for some key pace of expansion in 2017.

Table: Overview of the World Economic Outlook

Percentage Change Difference from April 2018 GDP at constant prices Actual Projection WEO Actual Projection 2016 2017 2018 2019 2018 2019 World 3.2 3.7 3.9 3.9 0.0 0.0 Advanced Economics 1.7 2.4 2.4 2.2 -0.1 0.0 USA 1.5 2.3 2.9 2.7 0.0 0.0 Euro Area 1.8 2.4 2.2 1.9 -0.2 -0.1 Other Advanced Economics 2.3 2.7 2.8 2.7 0.1 0.1 Emerging Market and Developing 4.4 4.7 4.9 5.1 0.0 0.0 Economics China 6.7 6.9 6.6 6.4 0.0 0.0 India 7.1 6.7 7.3 4.5 -0.1 -0.3

Source: World Economic Outlook update (July 2018), International Monetary Fund.

Higher energy prices have inflation that is, excluding Venezuela’s hyperinflation, core lifted headline year-over-year food and energy-remains inflation remains below the inflation rates in advanced below central banks’ targets average of recent years but has and emerging market and in most advanced economies. inched up in recent months. developing economies over Among emerging market and the past six months. Core developing economies, excluding

35 IFIC Bank I Annual Report 2018 2. Bangladesh Economy In FY2017-18, broad industry momentum over the year in sector grew by 12.06 percent, 2018. It has brought several As per Bangladesh Bureau of higher than the growth of positive changes in terms of Statistics (BBS), GDP growth 10.22 percent in the previous expansion, modernization, for FY2017-18 reached 7.86 year. In broad industry sector, quality of assets, application percent, significantly higher than the growth of mining and of international standards, the growth of 7.28 percent in quarrying sector declined to technology adaptation, capacity the preceding fiscal year. Among 7.00 percent in FY2017-18 from development efforts, corporate the broad sectors of GDP, the 8.89 percent in FY2016-17. In governance, and improved contribution of agriculture and contrast, manufacturing sector, regulatory and supervisory service sector to GDP slid down ‘electricity, gas and water supply’ environment. However, like other by 0.51 percentage point to 14.23 sector and construction sector global economies, the industry percent and by 0.74 percentage experienced a growth of 13.40 is becoming exposed to newer point to 52.11 percent which was percent, 9.19 percent and 9.92 challenges, financial crimes and offset by an increased share of percent respectively. Of the competitions. industry by 1.24 percentage point manufacturing sector, large and Bangladesh Bank (BB) as a to 33.66 percent in relation to the medium-scale manufacturing central bank has undertaken preceding year. sector grew at a pace of 14.26 remarkable regulatory and percent compared to the growth of 11.20 percent in the supervisory initiatives over preceding year but small scale the years in line with the internationally accepted GDP growth for manufacturing sector exhibited a growth of 9.25 percent, slightly standards and compliance lower than FY2016-17. Of the requirements. The central FY2017-18 ‘electricity, gas and water supply’ bank has created a platform sector electricity and gas sub- for modernization of banking, reached 7.86 sector registered a faster growth payment system and financial percent, significantly higher in relation to the previous year. service delivery by formulation of than the growth of 7.28 rules, guidelines and supportive percent in the preceding fiscal In FY2017-18 broad service arrangements. Notable initiatives year sector grew by 6.39 percent, have been taken for effective down by 0.30 percentage oversight of risk management, point a year earlier. Among the internal controls and customer In broad service sector, wholesale interest protections. It is good and retail trade, hotel and to observe that the central bank FY2017-18 restaurants, real estate, renting has responded with due support and business activities and broad to technology-driven initiatives community, social and personal of the scheduled banks. Several service sector services performed better incentives like refinance lines than the year before, but some from BB and limited interest grew by 6.39 percent other sectors such as transport, subsidies have been made storage and communication, available to promote lending to financial intermediation, public farmers, small enterprises and During the period broad administration and defense, poor households. agriculture sector registered a education, health and social growth of 4.19 percent, up by works exhibited slightly lower In the banking industry of 1.22 percentage point compared pace of progress. Continuing the Bangladesh, a good number of to the previous year due to the upward trend per capita GDP of instances are really inspiring. better performance of most of Bangladesh reached US$ 1,675 There are cases when leadership its sector sand sub-sectors. Crop in FY2017-18 from US$ 1,544 a of banks transformed their and horticulture grew to 3.06 year earlier. Likewise, per capita institutions remarkably in terms percent, 2.10 percentage point national income increased to of improved services, processes, higher than the previous year. US$1,751 in FY2017-18, US$ 141 developing new products, and Animal farming’s sub-sector higher than the previous year as launching technology-driven progressed than the year before, per the final estimates of BBS. payment and financing services. but ‘forest and related services’ Some banks have already come sub-sector declined. Fishing 3. Banking Industry in up with their own internet sector similarly grew at a rate of banking apps to provide services. 6.37 percent, 0.14 percentage 2018 In recent times, mobile banking point higher than the previous Banking industry of Bangladesh & agent banking is a remarkable year. has achieved remarkable venture.

36 IFIC Bank I Annual Report 2018 3.1 Highlights of Monetary while maintaining price her banking needs and wants Policy of Bangladesh Bank stability. to provide best services at affordable prices. SS GDP growth at 7.65 percent outperformed the target of 7.4 4. IFIC in the Banking The Bank provides a professional, percent and average inflation Sector of Bangladesh safe and enjoyable work environment that supports job at 5.78 percent slightly International Finance Investment underperformed, relative enthusiasm, positive relationship and Commerce Bank Limited and effective teamwork. The to the goal of remaining (IFIC Bank) was set up at the within 5.5 percent, reflecting Bank provides clear directions instance of the Government in to motivate the team to achieve weather-related shocks amid 1976 as a joint-venture between rising global inflation. the goals. The Bank seeks to the Government of Bangladesh inspire loyalty to the company SS Inflationary risk concerns and Sponsors in the private by treating all the employees remained largely under sector with the objective of with respect, recognition and control in FY18 since working as a finance company understanding. broad money (M2), the key within the country and setting determinant of inflation, grew up joint-venture banks/financial 4.2 Cluster Management by 9.2 percent, well below institutions aboard. In 1983 Cluster Management is the program target of 13.3 when the Government allowed considered as a new and highly percent. Private credit growth, banks in the private sector, efficient forms of innovation despite recent moderation, IFIC was converted into a full- support providers that provides remained strong at 16.95 fledged commercial bank. The and channelizes specialized and percent in June 2018, slightly Government of the People’s customized business support above the FY18 program Republic of Bangladesh now services to enterprises. Our high target, but domestic credit holds 32.75% of the share capital quality cluster management is (DC) growth reached 14.6 of the Bank and the rest of working relentlessly to ensure percent, below the program the share capital is held by the cluster excellence in the Bank and target of 15.8 percent. Sponsors/Directors, local and efficient cluster Managers act as foreign institutions and general a driving force for clusters. Their SS BB’s policy measures since public shareholders. performance is very much linked the last MPS - a reduction to the professional expertise in CRR by 1 percentage A total of 147 branches of and the capability of them, who point and repo rate by 75 IFIC are dedicated to fulfill the dispose of good cluster insight, basis points - along with the Mission of providing services necessary for an efficient support increased deposits by public to the clients with the help of a to cluster members. agencies in private banks skilled and dedicated workforce. helped moderate the liquidity As one of the leading banks of tightening from the negative the banking sector in the country, 5. Financial NFA growth. These measures IFIC is always committed to the Performance of IFIC aided banks’ initiatives to welfare and economic prosperity Bank Limited moderate interest rate spikes of the people and the community. in the near term. Year 2018 was one of the 4.1 Client as Trusted & challenging years for IFIC SS Balancing the inflation and Development Partner in terms of new business output risks, amid improving IFIC recognizes customers as generation in both asset and liquidity conditions and partners and aims at providing liability side and profitability moderating food inflation high quality products and services due to interest rate movement while inflation expectations at a fair price. The Bank focuses both at lending and deposit. are elevated and global on supplying of Customer Service Despite heightened challenges, market conditions tighter, Excellence (CSE) in those products IFIC managed to close its BB has decided to maintain and services with the optimum business efficiently in theyear the policy rates at their desire to gain total customer 2018 through improved process current levels, with repo and satisfaction and confidence. The efficiency, enhanced workforce reverse repo rates at 6.0 and Bank hopes to build reliability, productivity and establishing 4.75percent, respectively. trust and friendship through state-of-the-art technology. The FY19 monetary program honesty and integrity for healthy sets growth ceilings of private long-term alliances. Throughout the year the bank has been resolute in credit, domestic credit and The Bank looks after every client broad money at 16.8, 15.9, maintaining its relentless focus to make him/her a development to meet customers’ need and its and 12.0 percent, respectively, partner through addressing his/ adequate to support growth stakeholders’ expectations.

37 IFIC Bank I Annual Report 2018 5.1 Financial Position based on Separate Financial Statements A review of the financial position of the bank as at 31 December 2018 is presented below: BDT in million Particulars 2018 2017 Change Borrowing from banks & FI 9,969 8,474 17.7% Subordinated debt 3,500 3,500 0.0% Deposits 226,333 200,206 13.1% Other Liabilities 21,155 20,531 3.0% Shareholders’ Equity 22,116 20,539 7.7% Total Liabilities & Equity 283,073 253,249 11.8% Cash & Bank Balance 28,077 29,932 -6.2% Investments 31,304 27,858 12.4% Loans and Advances 206,930 179,264 15.4% Fixed Assets 5,438 3,528 54.1% Non-banking & Other assets 11,325 12,666 -10.6% Total Assets 283,073 253,249 11.8%

At the end of year 2018 total Flagship deposit product IFIC 5,954 million and kept interest Balance Sheet size of the Bank Aamar Account balance stood at suspense of BDT 6,286 million on solo basis stood at BDT BDT 14,565 million compared to against gross loan portfolio and 283,073 million vis-à-vis BDT BDT 5,839 million in 2017, which investment. 253,249 million of year 2017, demonstrated a net addition of 5.3 Financial Performance registering a positive growth BDT 8,726 million with 149.5% The year 2018 was challenging of 11.8%, which is mainly for growth over prior year. in operating environment and increment of investment, loans Loans and advances of the bank maintaining the net interest and advances and fixed asset. stood at BDT 206,930 million in margins due to rising the interest Deposit, the main source of 2018 representing a growth of expenses and application of funding of Bank stood at BDT 15.4%, over BDT 179,264 million single digit 9.0% lending rate 226,333 million at the end of in 2017. The Bank has been able since 1 July 2018. At the end of Y2018 vis-à-vis BDT 200,206 to maintain this remarkable year 2018 the Interest Income million in the year 2017. Total growth mainly for increment of the bank increased by 27.1% deposit of the bank grew by and credit growth in both the compared to the interest income 13.1% from last year with net corporate and retail segments of prior year, at the same time addition of BDT 26,127 million. especially in IFIC home loan. interest expense has increased by 52.7 % over last year to maintain CASA deposit has increased by 5.2 Asset Quality BDT 5,556 million representing Strategic focus on no- the healthy long term liquidity. a positive growth of 12.7% compromise with asset quality Due to higher level growth of the compared to prior year. On the has been pursued in every interest expense than interest other hand, FDR & Other Deposit segment of credit management. income, net interest margin of the increased by BDT 20,571 million, As a result, the year-end bank reduced by 17.0% opposed with a growth of 13.2% over last achievement has been posible in to year 2017 which has directly year. Overall liquidity position maintaining better asset quality impacted the overall profitability of the banking sector was very over prior year. At the end of of the Bank. Though the net challenging during the year 2018 year 2018, NPL ratio of the bank interest income reduced over and keeping in this mind, IFIC has stood at 6.16% vis-à-vis 6.40% in last year, non-interest income given more emphasis on long 2017. The Bank has made enough which comprises of investment term liquidity rather than short coverage by way of maintaining income, fees and commission term. As a result, CASA mix of provision and suspense against etc. increased by 4.0% in the the bank stood at 21.8% at the NPL portfolio to mitigate the year 2018 than the year 2017. end of year 2018 vis-à-vis 21.9% expected credit loss. At the Summary financial result of in year 2017. On the other hand, end of the year 2018, the Bank the bank for the year 2018 is at the end of the year 2018 IFIC maintained total provision of BDT furnished in the next page:

38 IFIC Bank I Annual Report 2018 BDT in million Particulars 2018 2017 Change Net interest income 4,560 5,492 -17.0% Non-Interest Income 4,441 4,270 4.0% Operating Revenue 9,001 9,762 -7.8% Operating expenses 5,106 5,348 -4.5% Operating profit 3,895 4,414 -11.8% Loan loss provision 1,035 2,038 -49.2% Profit before taxes 2,859 2,377 20.3% Provision for tax 1,289 309 317.4% Net profit after tax 1,570 2,068 -24.1%

In the expenses side, the 2,377 million which is 20.3% level of tax expenses Net profit bank incurred total operating higher than the year 2017. after Tax of the bank stood expense of BDT 5,106 million In the year 2018 the bank made at BDT 1,570 million in 2018 during 2018 as opposed to BDT provision of BDT 1,080 million compared to BDT 2,068 million 5,348 million in 2017 i.e. total as current tax opposed to BDT in 2017. operating expenses of the bank 750 million of previous year and 5.4 Quarterly Disclosed reduced by BDT 242 million over accounted for BDT 209 million as Financial Performance with last year representing 4.5% deferred tax expense compared Annual Financial Performance below from prior year due to to deferred tax income of BDT The quarterly financial saving from salary & benefits, 441 million of last year. After performance of the Bank was depreciation of fixed assets and considering the deferred tax at mostly consistent in all the first other discretionary expenses the end of year 2018 total tax 3 quarters. In 4th quarter total like advertisement and publicity, expenses of the bank stood at operating income changed subscription and donation and BDT 1,289 million vis-à-vis BDT slightly due to increase of net CSR. 308 million of year 2017 i.e. tax interest income for recovery and Operating profit of the bank expenses grew by BDT 980 regularization of few classified stood at BDT 3,895 million in million or 317.4% higher than last accounts and accruing dividend 2018 compared to BDT 4,414 year. Total tax expenses of the income from its overseas million in 2017 which is 11.8% bank is higher than the previous associate. On the other hand, lower than the prior year mainly year as current tax in 2017 was operating expenses have for lower level of net interest calculated after considering the changed slightly and increased margin. However, due to lower prior years’ provision surplus and in the 4th quarter mainly for level of loan loss provisioning there was deferred tax income in the recognition of non-regular against its lending portfolio and 2017 due to higher level of loan expenses like incentive bonus investment, Profit before tax loss provision under doubtful and etc. Brief picture of quarterly of the bank stood at BDT 2,859 bad loss category of classified performance of the Bank is million in 2018 vis-à-vis BDT loans. With the impact of higher furnished below:

BDT in million Particulars Q1 Q2 Q3 Q4 Y2018 Net interest income 1,055 959 1,022 1,523 4,560 Non-interest income 996 997 952 1,496 4,441 Operating Revenue 2,051 1,956 1,974 3,020 9,001 Operating expenses 1,140 1,317 1,156 1,494 5,106 Profit before tax 911 640 818 1,526 3,895 Loan loss provision 370 281 207 177 1,035 Profit before tax 541 359 611 1,349 2,859 Net profit after tax 266 108 159 1,038 1,570

39 IFIC Bank I Annual Report 2018 5.5 Preparation of Financial suitable accounting policies for 5.6 Capital Adequacy Position Statements and the Annual all financial statements, while In terms of regulatory Report the accounting estimates are requirements, IFIC is under an IFIC Bank has prepared its founded upon reasonable and obligation to keep a minimum financial statements as per prudent assessment. The main capital requirement to sustain International Accounting emphasis of IFIC is placed on its business. As per Bangladesh Standards (IAS) and International the integrity and quality of its Bank guidelines, at the end of Financial Reporting Standards financial statements. When year 2018 Bank maintained (IFRS), as applicable in drafting the annual report, Capital to Risk Weighted Asset Bangladesh and any deviation accurate presentation is also Ratio (CRAR) at the rate of there from has been adequately prioritized as per prevailing laws 12.630% against the requirement disclosed in the notes to the of the land. A declaration on of 11.875% which 0.755% above financial statements. To comply Financial Statements for the year the minimum requirement. with the IAS/IFRS, bank maintains ended on 31 December 2018 by Capital Adequacy Position of the proper books of accounts and the Managing Director & CEO and Bank as on 31 December 2018 in present fairly its state of affairs, the Chief Financial Officer to the comparison with the year 2017 the result of operations, cash Board of Directors of the Bank are furnished below: flows and changes in equity. has been disclosed in this Annual IFIC also consistently followed Report. BDT in million Particulars 2018 2017 Tier 1 Capital 20,877 18,875 Tier-2 Capital 6,026 5,239 Regulatory Capital 26,904 24,114 Required capital 25,295 21,574 Capital surplus 1,609 2,539 Maintained CRAR 12.630% 12.574% Required CRAR 11.875% 11.625% Surplus 0.755% 0.945%

5.7 Appropriation of Profit and growth over the last five years. As per Bangladesh Bank’s Dividend All the ratios and results thus guidelines and notifications In the year 2018 Earnings Per calculated reveal that Bank is of Bangladesh Securities and Share of the Bank reached running well above the level Exchange Commission, IFIC at BDT 1.17 compared to of different parameters set by Bank conducts its credit rating BDT 1.54 (restated) of year the respective guidelines of each year with due disclosure. 2017. Considering the overall Bangladesh Bank. Details of all According to Bangladesh performance of the bank, the key financial highlights of Bank’s BRPD Circular No. the Board of Directors has the bank for the last five years 06 dated 5 July 2006 and recommended 10.00% stock are disclosed also in this Annual in order to improve the risk dividend for the year 2018 with a Report. management and corporate view to rewarding shareholders governance frameworks as well 5.9 Management’s Discussion in the long run through retaining as to safeguard the interests of and Analysis capital to maintain the capital A Management’s Discussion and investors, depositors, creditors adequacy ratio to support the Analysis has been presented with and shareholders, the bank was future growth. detailed analysis of the Bank’s rated by Credit Rating Agency of Bangladesh (CRAB) for the year 5.8 Five Years Performance financial position and operations The bank has achieved its in this Annual Report. ended 31 December 2017. intended balance sheet growth The latest and previous rating of 5.10 Credit Rating as well as sustainable profit the Bank is furnished below:

Ratings Date of Rating Long Term Short Term Outlook Validity Current 30-Jun-18 AA2 ST-2 Stable 30-Jun-19 Previous 30-Jun-17 AA2 ST-2 Stable 30-Jun-18

40 IFIC Bank I Annual Report 2018 In long term the CRAB rated rated in this category are depositing through national the Bank AA2 which represents characterized with commendable exchequer and complying with very strong capacity to meet position in terms of liquidity, the laws. During the year 2018, the financial commitments and internal fund generation and IFIC Bank deposited BDT 2,007 which is a very small degree of access to alternative sources of million of withholding tax, BDT difference from the highest-rated funds. 133 million of VAT on Banking Commercial Banks. AA is judged Services, BDT 120 million of to be of very high quality and is 5.11 Contribution to the National withholding VAT at source and subject to very low credit risk. Exchequer BDT 59 million of VAT on its In short term the CRAB rated According to the law of country, Office rent and BDT 278 million the Bank ST-2 which represents IFIC contributed to national of Excise Duty. IFIC also paid BDT strong capacity for timely economy through collecting 1,057 million as income tax to repayment. Commercial Banks government revenue and fulfil its income tax obligation.

BDT 133 BDT 122 BDT 278 BDT 192 BDT 59 BDT 52 BDT 120 BDT 190 BDT 2,007

BDT 796 BDT 1,057 BDT 1,593

Y2018 Y2017

5.12 Related Party Disclosure a positive image for the Bank in venture between IFIC Bank IFIC Bank undertakes the International Arena but also Limited and Omani nationals, was transactions with related parties contributed to its profitability. established in 1985 to facilitate as part of its normal business A pen picture of the existing remittance by Bangladeshi operations. Such transactions overseas joint venture operations wage earners from Oman. IFIC tend to be loans and advances of the Bank is furnished Bank holds 25% shares, and or deposits entered into at hereunder for information of the the balance 75% is held by the arm’s length price or fair market Honorable shareholders. Omani sponsors. The exchange value. Disclosure of all related company has a network of 12 parties, including basis for such 6.1 Nepal Bangladesh Bank (twelve) branches covering all the transactions, has been provided Limited major cities/towns of Oman. The in Annexure-F of Audited Nepal Bangladesh Bank Ltd., operations of the branches are Financial Statements. a joint venture “A-Class” fully computerized having online commercial bank between IFIC system. 6. Overseas Operations Bank Ltd. and Nepali nationals, started operation with effect from 6.3 MCB Bank Ltd., Pakistan Since its journey in 1983, 06 June 1994 in Nepal. The Bank IFIC Bank had two branches in IFIC Bank has been playing has a network of 81 branches at Pakistan, one in Karachi and the the pioneering role among different important locations in other in Lahore. Karachi Branch the private sector banks in Nepal. IFIC Bank presently holds was opened on 26 April 1987, establishing joint venture/ about 40.91% shares in Nepal while Lahore Branch was opened overseas operations beyond the Bangladesh Bank, Nepal. on 23 December 1993. national boundary. The Bank has To meet the Minimum Capital so far been able to set up joint The profitability of Nepal Bangladesh Bank is in the Requirement (MCR) of the State venture operations in Maldives, Bank of Pakistan, the Overseas Oman, Nepal, Pakistan and UK. increasing trend and recently, Nepal Bangladesh Bank declared Branches in Pakistan have been Bank’s operation in Maldives amalgamated with a reputed was, however, handed over to the 10.53% Cash Dividend during FY 2017-18 to its shareholders. leasing company in Pakistan Maldivian Government in 1993. named National Development Overseas joint venture 6.2 Oman Exchange LLC Leasing Corporation Ltd. operations have not only brought Oman Exchange LLC, a joint Therefore, the existence of

41 IFIC Bank I Annual Report 2018 Bank’s above Overseas Branches remittance includes FC Cash/ SS Al Fardan Exchange, UAE has been ceased w.e.f. 02 FDD and Wire transfer by SWIFT. SS Sigue Global Services Ltd. October 2003 and a new joint The Bank’s inward remittance (SMT) – global company venture bank titled NDLC-IFIC covers Account Credit Service Bank Ltd. emerged in Pakistan and Instant Cash Payout Service SS Xpress Money Service s Ltd., w.e.f. 03 October 2003. The Bank under Electronic Fund Transfer UK was subsequently renamed as (EFT) arrangement. The inward SS Trans-Fast Remittance LLC, NIB Bank Limited. foreign remittance business USA NIB Bank Limited has been again was amounted to BDT 15,617.10 million (equivalent USD 186.14 merged with and into MCB Bank 7. SME Performance Limited w. e. f. 07 July 2017. million) in 2018. After merger with and into MCB To facilitate inward foreign IFIC Bank is now maintaining Limited, IFIC Bank Limited hold remittance in Bangladesh its SME portfolio by serving 175,508 numbers of shares of from United Kingdom, a fully customers through its’ 147 MCB Bank Limited. owned subsidiary exchange branches. house of IFIC Bank titled IFIC 6.4 IFIC Money Transfer (UK) 7.1 SME Portfolio Money Transfer (UK) Ltd. has Limited To focus on Cottage, Micro & IFIC Money Transfer (UK) commenced the operation in Small Enterprise, IFIC Bank has Limited, a fully owned subsidiary August, 2011 in London, UK. financed 57% of its total SME exchange company of IFIC Bank Moreover, IFIC Bank has ensured portfolio i.e. BDT 16606.64 Limited was incorporated in UK greater access to the un-banked million in this sector, remaining and commenced its operation population of different remote 43% i.e. BDT 12596.68 million on 31 August 2011 to facilitate areas with the strategic alliances was financed at Medium inward foreign remittance from for distribution of remittance Enterprise sector. At the end the United Kingdom. with UDDIPAN where we do not of 2018 SME portfolio is BDT have any presence. At present 29203.32 million. 6.5 Correspondent Banking 101 Branches of UDDIPAN are Pie Diagram: % Cottage, Micro, Relationship performing the remittance Small & Medium Enterprise IFIC Bank Ltd. has a wide range distribution agents of our Bank financing of correspondent network across throughout the country. the world to facilitate smooth IFIC Bank has remittance foreign trade transactions. The 43% Bank maintains 26 Standard arrangement with following 8 Settlement Instructions (Eight) Exchange Companies (Nostro Account) involving 7 for catering to inward foreign currencies e.g. AUD, ACU-D, remittances from abroad CHF, EUR, GBP, JPY and USD at including Bank’s own and joint important financial centers. Total venture exchange company: correspondents of IFIC Bank Ltd. SS Oman Exchange LLC, Oman stands at 440 (Local & Abroad) SS IFIC Money Transfer (UK) 57% as of 31 December 2018. Limited, UK 6.6 Foreign Remittance SS Placid NK Corporation, USA IFIC Bank handles both inward Medium Enterprise -global company and outward foreign remittance Cottage, Micro & products. The outward SS Multinet Trust Exchange LLC, Small Enterprise UAE

7.2 Key loan Products of SME

SL Product Name Remarks 01 IFIC-Krishi Shilpo Loan for Agro. Based Industry 02 IFIC-Shilpo Sohay Loan for Cottage & Micro Industry 03 IFIC-Shilpo Shongjog Loan for Manufacturing & Service Industry 04 IFIC-Protyasha Loan for Women Entrepreneurs 05 IFIC-Prantonari Loan for Grassroots Women Entrepreneurs

42 IFIC Bank I Annual Report 2018 7.3.1 Green Financing A school banking conference was following Agri. Loan products: To promote sustainable growth organized on 20th October, 2018 in economy, we financed BDT at Bhola as part of the financial Sector wise Agricultural loan 7452.72 million under Product inclusion activities of IFIC Bank. as on 31.12.2018 Program Guideline named “IFIC 7.4 Training Program on SDGs Green – Earth”. and Financial Literacy for the 7.3.2 Financial Inclusion youth activities IFIC Bank has organized As part of Sustainable a training program on Development Goal, IFIC Bank has “Implementation of Sustainable disbursed BDT 8.47 million under Development Goals (SDG) and 10.00 Taka account program to Financial Literacy for the youth” serve small/marginal/low income for University students with professionals/traders etc in 2018. the aim of enlighten the youth regarding basics of banking IFIC Bank has also been engaged sector and financial literacy. in school banking program since 2014. Cumulative number 7.5 Agri. Credit & volume of school banking At the end of 2018, total Crops Fisheries accounts are 14,396 and BDT Agricultural Credit was BDT Livestock Others 1.72 million respectively. 3307.82 million through

SL Name Remarks 1. IFIC-Suborno Gram Loan for crops, fisheries & livestock 2. SechSoronjam Loan for irrigation equipment 3. KrishiSoronjam Loan for cultivation instrument

8. Retail Banking of “IFIC Home Loan” for any gets interest from deposit credit worthy individuals who balance on daily basis and can Over the last few years, there wish to buy Apartment/flat, enjoy loan facility whenever has been a major change in the construct building for home use they needed with almost 50% mindset of our consumers. Retail or renovation of their existing flat/ reduced rate of interest than Credit, which was considered house etc. With that amendment credit card. Single card act as a as unreachable, is today a Home loan becomes the most debit card and credit card. Govt. means of fulfilling the growing vital lending products in IFIC. employee of Bangladesh can aspirations of Bangladeshi With continuous effort and enjoy 1 (one) hour loan processing middle class, especially the dedication from all stakeholders, facility against Aamar Account. growing population of the 25- IFIC now stands market leader in As of 31 December 2018, total 44 age groups. The decline in terms of incremental growth of its balance of “Aamar Account” corporate credit forced banks number of customer and volume stands at BDT 1,456.49 crore to increase their presence in the from the last three and half years. with a total of 99,399 accounts. retail finance market. The rise As of 31 December 2018, total in income levels, together with IFIC bank has introduced home loan outstanding is BDT attractive monthly deposit fall in interest rates and growing crore with a total of 2,911.40 scheme in the name of “Aagami” competition, has increased 7,041 customers. the affordability of loans for with some exclusive value borrowers. To facilitate state of the art added facility for its existing banking solution through and potential customers. This Moreover, Retail Banking now- reducing cost and hassle of scheme will also help IFIC to find at a very rapid pace – become maintaining multiple accounts out prospective loan customers’ the major revenue line for for deposit and loan, IFIC bank with proven EMI running capacity. most of the top banks in the introduced first ever hybrid As of 31 December 2018, total country. For this Retail Banking account in entire banking history balance of IFIC Aagami stands Division has re-launched its HBL of Bangladesh in the name of at BDT 18.10 crore with a total of product “Thikana” in the name “Aamar Account”. Customer 4,445 accounts.

43 IFIC Bank I Annual Report 2018 Focus in 2019 cards, 1,75,000 debit cards up to other needs. The Bank accepts 31 December 2018. cards from three networks SS Continue the effort for namely Visa (Local and Foreign), diversifying retail loan The Bank has been issuing VISA Q-Cash Member Banks and portfolio through enhancing branded debit cards, including NPSB Member Banks. home & mortgage based loan; credit gold and classic cards for both local and international use SS Continue effort for Aamar Initiatives in 2018 since June 2007. Account business to diversify 1. Expansion of countrywide 05 IFIC Bank has been issuing retail deposit and loan new ATM Booths portfolio; Aamar Account Dual currency card and it is a unique SS Launching innovative Vision for 2019 transactional account where both technology based products to deposit and overdraft facility 1. Re-Strategizing ATM tap into branch less banking; are enabled in a single account. operation of the Bank. SS Ensuring best consumer IFIC Bank introduces this type of 2. Introduction of Cash Recycler banking experience through account first time in Bangladesh 3. Introduction of new services improving service quality. which will ultimately reduce through ATM the account operation cost of 9. Alternative Delivery the customer with numerous 4. Implementation of benefits in a single account. Centralized CCTV Monitoring Operation System IFIC Bank VISA EMV chip based 9.1 Card Services credit card has been introduced 5. Implementation of Real-time IFIC Card is powered by VISA, January 2017 and this card is Network Monitoring System world’s largest electronic more secured than magnetic payments network. IFIC Bank strip card. 9.3 Dispute & Fraud has been issuing VISA branded Management Credit Card, Debit Card & In 2019, the following projects In 2018 the Bank has taken Prepaid Card and which can be will be executed different initiatives to minimize fraud risks and resolution of used both at home & abroad. 1. Introduce Contactless Credit disputes efficiently. As per Customer can choose any of card, the above cards according to Bangladesh Bank compliance his/her need. Local cards can 2. Migrate all magnetic stripe and to minimize fraud risk and to be used at any ATM displaying cards into EMV chip avoid Visa Liability shift following VISA Logo for withdrawal of 3. Roll out Aamar account dual Projects has been implemented: cash and at any POS displaying currency card 1. Verified by Visa (VbV) – VISA Logo for purchase of goods safeguard customers on & services within Bangladesh. 9.2 ATM Services e-com txn by providing OTP International cards can be used IFIC Bank has introduced ATM during txn globally through worldwide Services from 2011 and during VISA network. ATM and POS 2018 IFIC Bank has installed 2. Visa EMV Chip based Credit transactions are to be secured by 05 new ATM Booths making Card – prevent fraud and Personal Identification Number the total 93 ATMs all over the prevent card cloning. (PIN) known by the concerned country. The Bank has special 3. Security measures for customer only. However, all the arrangement with Corporate mitigations Fraud Risk for transactions are to be authorized Houses where ATMs have Card transactions. by the system electronically. The been installed to facilitate their Bank has issued 5,000 credit employee’s monthly salaries and

Dispute Resolution (Local Currency)

Sl. No Network Number of Dispute Charged Back amount (BDT) 1 NPSB (ROU) 567 58,82,760.90 2 NPSB (Off Us) 73 2,68,750.00 3 Q-Cash (ROU) 347 28,63,700.00 4 Q-Cash (Off Us) 75 5,87,370.00 5 Visa (ROU) 33 1,78,500.00

44 IFIC Bank I Annual Report 2018 Dispute Resolution (Foreign Currency)

Sl. No Network Number of Dispute Charged Back amount (USD) 1 Visa (ROU) 03 415.00

Fraud Resolution (Foreign Currency)

SL No Network Number of Fraud Resolved amount (USD) 1 VISA (ROU) 0 0

TWFA, a software based mechanism of acknowledging Milestone achievements in 2018 suspicious transactions customer complaints for 1. Launching of industry monitoring tool follow up such as complaint/ standard new contact center Tranzware Fraud Analyzer docket number. premises with all facilities. (TWFA), a software based 9.4 Contact Service Center (24/7) suspicious transactions 2. Upgradation of contact center IFIC Bank, aiming to provide monitoring tool has already solution to provide multiple excellent service to the customer, been implemented from banking services has been operating 24/7 December-2018. servicing hours since 2012. By 3. Dedicated team for service Dispute & Fraud Management simply dialing 16255 or 096667 quality and complaint Vision for 2019 16255 customers can avail handling To minimize Fraud, the Bank has banking service anytime from 4. Single help-desk for IFIC’s taken initiative to implement anywhere .The Contact Center in-house customers for all following Projects: has now become an essential alternative delivery channel 1. To enhance the TWFA tool part of Bank to maximize related services. nd customer satisfaction through (the 2 phase), so that the Plan for 2019 tool itself can block cards highest service level in a timely automatically in case of some and cost-efficient manner. 1. Implement IVR system for predefined transaction types. The IFIC Bank Contact Center automated services of card and account. 2. PCI-DSS certification. team is dedicated to provide 3. As per Bangladesh Bank several services that facilitate 2. Turn contact center as Instructions, implementation all other departments of bank one-stop touch point for our of a Web portal with a running their campaigns. customers round the clock.

Call Volume

Year Total no of calls Growth 2018 2,60,743 7 % 2017 2,45,004 32% 2016 1, 86,060 22 % 2015 1, 52,293

10. Risk Management of risks inherent in business risks. There exist the clear lines and take appropriate communication from Board The focus of the risk steps to ensure continued of Directors to management management practices in the awareness of any changes in that risk management is not an banking industry is to manage the level of risks. They have impediment to the conduct of bank’s exposure to losses or risk defined the risk appetite, risk business nor a mere supplement and to protect the value of its tolerance and risk limit, and set to a company’s overall assets. Boards have the ultimate risk strategies. The board also compliance program but is, responsibility for overseeing risk- ensures that the management instead, an integral component of taking in their institutions. is taking necessary steps to the company’s strategy, culture Board of Directors of IFIC has a implement those strategies and value generation process. clear understanding of the types and manage accompanying

45 IFIC Bank I Annual Report 2018 Board of Directors is very much Management requires robust Segment Information focused to establish bank policies, rigorous compliance and wise risk culture, based on full timely revision. The Credit Risk Industry and Business Segment understanding of the risks it Management Policy of the Bank Focus of the Bank faces and how they are managed, addresses the following: Bank will maintain a balanced credit portfolio through considering risk tolerance and SS Definition of Credit Risk, minimizing loan concentration in appetite. They have developed types of loan facilities, a particular sector encouraging the risk culture through policies, facilities offered to corporate loan diversification and examples, communication, clients, discouraged business expanding product range. and ensuring training of staff types/sectors. regarding their responsibilities Considering recent economic SS Managing Credit Risk for risk. Senior management is trends of a particular sector and there to ensure that it is clearly SS Detailed and formalized credit potential business opportunity, communicated and understood to evaluation/ appraisal and we have identified following staff at all levels in units that are approval process. industry and business segment exposed to material operational SS Risk identification, focus risks. Senior management also measurement, monitoring needs to place proper monitoring and control and acceptance Encouraged Sectors and control processes in order to criteria. (Accelerated Growth) have effective implementation of SS Roles and responsibilities of SS Agriculture the policy. The policy should be staff involved in origination SS Manufacturing Companies regularly reviewed and updated, and management of credit. to ensure it continue to reflect SS Credit Risk mitigation Retained Sectors (Normal the environment within which the Growth) bank operates. Along with senior strategies. management, the Board Risk SS Managing credit risk in the � Commerce and Trade Management Committee (BRMC), administration process. � Residential Hotels and which is a representative of Board SS Management Information Restaurants Members, is there to ensure System for managing Credit � Manufacturing Companies overseeing and signing off risk- Risk. � Construction and Commercial related disclosures to investors, SS Concentration limits on single Real Estate customers and regulators. These party or group of connected � Ship Building disclosures provide external parties, particular industries � Ship Breaking parties with a clear and accurate or economic sectors, account of the institution’s geographic regions and � Road Transport (including Rail current and projected risk specific products. way) appetite, profile and governance � Water Transport of IFIC. SS Risk based pricing. SS Policies for the frequency and � Cold Storage Finally, Boards find themselves thoroughness of collateral today at an inflection point. The � Saw Mills verification and valuation. banking industry of Bangladesh � Hospital and Clinics is becoming more complex and SS Review and approval � Private Educational Institutions competitive. As a result, Boards authority of allowances for probable losses and write- � Rice/Flour/Pulse Mills are expecting more ownership [Automatic] for risk issues as well. In line offs. � Consumer Finance with that IFIC Board of Directors SS Guidelines on regular has also step up to the new monitoring and reporting Discouraged Sectors (No challenges and build more robust systems. Growth) oversight mechanisms to risk SS Guidelines on management of � MFI Linkage management. problem loans. � Entertainment (Cinema, 10.1 Credit Risk Management SS Policies on loan rescheduling Amusement Park etc.) IFIC Bank Limited, being one and restructuring. of the leading first generation � Other Cooperative Bank/ SS The process to ensure banks has a number of policies Societies appropriate reporting and for sustainable business growth tolerance level of exceptions. � Tobacco processing and robust risk management. Industries Credit Risk Management is the SS The Bank rigorously monitors sanctions of loans as well as � Polymer and Polythene most significant one among six Industries core risks of the Bank. Credit Risk their recovery.

46 IFIC Bank I Annual Report 2018 � Beverage Bank establishes policies which restructures loans [classification � Share/Capital/Brokerage address concentration risk limits. status: UC & SMA] of the The Board takes into account borrower after realization of � NBFI company strategy, economic required down payment for � Air Transport conditions, and net worth levels specific time period for smooth Credit Concentration Risk in setting such limits. repayment of the client. Historical experience shows that Techniques for Managing IFIC Bank follows the following concentration of credit risk in Concentration Risk issues while considering asset portfolios has been one IFIC Bank uses a variety application for loan restructuring of the major causes of bank of techniques to manage of unclassified loans: distress. Concentration risk concentration risk. Among the SS When a borrower asks for arises when we invest our most most important methods are: restructuring of loan, the bank or all of the assets to single or SS Risk Appetite meticulously examines the few individuals or entities or reason for loan restructuring. sectors or instruments. We pay SS Limits attention to the following credit SS Borrowers must pay required SS Capital Buffers concentration risk areas: down payment. How to monitor Concentration SS Overall repayment capability SS Sector wise exposure risk of the borrower. SS Division wise exposures Once appropriate risk SS Review the borrower’s cash SS Group wise exposure management systems flow statement, audited SS Single borrower wise and policies are in place, balance sheet, income exposure management should actively statement and other financial monitor concentration risk SS Top borrower wise exposure statements in order to through the use of regular formal ensure whether the borrower How to identify Concentration risk reporting. would be able to repay the Identification of concentration Details of Accounts restructured installments/ risk should be commensurate Restructured existing liability or not. with the size of the institution, Considering the merit of any the levels of inherent Trends of last 03 years Loan proportions IFIC Bank has concentrations, and the Restructuring importance of the activity to the institution. The basic building Loan Restructuring (BDT in Million) block of a good identification system is the ability to store and 10000 access data. Systems should 7810.1 also apply some controls to help 5719.4 ensure the data is entered as 5000 accurately as possible. 2999.5 How to measure Concentration 0 risk 2016 2017 2018 The Board of Directors of the

Assets disclosure given on operating & finance lease Lease Finance (BDT in Million) Lease finance are made to 10000 acquire the assets selected by 603.86 the borrower (lessee) for hiring 8000 of the same at a certain agreed 399.77 terms and conditions with the 6000 bank (lessor). In this case bank retains ownership of the assets 4000 and borrower possesses and 662.81 uses the same on payment of 2000 rental as per contract. Trends of last 03 years Lease 0 Finance 2016 2017 2018

47 IFIC Bank I Annual Report 2018 10.2 Remedial Asset and is exerting all out efforts among RAM, Branch Management to chase NPL, to arrest upward &defaulting borrowers for Remedial Asset Management trend and to keep the percentage negotiation towards recovery. (RAM) directly manage the Non- of classified loans at an 3. Visiting Branches for direct Performing Loan (NPL) Accounts acceptable level for improvement communication with the which sustained deterioration (a of asset quality. In this regard Branch officials and different risk related to Sub-Standard or RAM, CRM and Law & Legal defaulting borrowers for worse). Affairs Divisions are working amicable settlement. The NPL has adverse effect together to maximize recovery 4. Monitoring of Court cases on the bank on its day to day from Non-Performing Loans through Tele-conference operation and profitability. Banks and avoid new classification to among the Branches and have to keep excess provision achieve the organizational goals. dealing with lawyers to avoid against defaulted loan which Remedial Asset Management unwanted delay of legal affects the net profit. So, the (RAM) has a Recovery Policy process. higher the NPL the lower the approved by the Board of 5. Rescheduling of NPLs. net profit and vice versa. A bank Directors for strengthening 6. Settlement of NPL by becomes weak and highly non recovery of Non-Performing allowing Waiver of interest. profitable due to excessive NPL Loans. To streamline the recovery portfolio. Huge NPL portfolio process and to reduce the lead 7. Writing-off Classified Loans. erodes the ability of banks to time RAM has also devised a 8. Engagement/Entrustment make profit. NPL also affects Standard Operating Procedure of difficult Accounts to in economic growth. Excess (SOP) as well Standard Action Recovery Agents. NPL hampers the circulation Plan on 06.04.2016 with specific 9. Foreclosure of Security for of money in the market which “Time Frame” for different recovery of NPL. adversely affects this sector. steps for quick action as well as 10. Prepare a Diagnostic Tool for Earning of interest income is also recovery from NPL Accounts. identification of root cause ceased from NPL which results in On the basis of Recovery Policy, of being classification so that reduction of income generation SOP and related circulars of further classification can be and increase cost of fund. Since Bangladesh Bank, RAM Division retarded. the fund is blocked and interest is taking following steps for income is ceased, the bank can RAM Division also perform Loan improvement of quality of Assets neither reinvests the loan amount Classification and Provisioning and profitability of the Bank: nor earns any income from that Exercise on quarterly basis as per fund. So, it also hampers the 1. Close monitoring of NPL Bangladesh Bank circular. banks overall cash flow position. Accounts as per Standard Comparative position of recovery Operating Procedure (SOP). Remedial Asset Management against Non-Performing Loans (RAM) of the Bank has unlimited 2. Teleconference between (NPL) in the year 2017 and 2018 appetite for recovery from NPL RAM & Branch and meeting were as under: (BDT in Million) Particulars 2018 2017 Changes Recovered by: 1,968.33 1,463.00 505.33 a) Cash b) Re-Schedulement & Declassification 10,506.20 2,159.61 8,346.59 c) Waiver of Interest 57.54 34.77 22.77 Total: 12,532.07 3,657.38 8,874.69 Total Loans & Advances 206,929.64 179,264.21 27,665.43 Total Classified Loans & Advance 12,740.13 11,477.88 1,262.25 Percentage of classified loans against Total loans 6.16% 6.40% (0.24%)

10.3 Foreign Exchange Risk potential impact of movements assets and liabilities and Management in foreign exchange rates which foreign currency cash flow Foreign exchange risk is the arises from foreign currency mismatches. Foreign exchange exposure of an institution to the mismatches in an institution’s risk management is designed to

48 IFIC Bank I Annual Report 2018 preserve the value of currency foreign exchange rate, market policy approved by the BODs. inflows, investments and loans, scenario of risk is monitored and Under the bank’s ALM policy, the while enabling international measured by Treasury Division. management and the BODs take businesses to compete abroad. necessary care as guided by BB. Although it is impossible to Asset and liability management eliminate all risks, negative process is managed by the exchange outcomes can be To mitigate Asset and Liability Management anticipated and managed various risks, Committee (ALCO), comprising effectively. Commercial banks, of the senior management of the actively deal in foreign currencies the Bank has its bank, is primarily responsible for holding assets and liabilities in managing assets and liabilities foreign denominated currencies, own ALM policy under the set ALM policy. The are continuously exposed to approved by the Board of major responsibilities of ALCO Foreign Exchange Risk. Foreign Directors are as follows: Exchange Risk of a commercial ¨¨ Ensure that bank’s bank comes from its very trade measurement and and non-trade services. The Board of Directors has reporting system Foreign Exchange risk also step up to the accurately convey the management is one of the degrees of liquidity and important responsibilities of new market risk Treasury Division of the Bank. challenges and ¨¨ Monitor the structure and The function of Treasury Front composition of bank’s Office, Mid Office and Back build more assets and liabilities Office are segregated. Mid Office and identify balance and Back Office are conducting robust sheet management operations in a separate location oversight issues that are leading to apart from Treasury Front underperformance Office. Treasury Front Office mechanisms ¨¨ Decide on the major manages and controls day-to-day to risk management trading and fund management aspects of balance sheet activities and ensures continuous structure, such as maturity monitoring of the level of 10.4 Asset Liability Management and currency mix of assumed risk and take necessary Asset Liability Management assets and liabilities, mix actions. Treasury Mid Office (ALM) can be defined as a of wholesale versus retail verifies deal and monitors limit. mechanism to address the funding, deposit mix, etc Back Office is responsible for risk faced by a bank due to a ¨¨ Decide on how to respond deal confirmation, settlement mismatch between assets and to significant, actual and of transaction, execution of liabilities either due to liquidity expected increases and transferring fund to NOSTRO or changes in interest rates as decreases in required accounts, timely recording and banks typically tend to borrow funding reporting etc. Reporting lines of short term (fixed or floating) and ¨¨ Review maturity profile these three offices are separate lend long term (fixed or floating). and mix of assets and and independent to ensure Asset Liability Management liabilities minimization of risk. (ALM) seeks to limit risk to To minimize the foreign exchange acceptable levels by monitoring ¨¨ Articulate interest rate risk, the Bank has formulated and anticipating possible pricing views of the bank and Treasury Manual and Foreign differences between assets and decide on balance sheet Exchange Risk Management liabilities. Moreover, ALM is not strategy Policy as per directives of central a relatively new planning tool, it ¨¨ Approve and periodically bank. Bank also developed has evolved from the simple idea review the transfer pricing different strategies to control of maturity-matching of assets policy of the bank foreign exchange risk in the and liabilities across various time ¨¨ Evaluate market risk light of net open position set by horizons into a framework that involved in the launching central bank, overall gross limit includes sophisticated concepts of new products for forward transaction, maximum such as duration matching, loss limits per deal and per day, variable-rate pricing, and the use ¨¨ Review deposit-pricing counter party limit etc. To protect of static and dynamic simulation. strategy, and the earnings of the bank from the To mitigate various risks in this ¨¨ Review contingency impact of adverse fluctuation of regard banks have its own ALM funding plan for the bank

49 IFIC Bank I Annual Report 2018 The prime responsibility of Asset internal control system the operations is developed, and liability Management (ALM) Bank can identify its operational implemented and monitored. is on “Treasury Department”, weakness and take appropriate It consists of mechanism and specifically its ALM desk. The measures to overcome the same. arrangements that undertake the ALM desk is responsible for The process of Internal Control following: day to day management of is affected by the Board of SS Builds up processes and the market risk and liquidity Directors of the Bank through systems of financial/non- risk of the bank. The broad Senior Management whereby financial standards for responsibilities of the ALM desk every individual is responsible internal and external risks and are as follows: for the achievement of specific mitigation to which the Bank ¨¨ To oversee the growth and objectives to ensure efficient is exposed; sustainability of assets operations and comply with SS Develops appropriate and applicable laws, rules, regulations and liabilities. effective internal control and internal policies. The Internal ¨¨ To manage and oversee systems and implements Control System of the Bank the overall activities of these to soundly and ensures that all the necessary Money Market. prudently manage risks; policies, guidelines and manuals ¨¨ To manage liquidity and are in place and followed SS Put in place reliable and market risk of the bank. meticulously, including the comprehensive systems to appropriately monitor ¨¨ To understand the market Departmental Control Function dynamics i.e. competition, Check List (DCFCL). Control the effectiveness of these potential target markets activities involve two steps: (1) controls; the establishment of control etc. for expansion of the SS Establishes effective business. policies and procedures and management information (2) verification that the control system and independent ¨¨ To Provide inputs policies and procedures are being audit mechanism. regarding market views complied with. and to suggest proper SS In addition to the above, key balance sheet movement One of the most important internal control procedures (expand or shrink) to aspects of an internal control include the followings; cope with the changing system is the appropriate segregation of duties and SS Ensuring that control policies situation in the market or and procedures are being in the economy. personnel is not assigned conflicting responsibilities. The complied with throughout ¨¨ To keep records of ALCO responsibility of implementing on site as well as offsite meetings, to monitor the internal controls starts with supervision of DCFCL and implementation status of business, which are the “first QOR. the action taken in ALCO lines, of defense” against SS Updating/developing the meetings etc. breaches that could cause the existing DCFCL. The function of ALM is not bank not to fulfill its objectives, not to report properly or not to SS Reporting material just protection from risk. The observations to senior safety achieved through ALM comply with laws and regulations. Beyond that, the three important management and ACB also opens up opportunities for immediately with specific enhancing net worth. “control functions” are risk management, compliance, recommendations 10.5 Internal Control and and internal audit. These key SS Rating performance of Compliance functions implement and Branch and different division/ Internal Control and compliance reinforce the structure of internal department of Head Office are the policies and procedures controls. The first two of these on grade point scale which is established and implemented control functions constitute the determined on the basis of % singly or together with other “second lines of defense” against of achieved score categorized policies or procedures, to mishaps. The final, or “third line as Poor, Marginal, Fair, manage and control a particular of defense” is the internal audit Satisfactory, Good in line with risk or business activity, or function. BB RBA guideline. combination of risks or business activities, to which the bank is It is the framework with oversight SS A prudent system has been exposed. The primary objective of the Board of Directors and developed for rectification, of internal control system is to Senior Executives of the Bank counseling of the branches/ help the Bank perform in a sound under which an effective and divisions to minimize and prudent manner with minimal sound internal control over operational risk. resources. Through an effective the whole range of banking

50 IFIC Bank I Annual Report 2018 SS Pre audit assessment tools other types to the Board of on branches for checking have been developed to Directors records/activities and creating identify the high risk areas. The Deputy Chief Anti-Money awareness. 10.6 Prevention of Money Laundering Compliance Officer Laundering (DCAMLCO) of the Bank regularly 11. Information and monitor status of the branches Prevention of Money Communication through the following activities: Laundering & Combating Technology (ICT) Financing of Terrorism i) Cash Transaction Report IFIC Bank’s IT Division has been Prevention of Money Laundering ii) Transaction Monitoring evolving and upgrading with the and Combating Financing of Report rapid changes and challenges Terrorism is very essential of the banking technology for protecting corruption and iii) Structuring Monitoring around the world to deliver the ensuring peace and security in Report customers utmost facilities of our society. iv) Monthly Meeting details modern banking. IT Division is Aiming the said objectives, in our v) AOF, KYC-TP Certificate venturing with the state of the country, Anti-Money Laundering art technology to make banking Prevention Act 2012 and Anti- vi) Legacy Account Monitoring transaction super-fast and handy, Terrorism Act 2009 have been As needed by Bangladesh so that the customers can avail enacted and IFIC Bank Ltd. has Financial Intelligence Unit (BFIU), all the facilities within the grip of been complying all the rules and the Bank has implemented their hands, ensuring security and regulations related to AML/CFT goAML Software provided by reliability at the same time. To issues since the beginning. United Nations Office on Drugs fulfill this, IT Division is working According to the directives of and Crime (UNDOC) and submits relentlessly with its talented and Bangladesh Financial Intelligence CTR, STR and other necessary dedicated officials according Unit (BFIU) of Bangladesh Bank, statements related to AML/ to the business strategies as the Bank has prepared as well CFT issues. To comply with following: as revised Money Laundering Bangladesh Financial Intelligence 1. Be the market leader &Terrorist Financing Risk Unit (BFIU), Bangladesh Bank with understanding of the Management Guidelines- Circular, Bank has introduced Customer Requirements. (Amendment), 2016. Watch List Check (WLC) Software for screening different 2. Compete by taking New The Chief Anti-Money sanction list. Challenges and following Laundering Compliance Officer market trend. (CAMLCO) of the Bank regularly The Bank has revised its 3. Enable Self-service to the presents status report to the Customer Acceptance Policy Customers. Competent Authorities in in the Year, 2018 according regard to the followings as per to direction of Bangladesh 4. Make Financial Transactions regulatory frameworks: Financial Intelligence Unit (BFIU). fast and traceable. In the year 2018, the Bank has i) Information of Bank Accounts submitted report of 06 (six) 5. Enhance Security and as and when required by BFIU Suspicious Transactions Report Authentication. ii) Cash Transaction Report (STR) and 01 (one) Suspicious 6. Stay Consistent Across All (CTR) Activities Report (SAR) to BFIU. Touch Points. iii) Suspicious Transaction With a view to build awareness 7. Improve the Digital Customer Report (STR) on AML/CFT laws, guidelines Experience. and Circulars issued from BFIU, iv) Suspicious Activities Report 8. Meet Regulatory and the Bank regularly arranges (SAR) Compliance Requirements. Regional & In-house Training v) Suspicious Transaction on Prevention of Money 11.1 Seamless Business Report (STR) on Quarterly Laundering and Combating Operation from Disaster basis, periodical report on Financing of Terrorism with recovery (DR) site AML/CFT issues to the particular Focus on Trade Based Data Centre can be considered Managing Detector. Money Laundering for all level as the central vault of a bank as it stores the entire information vi) Half Yearly Report on Self- of Executives/Officers working of customers. So, a bank should Assessment of branches in different branches and Head provide the top most security to and Independent Testing Office of the Bank. Member of its Data Centre to prevent any Procedure conducted by Central Compliance Committee kind of accident and Disaster. ICC Division and similar (CCC) conduct inspection

51 IFIC Bank I Annual Report 2018 Customer must invest in a bank disaster recovery is to have a determine what changes may which can seamlessly operate well-planned disaster recovery be necessary. It was a great their Data Centre at Disaster approach ready for all time. achievement for the bank to time. Disaster recovery (DR) IFIC bank IT division has a plan ensure a seamless service to the and business continuity refers in place that outlines how a customer in case of any disaster to an organization’s ability to recovery will be accomplished. A situation. recover from a disaster and/or successful drill was conducted unexpected event and resume in April 2018 to determine how operations. The key to successful effective the plan is and to

Successful Data center shifting to Head office without downtime

Again, the central vault of a bank, bank has shifted its own data 11.3 Trade Innovation Plus Data Centre, should be more center to its head office. This Software Up-gradation secure in Bank’s Head Office operation was done without Banks have been at the heart under 24 hours surveillance any downtime of services of economic activity for eight and inspection. This would which is unquestionably a great centuries. Businessmen usually ensure the customers a greater achievement for the IT Team. conduct their international security to their information. business through banks. Banks 11.2 End of the Day processing Since IT operations are crucial arrange the financial facilities time minimization for business continuity, between the parties through a The very first thing a customer the data center generally digital platform. Trade Innovation expects from a bank is a very includes redundant or backup (TI) Plus is a flexible and intuitive fast service when he/she arrives components and infrastructure back-office trade finance at the bank. To ensure a smooth for power supply, data processing engine that features service for the customer from communications connections, customizable workflows for the very beginning of a day, End environmental controls (e.g. air providing visibility and control over of the Day (EOD) process is very conditioning, fire suppression) the entire transaction lifecycle. crucial. If this process consumes and various security devices. IFIC has adopted TI Plus solution longer time, it could delay the The Data Center consists of all to enhance the bank’s trade starting time of a new business the State of the Art technologies finance capabilities and improve day operation. In 2018, IT division to protect the data of our the support to its customers to has put a tremendous effort to valuable customers and provide meet growing customer demands minimize the EOD processing smooth service. To protect and remain competitive. TI Plus time and has been able to ensure the organization’s data against went live in October 2018 and has the optimal time for this process damage, theft, software failure been integrated with the Equation to increase customer satisfaction and disaster, in 2018, IFIC core banking system. without any delay.

52 IFIC Bank I Annual Report 2018 11.4 SWIFT up-gradation service customer solution of Institution needs a robust Due to the growing nature of financial transaction through email system which can be business worldwide, banks have digital process. This includes recovered at any time despite to arrange financial facilities with software development and any disaster. Therefore, in 2018, foreign banks for the growing integration according to the by implementing the Exchange need of their customer. IFIC market need. In 2018, IFIC Bank Server at our Disaster Recovery bank uses SWIFT (Society for has developed many software in (DR) site, we can now operate our Worldwide Interbank Financial different areas of its operation email system from the DR site as Telecommunication) network to ensure better service. Bank well. Email synchronization of DR to send and receive information has also integrated a number and DC is active on 24/7 basis. about financial transactions of software with Bangladesh This initiative will surely provide a anywhere around the globe Bank and Core Banking System good result toward the customer in a secure, standardized to ensure faster and secured service. banking and utility service. We and reliable environment. 11.6 Digital Channel Solution have introduced Integrated SWIFT is collaborating with By 2021, three billion people Supervision System (ISS), Bond the financial community to worldwide will be banking via Management System (BMS), reinforce security and deliver digital platforms. Accountholders Home Loan Origination System upon payment innovation increasingly expect an and many more. These software in the live environment. The experience that matches their development and integrations financial industry is going digital lifestyle. To deliver it, IFIC will enable the customers to avail through a constant state of Bank has finalized the project services through the Bank with change. Our customers expect of FINASTRA Digital Channel ease and efficiency. fast, traceable and transparent Solution. For this purpose, payment services – delivered 11.5 Email server IT Division has prepared and securely, and in compliance Implementation in Disaster procured all necessary systems with all relevant regulations. To Recovery Site to provide service regarding meet the requirements of these If a bank can’t ensure Fusion Banking Digital Channels, critical initiatives IFIC Bank has good governance inside Fusion Banking Loan Origination, upgraded the SWIFT interface the institution then it can’t Fusion Banking Equation up systems in October 2018. provide quality service for its gradation and Fusion Banking 11.5 Software development and customer. To ensure inter- Teller up gradation. This solution Integration official communication and will surely meet the customer Today banking means a self- good governance, a Financial expectations of digital banking.

53 IFIC Bank I Annual Report 2018 11.7 Latest Firewall by enforcing security policies at breaches, organizations today Implementation to secure the application, port and protocol are worried about the next big Customer data levels. NGFWs are able to block breach. Keeping it in mind IFIC A next-generation firewall malware from entering a Bank has taken all the necessary (NGFW) is a part of the third network, something that steps to protect the data of our generation firewall technology traditional firewalls would never valuable customer from any kind that is capable of detecting and be able to achieve. In the face of of cyber-attack. blocking sophisticated attacks constant attacks and successful

12. Corporate implemented the requirements 13. Human Resource Governance of Corporate Governance Management (HRM) Code of the Bangladesh IFIC is always committed to Securities & Exchange IFIC Bank considers “Human adopting highest corporate Commission as enumerated Resource” as the most governance standards for in its Notification No. BSEC/ important factors that can attaining its operational goals. At CMRRCD/2006-158/207/ add distinguishable value for IFIC Bank, Corporate Governance Admin/80 dated 03.06.2018. survival in this competitive is aimed at increasing the As per mentioned Notification world. Therefore the Bank shareholders’ value by of BSEC, the compliance always puts high magnitude being efficient, transparent, status of the Bank has been on development of human professional and accountable to reported in this Annual Report resource to add advantageous the society, stakeholders and the for information. Some of the edge to drive the organization environment as well. statements i.e. Directors’ towards its goal. HRM Division IFIC Bank complies with remuneration, five years’ takes leadership in fostering a the guidelines regarding operating and financial data, positive work environment that composition of the Board of report regarding meetings places high value on professional Directors, all Committees, term of Board of Directors and relationships based on fair, of the Office of the Directors its Committees, report on competitive and merit based as well as competence and the pattern of Shareholding, quality. The Bank recognizes eligibility of the Directors as Management Discussion individual contributions and do outlined by the Bangladesh and Analysis, etc. have been the best to turn into resources. Bank, the Companies Act,1994 incorporated in this Annual IFIC Bank HRM Division is and the Bank Company Report for information of committed to ensure a resource Act, 1991 (Amended up-to Shareholders, stakeholders and pool by recruiting potential 2018). The Bank has also regulators as well. talents, developing and retaining

54 IFIC Bank I Annual Report 2018 as high performer. The Bank restructuring its organogram Job Posting Circular (IJPC) openly develops diverse work force based on functionality and places to all employees to fill up the by implementing progressive its employee at the right place vacant functional positions at human resource management through appropriate process. Branches and Divisions, Head policies and strategies through Continuous learning initiatives Office which ultimately assist organizational and employee help the Bank to overcome in talent acquisition, talent development, compensation & employee skill deficiencies. development and succession benefits, HRIS and regulatory All the effort in combination planning. Therefore, the best compliance. ultimately assists in maximizing employees are selected for the With rapid technological changes the outcome in the bottom line. appropriate functional positions around the world, automation has at Branches and Divisions, Head been crucial area of development Office through a transparent and for any organization specially Employee aging analysis merit based placement process. service oriented firms like Internal Job Posting Circular Banks. Accordingly, IFIC Bank 50+ 18-30 enables the Bank to create 22% 18% HRM Division has adapted to more career opportunities for wide ranging HR software, employees and enhances upward which operates the central mobility in organization. The storage of HR data with a Bank focuses to recruit dynamic number of extensive workflows, potential people through multi- notifications, process automation step merit-based recruitment and analytical reports. It and selection process so that establishes a shared environment they can be turned into resources for HR specialists, managers and 41-50 31-40 in entry level. 34% employees in order to provide 26% IFIC Bank always focuses to the effective management and uplift its home grown employees compliance. 18-30 31-40 41-50 50+ and do not recruit from outside For appropriate placement organizations if not critically of its human resources, IFIC required. It gives more focus Bank continuously works on 13.1 Human Resource Planning on recruiting the fresher in As IFIC Bank believes that Management Trainee and employees are the most valuable Transaction Service Officer. Gender Analysis asset, as their professionalism 21% and proficiency, along with 13.2 Training & Development their diverse backgrounds At IFIC Bank, we believe that our and experience contributes employees must be equipped significantly to it success. The with all necessary skills to meet Male Bank seeks the most competent the ever-changing demands Female and cultured candidates and of this fast-faced, competitive never discriminate with regard industry. Therefore, we aim to to their race, language, religious create a culture of continuous 79% beliefs, gender or age. Only the development to enable them to relevant skills and competencies grow and succeed throughout of employees’ are considered their careers. Designation Wise the attributes which create The investment in training sustainable values. 16% 9% gives the employee a greater The primary goal of human understanding of their resource management is to responsibilities within their ensure that the right people role and also an opportunity to will be in the right position at expand their knowledge base. the right time by the virtue The training and development of the individual quality. IFIC plans of IFIC are designed Bank has already fixed the towards an inclusive training job-wise organogram and HRM plan which ensures skill gap 75% Division determined the HR minimization and leadership requirements with support development. Executive Ofﬁcer of other departments and In 2018, 3697 participants Support Staff evaluation of jobs. Round the attended in 211 Training year, the Banks circulates Internal Programs on different areas

55 IFIC Bank I Annual Report 2018 of Banking, Finance, Customer To align with the organization 2017, out of total training, 25% Service, IT and Leadership goal, we not only emphasize on training and workshop in 2018 which is surely a landmark in core banking skill of employees was focused on Soft Skill and the training arena among other we also want employees to boost Leadership development which is commercial banks in the industry. up their soft skill and leadership 20% more than that of previous capabilities. In continuation of year.

Training and Workshop 2018 Training and Workshop 2017

159 143

52 43

Core Banking Soft Skill and Core Banking Soft Skill and Leadership Leadership

As part of succession planning, training programs, Head Office on Soft Skills Development of we arrange leadership programs Orientation followed by case relevant desk officials of IT, HR with distinguished trainers from presentation and written and and Finance and Accounts. home and abroad. As a corporate practical examinations have been Some of the highlights of training member of Malaysian Institute conducted to make the training events in 2018- of Management (MIM), we are session more effective. continuing leadership program SS Arranged 06 leadership In 2018, a good number of with them for last 05 years. programs for the potential participants (50) have attended Through intensive training we leaders in IFIC Bank in different foreign training and have created a pool of Coaches collaboration with Malaysian conference on Leadership & Mentors in the organization Institute of Management Development, Strategic who conduct various leadership (MIM) where we have Management, Credit, Trade programs for our upcoming engaged their prominent Processing, IT etc. in Singapore, potential managers. facilitators. India, Malaysia, Thailand, UAE. Besides the in house and SS Besides the leadership We have more focus on control customized training programs, training, we have also & compliance issues and employees of our bank are also collaborated with MIM for ensured training on Money sent to the training programs arranging ‘Relationship Laundering Prevention Act- arranged by BBTA, BAB Based Marketing’ program 2012 & Amendment Act-2015, Research & Training Centre, particularly focusing on Anti-Terrorism Act-2009 BIBM and other reputed local relationship marketing & Amendment Act-2013, training institutes. In 2018, 90 concept for Relationship Integrated Supervision System participants attended 43 local Managers and Branch (ISS), Corresponding Banking external training. Managers of our Bank. Financial Crime Compliance Management Trainee Academy, Land & Loan SS 275 new joiners have Development Program and Documentation etc covering successfully completed their Induction Program for new all branches and Head Office. foundation course ‘Induction joiners are regularly conducted. Besides these, some general program for TSO’ throughout Both on the job and off the job programs were also conducted the year.

56 IFIC Bank I Annual Report 2018 SS A good number of ensures purchasing capacity bind together to grow together to participants have attended of the employee while Pay for achieve mutual goals. Employee one day program on Land Performance strategy highly engagement activities are aimed & Loan Documentation in encourages to boost individual at enhancing the employee different phases. employee performance. Modern commitment and sense of and effective performance belongingness towards the Bank. SS Since the demand for Project Management is appraisal system based on IFIC Bank regularly arranges progressively emerging in the theory of Management by welcoming program for new the modern banking owing Objectives (MBO) triggers the born children of its employees, to the fast transformation, performance of the employees. awards our meritorious children, IFIC, keeping pace with the Balanced Scorecard model celebrates Pohela Boishakh, contemporary banking, has has been followed in designing Hemonto Sondhya and Pitha fruitfully arranged a ‘Project individual employees Key Utshob arranges Art Festival Management Professional’ Performance Indicators (KPI) for our kinds that help to build training for potential project which reflect the overall business a collaborative environment managers. performance of IFIC Bank. that promotes teamwork and fellowship. 13.5 Other Benefits of the SS Also focusing on the need of negotiations in sales Employees 13.8 Health and Work-Life and marketing, IFIC Bank To keep the employee motivation Balance has arranged a separate level high, IFIC Bank provides IFIC Bank believes that training program on Sales numerous benefits which healthy employees will remain and Negotiation for the includes Staff House Building sustainably engaged and employees involved in Loan, Car Purchase Finance productive. To ensure health and relationship management. Scheme, Salary Overdraft & Staff well-being of our people, IFIC Salary Loan. As a part of long Bank has equipped its Branches 13.3 Employee Compensation & term service benefits, Provident and Head Office with modern Benefits Fund, Gratuity Fund, Earned safety measures and already Formulation of “Compensation Leave Encashment are provided started providing emergency & Benefits Strategy” in IFIC as per compensation & benefits medical services in Head Office. Bank is very much challenging policy. These facilities are It provides medical insurance ensuring HR Budget under control designed in such a way so that facilities to all employees as well through efficient utilization of employees will have a handsome as family members. Likewise, resources and maintaining the amount of benefits while leaving the Bank provides Earned Leave, jobs within competitive pay the bank to enjoy a decent life Maternity Leave and Mandatory packages. Management of IFIC with family. Annual Leave to the employee Bank believes that attractive to maintain healthy work family 13.6 Process Management for Salary & Benefits package life. The employee specially the brings competitive advantage Compensation & Benefits Using standard HR software, female employee are always in the industries both for the encouraged to leave office after organization and the employees. Human Resource Management Division is managing the completing their assigned tasks In line with the Management’s on time. mission & vision, Human Resource automated process fully/partly Management Division always in disbursement of Monthly 13.9 Grievance Management conducts both formal & informal Salary, Increment, Bonuses, As part of complying Code of benefits survey in the industry to Leave Fare Assistance (LFA), Conduct, IFIC Bank is committed make the same competitive. Salary Overdraft (OD) and Car to equal opportunity, unbiased Reimbursement effectively and treatment of all individuals based 13.4 Competitive Pay Package efficiently so as to slash the on job related qualifications Pay package is one of the most processing time & cost. Likewise, rather than any other basis or effective tools that really attract Key Performance Indicators status. The Bank’s policy is to the potential employees keeping (KPI) for Performance Appraisal provide a work environment into account of the macro of all eligible employees has that is free from intimidation or economic factors like cost of come under the purview of HR harassment. Such harassment living expenditures, industry Software for prompt processing. by co-workers, supervisors or practices, Bank capability etc. outsiders is strictly prohibited. The bank’s overall competitive 13.7 Employee Engagement strategy ensures the nominal Programs and Awards The Bank treats every individual salary adjustment by cost of The Bank believes the employee in the same way in similar living adjustment which in fact as part of “IFIC Family” who are circumstances and deals with

57 IFIC Bank I Annual Report 2018 grievance issues fairly and employees. In this connection, business strategy and vision. Law and Legal Affairs Division reasonably. The Bank has a Enterprise Transformation handled the matters properly. specific guidelines to redress is using different six sigma of grievance and resentment On the other hand, Law and Legal methods, tools and techniques of employees. The Bank Affairs Division took steps to for analyzing process, encourages the employees to bring the whole work of the Law identifying procedural & control be aware of what’s expected and Legal Affairs Division under deficiencies, recommending of them in terms of standards paper less system and as a part process automation and and the likely consequences of of which a relevant software to implementing business process continued failure to establish be installed at Law and Legal to achieve maximum value to transparency in workplace. Affairs Division by June of 2019 sync the activities of related and simultaneously existing departments & divisions. It 14. Law and Legal software will be upgraded and creates a knowledge base Affairs presently through this software among the bank officials by Law and Legal Affairs Division introducing them with new Last year i.e. in the year of is managing various litigated process, policy & guidelines in 2018, Law and Legal Affairs matters pending in both Lower training and workshop sessions Division discharged its assigned and Higher Courts. which also encourage them to be responsibility towards branches more compliant at work. of the bank and Head Office It is expected that after effectively. At end of the year installation of New software, Enterprise Transformation also 2018, there were 147 branches effectiveness of the overall work manages projects deliverables of the bank and accordingly of Law and Legal Affairs Division of CBS as per Business business of the bank had been will be increased and gradually Requirements, Functional increased significantly. Similarly, Law and Legal Affairs Division Specifications and Use Cases by litigation relating to recovery of will enter into a paperless system applying project management Bank dues and resolving various through which Bank will get more tools and technique to get the legal issues of the Branches and benefits in respect of disposing maximum output from the project. of pending Court cases and Head Office of the Bank had been Operations Support, a providing various legal services increased considerably. department of Enterprise to the Branches and Head Office Transformation, manages Amid such situation, Law and of the Bank in time and at the CBS credentials and approved Legal Affairs Division took same time recovery of classified delegations of the bank various versatile steps to resolve loans from the litigated accounts officials. This department’s job various legal issues in terms will be increased. of quick disposal of pending includes management of CBS court cases and providing legal ID, password, system privileges, opinions to the Branches of the 15. Enterprise transaction Bank and Head Office in time. Transformation authorization In this process, Law and Legal Efﬁciency limit etc. in a With the aim to meet long- Affairs Division was able to controlled term objectives, Enterprise disposed of 88 cases including environment Transformation introduces 37 writ Petitions and helped to Uniformity in Service ensuring fundamental change recover BDT 561.01 million from service in a to the way the bank various accounts under litigation. quick yet operates, whether that On the contrary, Law and Legal Quality Assurance secure be operating with a Affairs Division extended various manner new technology or legal services to branches and in a new process. It Head Office of the Bank and as a brings an approach Governance & Support result branches and Head Office that attempts to were able to discharge their align the bank’s business responsibility properly activities and overall bank was benefited Policy & Guideline relating to from the business and legal point people, of view. process and In spite of the above facts, technology Operations Manual (IFIC & Subsidiaries) Law and Legal Affairs Division more are also dealing with various closely ENTERPRISE sensitive cases filed by ACC and with its TRANSFORMATION CID of Police against the Bank

58 IFIC Bank I Annual Report 2018 16. Branch Expansion To promote the groundbreaking 1. IFIC Bank provided blankets Program product IFIC Aamar Account, for the cold-hit people to a 360 degree campaign was Prime Minister’s Relief Fund During the year 2018, the Bank launched across all available 2. The Bank rewarded two opened 6 (Six) new Branches at media (TVC and RDC airing different prospective locations winners for IFIC Bank in different channels, series Shahittyo Purosker. of the country to provide banking of newspaper advertisement services to the customers. Out of insertions in national and local 3. The Bank handed over a these 6 (Six) Branches, 4 (Four) dailies, billboard advertisements donation to Prime Minister’s urban Branches were opened at at different strategic points, Education Support Trust Banasree Branch, Dhaka, Kachua digital media advertisements (Prodhanmontrir Shikhkha Branch, Chandpur, Khilgaon along with field level activation). Shohayota Trust). Branch, Dhaka and Akhaura Branch, Brahmanbaria, 2 (Two) Promotional activities for IFIC 4. The Bank provided money to rural branches were opened at Home Loan across the media Shuchona Foundation for the Moynamati Branch, Cumilla and was very successful in 2017. The welfare of autistic children. Goalanda Branch, Rajbari. Thus, Bank received positive response 5. The Bank donated money to total number of Branches of the from customers as a result of Bangabandhu Sheikh Mujibur Bank stood at 147 including 7 those activities. The bank also Rahman Memorial Trust. (Seven) SME /Krishi Branches promoted its One Stop Service throughout the country. For and a new product IFIC Agami 6. Dhamura Bohumukhi business expansion, 16 (Sixteen) to create awareness about the Madhyamik Bidyaloy received Nos. of Branches/Offices were product and service. donations for students’ decorated/renovated and stipend and playground IFIC Bank organized a Pitha 5(Five) new ATM Booths were development Utshab at Gulshan Branch established at different locations premises. Top customers, eminent 7. Biswashahitya Kendra of the country. Besides, the Bank received a donation to is planning to expand its network personalities of the society, honorable shareholders and high support their educational round the country by opening activities. new Branches and ATM Booths in officials of the bank attended the the year 2019. programme. The bank celebrated 8. The Bank donated money to the beginning of Bangla new year a Day Care Center for bank Pahela Boishakh by organizing employees. 17. Subsidiaries of IFIC various activities including an 9. The Bank donated multimedia employee event and painting There are two subsidiaries of IFIC projectors to Rajarbagh Police alpona in front of IFIC Tower. Bank Limited. Line School & College. a) IFIC Securities Limited Different television programmes (IFICSL) including Kemon Budget Chai in NTV, Ekushay Book Mela Sorasori 20. Business Focus b) IFIC Money Transfer (UK) and Rangtulite Muktijudhdho The principal activities of the Limited in Channel i were sponsored Bank are banking and related by the bank. The Bank also did businesses under the Bank 18. Branding and branding of the news scroll and Company Act, 1991 (Amended Promotional Activities a documentary titled “IFIC Bank up-to 2018). The core banking Ei Banglaye’ in ATN News to businesses include accepting IFIC Bank undertook sustained increase the Bank brand visibility. deposits and granting loans and promotional activities to create advances out of those deposits The Bank also sponsored a good awareness about the brand and and earning profit through number of events including the products in the year 2017. creating value from gap between Police Week 2017 and DMP’s IFIC celebrated its 41st interest paid on deposits and Founding Anniversary, Victory anniversary in 2017 by interest earned on loans and Day Parade of Bangladesh undertaking a series of activities advances. The depositors supply Armed Forces and Jazz Festival of engaging its customers, patrons, funds for loans and advances. Blues Communication. stakeholders and employees. An The Bank collects deposits advertisement on the anniversary through deposit mobilization day was published at national 19. Corporate Social strategy comprising various dailies, nationwide branches Responsibility deposit products. The Bank’s were decorated with promotional central revenue producing IFIC Bank undertook following materials along with anniversary activities include all kinds of activities in the field of CSR in cake cutting with valued commercial banking products customers and employees. 2018:

59 IFIC Bank I Annual Report 2018 and services to the customers ended on 31 December 2018 management, direction and including project finance, working as against BDT 1.79 as on 31 performance of the Bank and capital finance and trade finance December 2017. The Market provides leadership within a for corporate customers, SME Capitalization of IFIC was BDT framework of prudent and loans to small traders and 14,592.25 million at the end of effective controls which enables businesses, House Building Loan, the year 2018 as against BDT risk to be appropriately assessed Car Loan as well as wide range of 21,515.44 million at the end of and managed. The Board sets life-style and need based loans the year 2017. the strategic direction, ensuring for retail customers. The Bank that the necessary resources has been able to develop state- 22. Dividend are in place for the Company to of-the-art IT platform and online meet its objectives and deliver banking systems facilitating Any The Board of Directors in its 749th sustainable performance. Branch Banking, SMS Banking, Meeting held on 29 April 2019 The Board takes a long term Internet Banking, Any Time has recommended 10% Stock outlook and sees itself as Banking for 24 hours a day and 7 Dividend for the Shareholders for responsible to a wide range of days a week through ATMs. the year 2018 subject to approval stakeholders, whilst pursuing its of the Shareholders in the 42nd 2018 has been a year of objectives in a manner consistent Annual General Meeting. significant progress for us. with its statutory duties, for the Building on our consistent track benefit of the Bank’s members as record of growth, the Bank shall 23. Appointment of a whole. continue to deliver a strong External Auditors The Directors of the Board are performance, both operationally In the 41st Annual General selected on the criteria of proven and financially. Meeting of the Bank, “A” graded skill and ability in their particular Our aim is to build a business Chartered Accountants M/s. field of endeavor and a diversity that is durable for the long Howladar Yunus & Co. was of outlook and experience which term, one that creates value appointed as the External directly benefits the operation of for shareholders and also acts Auditors of the Bank for the term the Board as the custodian of the responsibly in the interests of till conclusion of the next Annual business. the wider communities in which General Meeting. Since M/s. The Board of Directors of the we operate. We believe that Howladar Yunus & Co., Chartered Bank is accountable for Bank’s those businesses that achieve Accountants has completed their system of internal control. It sustainable growth have an first year of audit, and in terms has set appropriate policies appetite for change and a of Bangladesh Bank’s Guidelines on internal control and seeks commitment to constant renewal and the Directives of BSEC, they regular assurance that the in all that they do. are eligible for re-appointment. system is functioning effectively. Through the establishment of 21. Shares of IFIC Bank 24. Rotation of Directors the Audit Committee, the Board of Directors regularly monitors Limited In order to comply with the the adequacy & effectiveness provision mentioned under The Authorized Capital and of internal control system of the Section 91(2) of the Company the Paid-up Capital of the Bank. Bank stood at BDT 20,000.00 Act, 1994 and Clause Nos. 109 & million and BDT 13,387.39 110 of the Articles of Association The SMT and MANCOM also million respectively as on 31 of the Bank, at least one third of reviews the overall effectiveness December 2018. A total number the Directors shall retire from the of the control system of the Bank of 1,318,271,815 shares are Office in the 42nd Annual General & provides a certificate on yearly recorded with the Central Meeting. basis to the Board of Directors on the effectiveness of internal Depository Bangladesh Limited As per Clause No. 111 of the control policies, practices & (CDBL), while 20,466,920 shares Articles of Association of the procedures. still remain in scrip form till the Bank, the retiring Directors are Balance Sheet date. eligible for re-election. As per directives of Bangladesh The consolidated Net Asset Bank, a special meeting of the Value (NAV) per share was 25. Dependability for Board of Directors is arranged BDT 17.69 as on 31 December annually for reviewing the 2018 which was BDT 16.51 as Internal Control and compliance/implementation on 31 December 2017. The Financial Reporting status of the observations/ recommendations of Bangladesh consolidated Earnings per Share The Board has collective Bank’s comprehensive inspection (EPS) were BDT 1.23 for the year responsibility for the report of the Bank.

60 IFIC Bank I Annual Report 2018 According to the Company Law, or in the interest of, controlling gratefully acknowledges the the Directors are responsible for Shareholders acting either support provided by all valued the preparation of the annual directly or indirectly and have customers who have been with financial statements. The annual effective means of redress. us in the course of our journey. financial statements conform The Directors have a reasonable The Board also place on record to International Accounting expectation that the Bank its thanks and gratitude the Standards (IAS) and International and its subsidiaries will have valued contribution made by all Financial Reporting Standards adequate resources to continue the patrons and well-wishers (IFRS) and fairly present the in operational existence and of the Bank in attaining its affairs of the Bank and its as a going concern for the sustainable growth and progress. subsidiaries as at the end of the foreseeable future. The Board also expresses its financial year, profit & loss and appreciations to M/s. Howladar cash-flows for that period. Yunus & Co., the External 26. Acknowledgement Accounting policies supported Auditors of the Bank, for their by judgments, estimates and The success of this Bank is efforts for timely completion of assumptions in compliance with mainly attributable to the support audit of the Financial Statements IAS and IFRS are applied on the and co-operation from the of the Bank. The Board of basis that the Bank shall continue different group of stakeholders. Directors further extends thanks as a going concern. Systems With the sincere and devoted to both the print and electronic and controls include the proper efforts of all the Executives, media personnel for extending delegation of responsibilities Officials and members of the media coverage to the Bank’s within a clearly defined staff, IFIC Bank has made various activities and events framework, effective accounting remarkable progress in the year throughout the year. procedures and adequate 2018. The Board of Directors Last but not the least, the Board segregation of duties. takes this opportunity to thank expresses its thanks to the all of them for their dedicated Based on the information respected Shareholders and services. The Board expresses and explanations given by assures them that the Bank its profound gratitude to the management and the internal will continue to add to the Government of Bangladesh, auditors, the Directors are of Shareholders’ value through Bangladesh Bank, Bangladesh the opinion that the internal gradual growth of business Securities and Exchange financial controls are adequate and sustained customers’ Commission, Registrar of Joint and that the financial records satisfaction, in which they have Stock Companies and Firms, may be relied upon for preparing placed trust and confidence. Dhaka Stock Exchange Limited, the financial statements in Chattogram Stock Exchange accordance with IAS and IFRS, For and on behalf of the Board of Limited and Central Depository and to maintain accountability for Directors Bangladesh Limited for their the Bank’s assets and liabilities. continued support and co- Through regulatory compliance operation to the Bank. The and responsibilities within Board also thanks all for their a Corporate Governance unwavering continued co- framework, minority operation and hope that their Shareholders have been valuable support will remain Salman F Rahman protected from abusive action by, intact in future. The Board Chairman

61 IFIC Bank I Annual Report 2018 Report of the Executive Committee

62 IFIC Bank I Annual Report 2018 Report of the Executive Committee

The Executive Committee of the Board of Directors of IFIC Bank Limited was lastly re-constituted by the Board of Directors of the Bank in its 673rd Meeting held on 27 April 2016 with the following 02 (Two) Members:

Mr. A. R. M. Nazmus Sakib Chairman

Ms. Quamrun Naher Ahmed Member

The Company Secretary of the Bank is the Secretary of the Executive Committee of the Board. The above mentioned Executive Committee of the Board was formed in line with the directives of BRPD Circular No. 11 dated 27 October 2013. The Terms of Reference of the Executive Committee, in addition to the roles and responsibilities mentioned in the BRPD Circular No. 11 dated 27 October 2013, as approved by the Board is as follows: 1. All business proposals other than Large Loan shall be placed before the Executive Committee for approval. 2. Other than business proposal, the following proposal shall also be placed before Executive Committee: � Hiring of new premises, Renewal of lease agreement with enhancement of the bank premises and renovation/refurbishment of branch premises. � Purchase of electric/electronics equipment, Computer and its accessories, Air Conditioners, Generator and Vehicles. However, the decisions of the Executive Committee as recorded in the Minutes of the Meetings are placed before the Board in the subsequent Meeting for ratification. During the year of 2018, 10 (Ten) Meetings of the Executive Committee were held where a total of 147 nos. proposals/issues were considered/decided by the Committee. The particulars of attendance of the members of the Executive Committee are given below:

Total number of meetings Name of the Director Position Total attendance Remarks held during 2018 Mr. A. R. M. Nazmus Sakib Chairman 10 10 Ms. Quamrun Naher Ahmed Member 10 10

The Executive Committee expresses its sincere thanks to the Members of the Board and the Management of IFIC Bank Limited for their support and guidance in the course of carrying out the duties and responsibilities of the Committee. The Executive Committee also expresses its satisfaction regarding the roles and responsibilities discharged by the Management of the Bank.

A. R. M. Nazmus Sakib Chairman, Executive Committee

63 IFIC Bank I Annual Report 2018 Report on the Activities of the Audit Committee

64 IFIC Bank I Annual Report 2018 Report on the Activities of the Audit Committee

The Audit Committee of the Board of Directors of IFIC Bank Limited was lastly re-constituted by the Board of Directors in its 720th Meeting held on 28 January 2018 in accordance with the directives of the BRPD Circular No. 11 dated 27 October 2013 issued by Bangladesh Bank and the Notification of Bangladesh Securities and Exchange Commission vide No. SEC/CMRRCD/2006-158/134/admin/44 dated 07 August 2012. The Audit Committee of the Board is comprised of 03 (Three) members from the Board of Directors including 02 (Two) Independent Directors. The composition of the Audit Committee of the Board is as follows:

Ms. Rabeya Jamali Independent Director Chairperson

Mr. Anwaruzzaman Chowdhury Independent Director Member

Mr. Jalal Ahmed Director Member

The Company Secretary of the Bank is the Secretary of the Audit Committee of the Board. The Audit Committee is a sub-committee of the Board of Directors and reports on its activities on quarterly basis to the Board of Directors. The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities which includes, but is not limited to, implementation of the objectives, strategies, risk mitigation, and overall business plans set by the Board for effective functioning of the Bank. The Committee also reviews the financial reporting process, the system of internal control and management of financial & operational risks through the Internal Control process. The Audit Committee of the Board usually sits once in every month. A total of 12 (Twelve) Audit Committee Meetings were held during the year 2018. The particulars of attendance of the members of the Audit Committee are given below:

Total number of Total Name of the Director Position meetings held Remarks attendance during 2018

Ms. Rabeya Jamali Chairperson 12 12 Directors who could not attend any Mr. Anwaruzzaman Chowdhury Member 12 05 meeting were granted Mr. Jalal Ahmed Member 12 12 leave of absence.

The Audit Committee, in the above mentioned 12 (Twelve) meetings, discussed many issues some of which were:

¨¨ Summary Report on Comprehensive Inspection on Uttara & Dinajpur Branch conducted by the Bangladesh Bank Inspection Team;

¨¨ Highlight on Risk Based Internal Audit & Inspection Reports conducted by ICC Division;

¨¨ Summary Report on Foreign Exchange Business & Transaction on Kawran Bazar Branch conducted by the Bangladesh Bank Inspection Team;

¨¨ Statement of Fraud & Forgeries occurred in the Bank up to 31.12.2017;

¨¨ Report on the activities of the Audit Committee to the Shareholders;

¨¨ Management Report on the Financial Statements for the year ended 31 December 2017;

¨¨ Recommendation for approval of Unqualified Audit Report and Audited Financial Statements as at and for the year ended 31 December 2017;

¨¨ Appointment of Statutory Auditors;

65 IFIC Bank I Annual Report 2018 ¨¨ Recommendation for approval of un-audited Condensed Financial Statements as at and for the 1st Quarter ended 31 March 2018;

¨¨ Certification to the Board of Directors on the effectiveness of Internal Control Policy, practice & procedure for the period ended as on 31.12.2017;

¨¨ Annual Health Report for the year 2017;

¨¨ Self-Assessment of Anti-Fraud of Internal Control as on the Half year ended on 30.06.2018;

¨¨ Recommendation for approval of un-audited Condensed Financial Statements as at and for the 2nd Quarter ended 30 June 2018;

¨¨ Surprise Inspection Report of Bangladesh Bank on Elephant Road & Dania Branches;

¨¨ Recommendation for approval of un-audited Condensed Financial Statements as at and for the 3rd Quarter ended 30 September 2018;

¨¨ Summary Report on Comprehensive Inspection on Federation Branch conducted by the Bangladesh Bank Inspection Team;

¨¨ Statement of Fraud & Forgeries occurred in the Bank up to 30.09.2018;

¨¨ Risk Based Internal Audit (RBIA) Plan for- 2019;

¨¨ Bangladesh Bank 33rd Comprehensive Inspection Report on the Bank as on the position of 31.12.2017; ¨¨ Performance Appraisal Process of Head of Audit & Inspection, ICC Division.

From our assessment of the various internal audit reports, it appears that IFIC Bank Limited maintained effective Internal Control on its overall activities during the year 2018.

Rabeya Jamali Chairperson, Audit Committee

66 IFIC Bank I Annual Report 2018 Report of the Risk Management Committee

67 IFIC Bank I Annual Report 2018 Report of the Risk Management Committee

The Risk Management Committee of the Board of Directors of IFIC Bank Limited was lastly re-constituted by the Board of Directors of the Bank in its 720th Meeting held on 28 January 2018 with the following 04 (Four) Members:

Mr. Jalal Ahmed Chairman

Ms. Rabeya Jamali Member

Mr. A. R. M. Nazmus Sakib Member

Ms. Quamrun Naher Ahmed Member

The Company Secretary of the Bank is the Secretary of the Risk Management Committee of the Board. The above mentioned Risk Management Committee of the Board was formed in line with the directives of BRPD Circular No. 11 dated 27 October 2013.

The Risk Management Committee, as authorized by the Board, performs as per roles and responsibilities mentioned in the BRPD Circular No. 11 dated 27 October 2013. During the year 2018, 07 (Seven) Meetings of the Risk Management Committee were held where a total of 19 nos. proposals/issues were considered/decided by the Committee. The particulars of attendance of the members of the Risk Management Committee are given below:

Total number of meetings Total Name of the Director Position Remarks held during 2018 attendance

Mr. Jalal Ahmed Chairman 07 07

Ms. Rabeya Jamali Member 07 07 Mr. A. R. M. Nazmus Sakib Member 07 07 Ms. Quamrun Naher Ahmed Member 07 07

However, the decisions of the Risk Management Committee as recorded in the Minutes of the Meetings are placed before the Board on quarterly basis.

The Risk Management Committee expresses its sincere thanks to the Members of the Board and the Management of IFIC Bank Limited for their support and guidance in the course of carrying out the duties and responsibilities of the Committee. The Risk Management Committee also expresses its satisfaction regarding the roles and responsibilities discharged by the Management of the Bank.

Jalal Ahmed Chairman, Risk Management Committee

68 IFIC Bank I Annual Report 2018 Corporate Governance Practices

Corporate Governance indicates Circulars/Circular Letters issued The Board of Directors the policies and procedures by Bangladesh Bank on 27 The Board of Directors, applied by us to attain certain October 2013 in connection with collectively, is the supreme sets of our objectives, corporate formation and responsibilities authority in the Bank’s affairs missions and visions with regard of Board of Directors of a Bank between Members’ meetings. to shareholders, employees, Company to comply with the They owe a duty to the customers, suppliers and existing rules and regulations in shareholders and exercise care, different regulatory agencies line with the Bank Company Act, skill and diligence in discharging and the community at large. 1991 (Amended up to 2018) as their responsibilities and in The role of governance is to well as Corporate Governance exercising the powers vested in maximize shareholders’ wealth. Guidelines issued by Bangladesh them. Corporate Governance depends Securities and Exchange The key purpose of the Board of on managerial performance as Commission. Directors of IFIC Bank Limited well as a consideration of social We consider good corporate is to ensure the company’s responsibility, the socio-cultural- governance to be a pre-requisite prosperity by collectively environmental dimension for value creation and reliability directing the company’s affairs, of business procedure, legal whilst meeting the appropriate and ethical practices with a ¨¨ Governance principles; interests of its shareholders and focus on customers and other ¨¨ Transparency in business other stakeholders. In addition stakeholders of our organization. transactions; to business and financial issues, We are committed to excellence ¨¨ Statutory and legal the Board deals with challenges in corporate governance, compliances; and issues relating to corporate transparency and accountability. governance, corporate social This is essential for the long term ¨¨ Protection of responsibility and corporate performance and sustainability shareholders’ interests; ethics and ensures that its of our Company, and to protect ¨¨ Commitment to values organization and operation and enhance the interests of and ethical conduct of are, at all times, in correct our shareholders and other business; and appropriate order. The stakeholders. Board is, among other things, ¨¨ Applying values to create responsible for setting business Our governance framework plays value. an integral role in supporting objectives, strategies and Members’ Meetings our business. It provides the business plans, formulating The supreme authority in the structure through which our risk policies, confirming key Bank’s affairs, within the limits strategy and business objectives aspects of the Bank’s internal established by the Articles of are set, our performance is organization and making Association and statutory law, monitored, and the risks we face decisions on the establishment rests with legitimate meetings are managed. It includes a clear of branches. As a mechanism of the Members of the Bank. The framework for decision making of budgetary control, the Board Bank’s Annual General Meeting and accountability across our approves budget and reviews is held within statutorily allowed business and provides guidance the business plan on quarterly time every year and may also on the standards of behavior we basis so as to give directions hold any other meeting, as and expect from our people. as per changing economic and when required. At Members’ market environment. The Board We regularly review our meeting, each share carries one also reviews the policies and governance arrangements as vote. Decisions at Members’ guidelines issued by Bangladesh well as developments in the meetings are taken by majority Bank and gives directions market practices, expectations vote unless there are contrary for their due compliance. and regulation to establish provisions in the Bank’s Articles Furthermore, Board of Directors good corporate governance in of Association or statutory law. develops and reviews corporate our Bank. We have modernized Although Members acting governance framework as well as our governance system and through the forum of the General recommends to the shareholders implemented the rules as several Meeting exercise ultimate check to appoint an external auditor. prudential regulations specifying over a company, yet they do not qualification of a Bank Director Composition of the Board interfere with the exercise of and a Chief Executive Officer The Board of IFIC Bank Limited powers which are vested in the and most importantly 3 (three) consists of 8 (eight) Members Board. including the Managing Director

69 IFIC Bank I Annual Report 2018 as Executive Director and ex- otherwise had to wait for disposal Management level has also been officio member of the Board. As by the Board. meeting. The reorganized. The report of the per the guidelines of Bangladesh committee met 10 times during Risk Management Committee is Bank and as well as in compliance the year 2018. The report of the deployed hereinbefore. with the Bangladesh Securities Executive Committee is deployed Directors’ Remuneration and Exchange Commission’s hereinbefore. The non-executive directors Corporate Governance Audit Committee (Directors other than the Guidelines, there are 2 (two) Audit Committee of the Board of Managing Director) of the Board Independent Directors in the a bank can play an effective role representing shareholders do Board. in providing a bridge between not take any remuneration or Re-election of Directors the Board and the Management, reimbursement of any expenses In compliance with the Shareholders, Depositors and for attending Board meeting Companies Act, BSEC’s other Stakeholders, and help or for any other purpose. The Notification and Bank’s Articles in ensuring efficient, safe and Board members receive only of Association, each Director, sound banking practices. Role BDT 8,000.00 for attending the other than the Independent of the Audit Committee is also Board/Committee meetings. Director and the Managing important in evolving an effective The fees given to the directors Director, retires by rotation procedure for financial reporting are disclosed in the note to the once in every three years and is disclosure, developing a suitable financial statements. required to stand for re-election internal control system and Management by the shareholders at the Annual maintaining liaison with internal The Managing Director, as General Meeting. and external auditors to minimize directed by the Board of various business risks. Independent Director Directors, is the Chief Executive To comply with the Corporate As guided by Bangladesh Officer (CEO) of the Bank. In Governance Guidelines of Bank, the Audit Committee terms of the financial, business Bangladesh Securities and assists the Board in fulfilling and administrative authorities Exchange Commission, the its oversight responsibilities vested upon him by the Board, Board of Directors appointed including implementation of the the CEO discharges his own 2 (two) Independent Directors objectives, strategies and overall responsibilities. He remains in the Board, appointment of business plans set by the Board accountable for achievement one of them already approved for effective functioning of the of financial and other business by the shareholders and re- Bank. The Committee reviews targets by means of business appointment of the other will be the financial reporting process, plan, efficient implementation placed for approval in the 42nd the system of internal control thereof and prudent Annual General Meeting. A full and management of financial administrative and financial compliance report of the said risks, the audit process, and the management. He also ensures guidelines is provided hereafter. Bank’s process for monitoring that Bank’s accounts and compliance with laws and finances conform to applicable Board Meetings During the year 2018, there were regulations and its own code of laws and accepted standards. 27 meetings of the Board. The business conduct. The report is Therefore, being empowered attendance by each Director at given hereinbefore. by the Board, the Managing Director leads the Management the Board Meeting held during Risk Management Committee the year is provided hereafter. To assist the Board of Directors consisting of the executives of in fulfilling its oversight the Bank. Management functions Executive Committee through several committees As approved by Bangladesh responsibilities and to play effective role in minimizing headed by the Managing Director Bank, the Board has its Executive or empowered executives of Committee. The committee current and future risks arised on the affairs of making strategies the Bank. The committees comprises of 2 (two) Members are MANCOM, ALCO, Risk from the Board. In order to have consistent with the determined objectives and goals and in the Management and Basel proper functioning and quick Committee etc. Management disposal of credit proposals, the issues relating to structural change and reorganization for enjoys absolute power in respect Board has delegated authority of recruitment, posting and to Executive Committee of the enhancement of institutional efficiency and other relevant promotion of manpower in Board to approve proposal within accordance with Bangladesh certain limit and it is observed to policy matters, the Risk Management Committee has Bank’s guidelines. In addition, be very effective to accelerate Board has delegated adequate the various decisions which been constituted. The Risk Management Committee in administrative, business

70 IFIC Bank I Annual Report 2018 and financial power to the payable to the exporters, if any. AGM or any time during the Management for quick and year are taken very seriously for Audit and Inspection by efficient discharge of Bank’s compliance and better corporate Bangladesh Bank activities. Bangladesh Bank also governance of the Bank. Compliance of BRPD Circular undertakes audit & inspection Credit Ratings Letter No. 03 at the Bank at their determined The Bank is rated by Credit The Bank complied with the intervals. Compliance Rating Agency of Bangladesh BRPD Circular Letter No. 03 with observations and (CRAB) Limited. They have dated 25 March 2018 and recommendations made by re-affirmed both the long term appointed Mr. Dilip Kumar Mandal Bangladesh Bank helps the rating of the Bank to “AA2” and as Chief Financial Officer and Mr. Bank to improve internal control, short term rating at “ST-2” with Md. Nazmul Haque Talukder as risk management, corporate validity up to 30 June 2019. Chief Information Technology governance and regulatory Compliance Report on BSEC’s Officer. compliance maximizing benefit Notification for all stakeholders. Financial, Statutory and The Bangladesh Securities and Regulatory Reporting and Proclamation to Shareholders Exchange Commission (BSEC) Compliance The Bank acknowledges and requires all listed companies to In the preparation of quarterly, takes necessary steps to provide report on the compliance of the semi-annual and annual financial shareholders with all relevant conditions described in BSEC’s statements, the Bank has and reliable information to allow Notification dated 03 June 2018 complied with the requirements them to make informed judgment on ‘comply’ basis. The Board of of the Companies Act 1994, Bank and decisions. Regulated path Directors of IFIC Bank Limited Company Act, 1991 (Amended up and way are completely obeyed/ has taken appropriate steps to to 2018) and rules & regulations followed for appropriate and comply with the conditions. of Bangladesh Bank, BSEC and effective communication. All Stock Exchanges. Status of relevant information is placed/ various compliances is given are posted in the website of the hereafter. Bank for convenience of the shareholders. Moreover, as per Internal Control The Board of Directors BSEC’s guidelines, all the price acknowledges their overall sensitive information having responsibility for the Bank’s possible impact on share prices system of internal control and of the Bank are communicated to for reviewing its effectiveness. the shareholders by publication Internal control is an ongoing in the national dailies, Online process for identifying, news portal and to the DSE, evaluating and managing the CSE, and BSEC through official significant risks faced by the letters for appearance in their Bank. The Bank has taken all-out websites. Quarterly Financial efforts to mitigate all sorts of Statements are communicated risk as per guidelines issued to all the Members through by Bangladesh Bank. Internal DSE, CSE and BSEC as well Control & Compliance Division, as publication of the same in Risk Management and Credit at least two widely circulated Risk Management Unit are national dailies. Audited yearly working towards mitigation of financial statements are operational and compliance risks published through Annual Report of the Bank. and the report is furnished to the shareholders as well as External Audit regulators. Finally, we arrange M/s. Howladar Yunus & Co., Annual General Meeting as Chartered Accountants is the our statutory duty to give our statutory auditors of the Bank. shareholders parliamentary They do not provide any other session to communicate their accounting, taxation or advisory assertions about the Bank. All the services to the Bank except suggestions or recommendations certification of cash incentives made by the Members in the

71 IFIC Bank I Annual Report 2018 Compliance Report on BSEC’s Notification

The Bangladesh Securities and Exchange Commission (BSEC) requires all listed companies to report on the compliance of the conditions described in BSEC’s Notification No.SEC/CMRRCD/2006-158/207/Admin/80 dated 03 June 2018 issued under section 2CC of the Securities and Exchange Ordinance, 1969 on ‘comply’ basis. The Board of Directors of IFIC Bank Limited has taken appropriate steps to comply with the conditions as detailed hereunder: Annexure-I Compliance of Condition No. 1 (5) (xxii): Board Meetings held during the year 2018 and attendance by each Director:

SL No. of No. of Name of the Directors Position Meetings Meetings Remarks No. held attended

01. Mr. Salman F Rahman Chairman 27 24

Mr. Ahmed Shayan Fazlur Rahman 02. Vice Chairman Nil Nil (Since 03 February 2019) Directors who could 03. Mr. Anwaruzzaman Chowdhury Independent Director 27 09 not attend 04. Ms. Rabeya Jamali Independent Director 27 24 any meeting were granted 05. Mr. Jalal Ahmed Govt. Nominated Director 27 25 leave of absence by 06. Mr. A. R. M. Nazmus Sakib Govt. Nominated Director 27 27 the Board. 07. Ms. Quamrun Naher Ahmed Govt. Nominated Director 27 27

08. Mr. M Shah Alam Sarwar Managing Director & CEO 27 27

Annexure-II Compliance of Condition 1 (5) (xxiii): The pattern of Shareholding as on 31 December 2018 (a) Parent or Subsidiary or Associated Companies and other related parties: Nil (b) Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer, Head of Internal Audit and Compliance and their spouses and minor children:

SL Name of the Directors Shares held Name of the Spouses Shares held 01. Mr. Salman F Rahman 26,782,314 Mrs. Syeda Rubaba Rahman Nil 02. Mr. Ahmed Shayan Fazlur Rahman* Nil Mrs. Shazreh Rahman Nil 03. Mr. Anwaruzzaman Chowdhury Nil Mrs. Holy Begum Chowdhury Nil 04. Ms. Rabeya Jamali Nil N/A Nil 05. Mr. Jalal Ahmed** Nil Mrs. Farah Diba Ahmed Nil 06. Mr. A. R. M. Nazmus Sakib** Nil Mrs. Fetematuj Jahera Nil 07. Ms. Quamrun Naher Ahmed** Nil Mr. A. B. M. Siddiqur Rahman Nil

* Representing M/s. New Dacca Industries Limited against its holding of 32,257,175 nos. shares of the Bank. ** Directors nominated by the Ministry of Finance, Govt. of the People’s Republic of Bangladesh against its holding of 438,417,626 nos. shares of the Bank.

Managing Director & CEO and his spouse and minor children - Mr. M Shah Alam Sarwar Nil Company Secretary and his spouse and minor children - Mr. Md. Mokammel Hoque Nil Chief Financial Officer and his spouse and minor children - Mr. Dilip Kumar Mandal Nil Head of Internal Audit and Compliance (ICC) and his spouse and minor children - Mr. Ashim Chowdhury Nil

72 IFIC Bank I Annual Report 2018 (c) Executives [Top 5 (five) salaried employees of the company, other than stated in 1.5 (xxiii)(b)]:

SL Designation Name Shares held

01. DMD & Chief Risk Officer Mr. M. M. Haikal Hashmi Nil 02. DMD & Head of International Division Mr. Shah Md. Moinuddin Nil 03. DMD & Head of Business Mr. Md. Nurul Hasnat Nil 04. DMD & Chief Credit Officer Mr. Syed Mansur Mustafa Nil 05. DMD & Chief of Operations & IT Mr. Md. Monitur Rahman Nil (d) Shareholders holding ten percent (10%) or more voting interest in the Company: Govt. of the People’s Republic of Bangladesh holds 438,417,626 nos. shares which is 32.75 percent of the total outstanding shares of the Bank. Annexure-C Status of Compliance with the conditions imposed by the Bangladesh Securities and Exchange Commission’s Notification No.SEC/CMRRCD/2006-158/207/Admin/80 dated 03 June 2018 issued under section 2CC of the Securities and Exchange Ordinance, 1969:

(Report under condition no. 9)

Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied 1 Board of Directors: Size of the Board of Directors : The total number of members of a company’s Board of Directors 1 (1) (hereinafter referred to as “Board”) shall not be less than 5 (five) a and more than 20 (twenty). 1 (2) Independent Directors: At least one-fifth (1/5) of the total number of directors in the company’s Board shall be independent directors; any fraction shall 1 (2) (a) be considered to the next integer or whole number for calculating a number of independent director(s); 1 (2) (b) Independent Directors means a Director: Who either does not hold any share in the company or holds less 1 (2) (b) (i) than one percent (1%) shares of the total paid-up shares of the a company; Who is not a sponsor of the company or is not connected with the company’s any sponsor or director or nominated director or shareholder of the company or any of its associates, sister concerns, subsidiaries and parents or holding entities who holds 1 (2) (b) (ii) one percent (1%) or more shares of the total paid-up shares of a the company on the basis of family relationship and his or her family members also shall not hold above mentioned shares in the company: Who has not been an executive of the company in immediately 1 (2) (b) (iii) preceding 2 (two) financial years; a Who does not have any other relationship, whether pecuniary 1 (2) (b) (iv) or otherwise, with the company or its subsidiary or associated a companies; Who is not a member or TREC (Trading Right Entitlement 1 (2) (b) (v) Certificate) holder, director or officer of any stock exchange; a

73 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied Who is not a shareholder, director excepting independent director 1 (2) (b) (vi) or officer of any member or TREC holder of stock exchange or an a intermediary of the capital market; Who is not a partner or an executive or was not a partner or an executive during the preceding 3 (three) years of the concerned 1 (2) (b) (vii) company’s statutory audit firm or audit firm engaged in internal a audit services or audit firm conducting special audit or professional certifying compliance of this Code; Who is not independent director in more than 5 (five) listed 1 (2) (b) (viii) companies; a Who has not been convicted by a court of competent jurisdiction 1 (2) (b) (ix) as a defaulter in payment of any loan or any advance to a bank or a a Non-Bank Financial Institution (NBFI); and Who has not been convicted for a criminal offence involving moral 1 (2) (b) (x) turpitude; a The independent director(s) shall be appointed by the Board and 1 (2) (c) approved by the shareholders in the Annual General Meeting a (AGM);

The post of independent director(s) cannot remain vacant for No Vacancy 1 (2) (d) more than 90 (ninety) days; and occurred

The tenure of office of an independent director shall be for a period 1 (2) (e) of 3 (three) years, which may be extended for 1 (one) tenure only; a 1 (3) Qualification of Independent Director: Independent director shall be a knowledgeable individual with integrity who is able to ensure compliance with financial laws, 1 (3) (a) regulatory requirements and corporate laws and can make a meaningful contribution to the business; Business Leader who is or was a promoter or director of an unlisted company having minimum paid-up capital of Tk. 100.00 million or 1 (3) (b) (i) any listed company or a member of any national or international a chamber of commerce or business association; or Corporate Leader who is or was a top level executive not lower than Chief Executive Officer or Managing Director or Deputy Managing Director or Chief Financial Officer or Head of Finance or Accounts 1 (3) (b) (ii) or Company Secretary or Head of Internal Audit and Compliance a or Head of Legal Service or a candidate with equivalent position of an unlisted company having minimum paid-up capital of Tk. 100.00 million or of a listed company; or Former official of government or statutory or autonomous or regulatory body in the position not below 5th Grade of the national 1 (3) (b) (iii) N/A pay scale, who has at least educational background of bachelor degree in economics or commerce or business or Law; or University Teacher who has educational background in Economics 1 (3) (b) (iv) N/A or Commerce or Business Studies or Law; or Professional who is or was an advocate practicing at least in the High Court Division of Bangladesh Supreme Court or a Chartered Accountant or Cost and Management Accountant or Chartered 1 (3) (b) (v) Financial Analyst or Chartered Certified Accountant or Certified a Public Accountant or Chartered Management Accountant or Chartered Secretary or equivalent qualification;

74 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied The independent director shall have at least 10 (ten) years of 1 (3) (c) experiences in any field mentioned in clause (b); a In special cases, the above qualifications or experiences may be 1 (3) (d) N/A relaxed subject to prior approval of the Commission. Duality of Chairperson of the Board of Directors and Managing Director or 1 (4) Chief Executive Officer:

1 (4) (a) The positions of the Chairperson of the Board and the Managing Director (MD) and/or Chief Executive Officer (CEO) of the company a shall be filled by different individuals;

1 (4) (b) The Managing Director (MD) and/or Chief Executive Officer (CEO) of a listed company shall not hold the same position in another a listed company;

1 (4) (c) The Chairperson of the Board shall be elected from among the non-executive directors of the company; a

Roles and responsibilities 1 (4) (d) The Board shall clearly define respective roles and responsibilities are as per Ban- of the Chairperson and the Managing Director and/or Chief a gladesh Bank Executive Officer; guidelines and service rules of the Bank In the absence of the Chairperson of the Board, the remaining 1 (4) (e) members may elect one of themselves from nonexecutive directors as Chairperson for that particular Board’s meeting; a the reason of absence of the regular Chairperson shall be duly recorded in the minutes. 1 (5) The Directors’ Report to Shareholders shall include the following additional statements or disclosures: An industry outlook and possible future developments in the 1 (5) (i) industry; a 1 (5) (ii) The segment-wise or product-wise performance; a Risks and concerns including internal and external risks factors, 1 (5) (iii) threat to sustainability and negative impact on environment, if any; a A discussion on Cost of Goods sold, Gross Profit Margin and Net 1 (5) (iv) N/A Profit Margin, where applicable; A discussion on continuity of any extra-ordinary activities and their 1 (5) (v) N/A implications (gain or loss); A detailed discussion on related party transactions along with a statement showing amount, nature of related party, nature 1 (5) (vi) of transactions and basis of transactions of all related party a transactions; A statement of utilization of proceeds raised through public issues, 1 (5) (vii) N/A rights issues and/or any others instruments; An explanation if the financial results deteriorate after the 1 (5) (viii) company goes for Initial Public Offering (IPO), Repeat Public N/A Offering (RPO), Rights Share Offer, Direct Listing, etc.; An explanation on any significant variance that occurs between 1 (5) (ix) Quarterly Financial performances and Annual Financial N/A Statements; A statement of remuneration paid to the Directors including 1 (5) (x) Independent Directors; a

75 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied A statement that the financial statements prepared by the management of the issuer company present fairly its state of 1 (5) (xi) affairs, the result of its operations, cash flows and changes in a equity; A statement that proper books of account of the issuer company 1 (5) (xii) have been maintained; a A statement that appropriate accounting policies have been consistently applied in preparation of the financial statements 1 (5) (xiii) and that the accounting estimates are based on reasonable and a prudent judgment; A statement that International Accounting Standards (IAS)/ International Financial Reporting Standards (IFRS), as applicable 1 (5) (xiv) in Bangladesh, have been followed in preparation of the financial a statements and any departure there from has been adequately disclosed; A statement that the system of internal control is sound in design 1 (5) (xv) and has been effectively implemented and monitored; a A statement that minority shareholders have been protected from abusive actions by, or in the interest of, controlling shareholders 1 (5) (xvi) acting either directly or indirectly and have effective means of a redress; A statement that there is no significant doubt upon the issuer company’s ability to continue as a going concern, if the issuer 1 (5) (xvii) company is not considered to be a going concern, the fact along a with reasons thereof shall be disclosed; An explanation that significant deviations from the last year’s 1 (5) (xviii) operating results of the issuer company shall be highlighted and a the reasons thereof shall be explained; A statement where key operating and financial data of at least 1 (5) (xix) preceding 5 (five) years shall be summarized; a An explanation on the reasons if the issuer company has not 1 (5) (xx) N/A declared dividend (cash or stock) for the year; Board’s statement to the effect that no bonus share or stock 1 (5) (xxi) dividend has been or shall be declared as interim dividend; a The total number of Board meetings held during the year and 1 (5) (xxii) attendance by each Director; a A report on the pattern of shareholding disclosing the aggregate number of shares (along with name 1 (5) (xxiii) wise details where stated below) held by:- Parent or Subsidiary or Associated Companies and other related 1 (5) (xxiii) (a) parties; a Directors, Chief Executive Officer, Company Secretary, Chief 1 (5) (xxiii) (b) Financial Officer, Head of Internal Audit and Compliance and their a spouses and minor children; Executives (top 5 (five) salaried employees of the company, other 1 (5) (xxiii) (c) than stated in 1 (5) (xxiii)(b); and a Shareholders holding ten percent (10%) or more voting interest in 1 (5) (xxiii) (d) the company; a

76 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied In case of the appointment or reappointment of a director, a disclosure on the following information to 1 (5) (xxiv) the shareholders: 1 (5) (xxiv) (a) A brief resume of the director; a 1 (5) (xxiv) (b) Nature of his or her expertise in specific functional areas; and a Names of companies in which the person also holds the 1 (5) (xxiv) (c) directorship and the membership of committees of the Board; a A Management’s Discussion and Analysis signed by CEO or MD presenting detailed analysis of the 1 (5) (xxv) company’s position and operations along with a brief discussion of changes in the financial statements, among others, focusing on: Accounting policies and estimation for preparation of financial 1 (5) (xxv) (a) statements; a Changes in accounting policies and estimation, if any, clearly describing the effect on financial performance or results and 1 (5) (xxv) (b) financial position as well as cash flows in absolute figure for such a changes; Comparative analysis (including effects of inflation) of financial performance or results and financial position as well as cash flows 1 (5) (xxv) (c) for current financial year with immediate preceding five year’s a explaining reasons thereof;

Financial Compare such financial performance or results and financial performance of 1 (5) (xxv) (d) position as well as cash flows with the peer industry scenario; peer banks are not available Briefly explain the financial and economic scenario of the country 1 (5) (xxv) (e) and the globe; a Risks and concerns issues related to the financial statements 1 (5) (xxv) (f) explaining such risks and concerns mitigation plan of the company; a and Future plan or projection or forecast for company’s operation, performance and financial position, with justification thereof i.e., 1 (5) (xxv) (g) actual position shall be explained to the shareholders in the next a AGM; Declaration or certification by the CEO and the CFO to the Board 1 (5) (xxvi) as required under condition No. 3(3) shall be disclosed as per a Annexure-A; and The report as well as certificate regarding compliance of conditions 1 (5) (xxvii) of this Code as required under condition No. 9 shall be disclosed as a per Annexure-B and Annexure-C. Meetings of the Board of Directors : The company shall conduct its Board meetings and record the minutes of the meetings as well as keep required books and 1 (6) records in line with the provisions of the relevant Bangladesh a Secretarial Standards (BSS) as adopted by the Institute of Chartered Secretaries of Bangladesh (ICSB) in so far as those standards are not inconsistent with any condition of this Code;

77 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied 1 (7) Code of Conduct for the Chairperson, other Board Members and Chief Executive Officer:

The Bank has a The Board shall lay down a Code of Conduct based on the code of conduct recommendation of the Nomination and Remuneration Committee and it is posted on 1 (7) (a) a the website. (NRC) at condition No.6, for the Chairperson of the Board, other However, Board members and Chief Executive Officer of the Company; recommendation of NRC is yet to execute as the The Code of Conduct as determined by the NRC shall be posted NRC is not formed yet. The complexity on the website of the company including, among others, prudent of the organization conduct and behavior, confidentiality, conflict of interest, structure 1 (7) (b) a prescribed by compliance with laws, rules and regulations, prohibition of insider BSEC was raised trading, relationship with environment, employees, customers and before them and waiting for the suppliers and independency. response. 2 Governance of Board of Directors of Subsidiary Company: Provisions relating to the composition of the Board of the holding 2 (a) company shall be made applicable to the composition of the Board a of the subsidiary company; At least 1 (one) independent director on the Board of the holding 2 (b) company shall be a director on the Board of the subsidiary company; a The minutes of the Board meeting of the subsidiary company shall 2 (c) be placed for review at the following Board meeting of the holding a company; The minutes of the respective Board meeting of the holding 2 (d) company shall state that they have reviewed the affairs of the a subsidiary company also; The Audit Committee of the holding company shall also review the 2 (e) financial statements, in particular the investments made by the a subsidiary company. Managing Director (MD) or Chief Executive Officer (CEO), Chief Financial Officer (CFO), Head of Internal 3 Audit and Compliance (HIAC) and Company Secretary (CS): 3 (1) Appointment: The Board shall appoint a Managing Director (MD) or Chief Executive 3 (1) (a) Officer (CEO), a Company Secretary (CS), a Chief Financial Officer a (CFO) and a Head of Internal Audit and Compliance (HIAC); The positions of the Managing Director (MD) or Chief Executive Officer (CEO), Company Secretary (CS), Chief Financial Officer 3 (1) (b) (CFO) and Head of Internal Audit and Compliance (HIAC) shall be a filled by different individuals; The MD or CEO, CS, CFO and HIAC of a listed company shall not 3 (1) (c) hold any executive position in any other company at the same time; a The Board shall clearly define respective roles, responsibilities and 3 (1) (d) duties of the CFO, the HIAC and the CS; a The MD or CEO, CS, CFO and HIAC shall not be removed from 3 (1) (e) their position without approval of the Board as well as immediate a dissemination to the Commission and stock exchange(s). Requirement to attend Board of Directors’ Meetings: The MD or CEO, CS, CFO and HIAC of the company shall attend the meetings of the Board: 3 (2) a Provided that the CS, CFO and/or the HIAC shall not attend such part of a meeting of the Board which involves consideration of an agenda item relating to their personal matters.

78 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied 3 (3) Duties of Managing Director (MD) or Chief Executive Officer (CEO) and Chief Financial Officer (CFO): The MD or CEO and CFO shall certify to the Board that they have reviewed financial statements for the 3 (3) (a) year and that to the best of their knowledge and belief: These statements do not contain any materially untrue statement 3 (3) (a) (i) or omit any material fact or contain statements that might be a misleading; and These statements together present a true and fair view of the 3 (3) (a) (ii) company’s affairs and are in compliance with existing accounting a standards and applicable laws; The MD or CEO and CFO shall also certify that there are, to the best of knowledge and belief, no transactions entered into by the 3 (3) (b) company during the year which are fraudulent, illegal or in violation a of the code of conduct for the company’s Board or its members;

3 (3) (c) The certification of the MD or CEO and CFO shall be disclosed in the Annual Report. a

Board of Directors’ Committee: 4 For ensuring good governance in the company, the Board shall have at least following sub-committees: 4 (i) Audit Committee; and a

The complexity of the organizational structure prescribed 4 (ii) Nomination and Remuneration Committee. by BSEC was raised before them and waiting for the response.

5 Audit Committee: 5 (1) Responsibility to the Board of Directors: The company shall have an Audit Committee as a subcommittee 5 (1) (a) of the Board; a The Audit Committee shall assist the Board in ensuring that the financial statements reflect true and fair view of the stateof 5 (1) (b) affairs of the company and in ensuring a good monitoring system a within the business; The Audit Committee shall be responsible to the Board; the duties 5 (1) (c) of the Audit Committee shall be clearly set forth in writing. a 5 (2) Constitution of the Audit Committee:

Constituted as 5 (2) (a) The Audit Committee shall be composed of at least 3 (three) members; a per BB’s circular The Board shall appoint members of the Audit Committee who shall 5 (2) (b) be non-executive directors of the company excepting Chairperson a of the Board and shall include at least 1 (one) independent director; All members of the audit committee should be “financially literate” and at least 1 (one) member shall have accounting or related financial management background and 10 (ten) years of such experience; Explanation: The term “financially literate” means the ability to read and understand the financial statements like statement of 5 (2) (c) financial position, statement of comprehensive income, statement a of changes in equity and cash flows statement and a person will be considered to have accounting or related financial management expertise if he or she possesses professional qualification or Accounting or Finance graduate with at least 10 (ten) years of corporate management or professional experiences.

79 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied When the term of service of any Committee member expires or there is any circumstance causing any Committee member to be unable to hold office before expiration of the term of service, thus making the number of the Committee members to be lower than 5 (2) (d) the prescribed number of 3 (three) persons, the Board shall appoint N/A the new Committee member to fill up the vacancy immediately or not later than 1 (one) month from the date of vacancy in the Committee to ensure continuity of the performance of work of the Audit Committee; 5 (2) (e) The company secretary shall act as the secretary of the Committee; a The quorum of the Audit Committee meeting shall not constitute 5 (2) (f) without at least 1 (one) independent director. a 5 (3) Chairperson of the Audit Committee: The Board shall select 1 (one) member of the Audit Committee 5 (3) (a) to be Chairperson of the Audit Committee, who shall be an a independent director; In the absence of the Chairperson of the Audit Committee, the remaining members may elect one of themselves as Chairperson for that particular meeting, in that case there shall be no problem 5 (3) (b) of constituting a quorum as required under condition No. 5(4)(b) a and the reason of absence of the regular Chairperson shall be duly recorded in the minutes. Chairperson of the Audit Committee shall remain present in the Annual General Meeting (AGM): Shall be Provided that in absence of Chairperson of the Audit Committee, invited to 5 (3) (c) any other member from the Audit Committee shall be selected a remain to be present in the annual general meeting (AGM) and reason present for absence of the Chairperson of the Audit Committee shall be recorded in the minutes of the AGM. 5 (4) Meeting of the Audit Committee: The Audit Committee shall conduct at least its four meetings in a financial year: 5 (4) (a) Provided that any emergency meeting in addition to regular a meeting may be convened at the request of any one of the members of the Committee; The quorum of the meeting of the Audit Committee shall be constituted in presence of either two members or two-third of 5 (4) (b) the members of the Audit Committee, whichever is higher, where a presence of an independent director is a must. 5 (5) Role of Audit Committee (the Audit Committee shall): 5 (5) (a) Oversee the financial reporting process; a 5 (5) (b) Monitor choice of accounting policies and principles; a Monitor Internal Audit and Compliance process to ensure that it is adequately resourced, including approval of the Internal Audit and 5 (5) (c) Compliance Plan and review of the Internal Audit and Compliance a Report; 5 (5) (d) Oversee hiring and performance of external auditors; a

80 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied Hold meeting with the external or statutory auditors for review of 5 (5) (e) the annual financial statements before submission to the Board a for approval or adoption; Review along with the management, the annual financial 5 (5) (f) statements before submission to the Board for approval; a Review along with the management, the quarterly and half yearly 5 (5) (g) financial statements before submission to the Board for approval; a 5 (5) (h) Review the adequacy of internal audit function; a Review the Management’s Discussion and Analysis before 5 (5) (i) disclosing in the Annual Report; a Review statement of all related party transactions submitted by 5 (5) (j) the management; a Review Management Letters or Letter of Internal Control 5 (5) (k) weakness issued by statutory auditors; a Oversee the determination of audit fees based on scope and magnitude, level of expertise deployed and time required for 5 (5) (l) effective audit and evaluate the performance of external auditors; a and Oversee whether the proceeds raised through Initial Public Offering (IPO) or Repeat Public Offering (RPO) or Rights Share Offer have been utilized as per the purposes stated in relevant offer document or prospectus approved by the Commission: Provided that the management shall disclose to the Audit Committee about the uses or applications of the proceeds by major category (capital 5 (5) (m) expenditure, sales and marketing expenses, working capital, a etc.), on a quarterly basis, as a part of their quarterly declaration of financial results: Provided further that on an annual basis, the company shall prepare a statement of the proceeds utilized for the purposes other than those stated in the offer document or prospectus for publication in the Annual Report along with the comments of the Audit Committee. 5 (6) Reporting of the Audit Committee: 5 (6) (a) Reporting to the Board of Directors- 5 (6) (a) (i) The Audit Committee shall report on its activities to the Board. a 5 (6) (a) (ii) The Audit Committee shall immediately report to the Board on the following findings, if any: 5 (6) (a) (ii) (a) Report on conflicts of interests; N/A Suspected or presumed fraud or irregularity or material defect 5 (6) (a) (ii) identified in the internal audit and compliance process or in the N/A (b) financial statements; Suspected infringement of laws, regulatory compliances including 5 (6) (a) (ii) (c) N/A securities related laws, rules and regulations; and 5 (6) (a) (ii) Any other matter which the Audit Committee deems necessary N/A (d) shall be disclosed to the Board immediately;

81 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied Reporting to the Authorities: If the Audit Committee has reported to the Board about anything which has material impact on the financial condition and results of operation and has discussed with the Board and the management that any rectification is necessary 5 (6) (b) and if the Audit Committee finds that such rectification has been N/A unreasonably ignored, the Audit Committee shall report such finding to the Commission, upon reporting of such matters to the Board for three times or completion of a period of 6 (six) months from the date of first reporting to the Board, whichever is earlier. Reporting to the Shareholders and General Investors: Report on activities carried out by the Audit Committee, including any report 5 (7) made to the Board under condition No. 5(6)(a)(ii) above during the N/A year, shall be signed by the Chairperson of the Audit Committee and disclosed in the annual report of the issuer company. 6 Nomination and Remuneration Committee (NRC): 6 (1) Responsibility to the Board of Directors: The company shall have a Nomination and Remuneration 6 (1) (a) Committee (NRC) as a sub-committee of the Board; The NRC shall assist the Board in formulation of the nomination criteria or policy for determining qualifications, positive attributes, 6 (1) (b) experiences and independence of directors and top level executive as well as a policy for formal process of considering remuneration With a view of directors, top level executive; to form a Nomination and (c) The Terms of Reference (ToR) of the NRC shall be clearly set Remuneration Committee 6 (1) (c) forth in writing covering the areas stated at the condition No. 6(5) (NRC), a letter (b). has been forwarded to 6 (2) Constitution of the NRC: Bangladesh Bank seeking The Committee shall comprise of at least three members including guidelines 6 (2) (a) regarding an independent director; formation of NRC as 6 (2) (b) All members of the Committee shall be non-executive directors; Bangladesh Bank’s circular Members of the Committee shall be nominated and appointed by states that 6 (2) (c) the Board; “Each Bank Company can The Board shall have authority to remove and appoint any member form 1 (one) 6 (2) (d) executive of the Committee; committee, 1 (one) audit In case of death, resignation, disqualification, or removal of any committee member of the Committee or in any other cases of vacancies, the and 1 (one) risk 6 (2) (e) management board shall fill the vacancy within 180 (one hundred eighty) days of committee occurring such vacancy in the Committee; with directors. The board The Chairperson of the Committee may appoint or co-opt any can’t form any external expert and/or member(s) of staff to the Committee permanent, temporary or 6 (2) (f) as advisor who shall be non-voting member, if the Chairperson sub-committee feels that advice or suggestion from such external expert and/or except member(s) of staff shall be required or valuable for the Committee; the above mentioned 6 (2) (g) The company secretary shall act as the secretary of the Committee; three committees.” The quorum of the NRC meeting shall not constitute without 6 (2) (h) attendance of at least an independent director; No member of the NRC shall receive, either directly or indirectly, 6 (2) (i) any remuneration for any advisory or consultancy role or otherwise, other than Director’s fees or honorarium from the company. 6 (3) Chairperson of the NRC:

82 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied The Board shall select 1 (one) member of the NRC to be Chairperson 6 (3) (a) of the Committee, who shall be an independent director; In the absence of the Chairperson of the NRC, the remaining members may elect one of themselves as Chairperson for 6 (3) (b) that particular meeting, the reason of absence of the regular Chairperson shall be duly recorded in the minutes; The Chairperson of the NRC shall attend the annual general meeting (AGM) to answer the queries of the shareholders: Provided that in absence of Chairperson of the NRC, any other 6 (3) (c) member from the NRC shall be selected to be present in the annual general meeting (AGM) for answering the shareholder’s queries and reason for absence of the Chairperson of the NRC shall be recorded in the minutes of the AGM. 6 (4) Meeting of the NRC: 6 (4) (a) The NRC shall conduct at least one meeting in a financial year; The Chairperson of the NRC may convene any emergency meeting 6 (4) (b) upon request by any member of the NRC; The quorum of the meeting of the NRC shall be constituted in 6 (4) (c) presence of either two members or two third of the members of the Committee, whichever is higher, where presence of an independent director is must as required under condition No. 6(2) (h); The complexity The proceedings of each meeting of the NRC shall duly be of the organizational 6 (4) (d) recorded in the minutes and such minutes shall be confirmed in structure the next meeting of the NRC. prescribed by BSEC was 6 (5) Role of the NRC: raised before them and NRC shall be independent and responsible or accountable to the waiting for the 6 (5) (a) response. Board and to the shareholders; NRC shall oversee, among others, the following matters and make report with 6 (5) (b) recommendation to the Board: Formulating the criteria for determining qualifications, positive attributes and 6 (5) (b) (i) independence of a director and recommend a policy to the Board, relating to the remuneration of the directors, top level executive, considering the following: The level and composition of remuneration is reasonable and 6 (5) (b) (i) (a) sufficient to attract, retain and motivate suitable directors to run the company successfully; The relationship of remuneration to performance is clear and 6 (5) (b) (i) (b) meets appropriate performance benchmarks; and Remuneration to directors, top level executive involves a balance between fixed and incentive pay reflecting short and long- 6 (5) (b) (i) (c) term performance objectives appropriate to the working of the company and its goals; Devising a policy on Board’s diversity taking into consideration 6 (5) (b) (ii) age, gender, experience, ethnicity, educational background and nationality; Identifying persons who are qualified to become directors and who may be appointed in top level executive position in accordance 6 (5) (b) (iii) with the criteria laid down, and recommend their appointment and removal to the Board;

83 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied Formulating the criteria for evaluation of performance of 6 (5) (b) (iv) independent directors and the Board; Identifying the company’s needs for employees at different 6 (5) (b) (v) levels and determine their selection, transfer or replacement and promotion criteria; and Developing, recommending and reviewing annually the company’s 6 (5) (b) (vi) human resources and training policies; The company shall disclose the nomination and remuneration 6 (5) (c) policy and the evaluation criteria and activities of NRC during the year at a glance in its annual report. 7 External or Statutory Auditors: The issuer company shall not engage its external or statutory auditors to perform the following 7 (1) services of the company, namely:- 7 (1) (i) Appraisal or valuation services or fairness opinions; a 7 (1) (ii) Financial information systems design and implementation; a Book-keeping or other services related to the accounting records 7 (1) (iii) or financial statements; a 7 (1) (iv) Broker-dealer services; a 7 (1) (v) Actuarial services; a 7 (1) (vi) Internal audit services or special audit services; a 7 (1) (vii) Any service that the Audit Committee determines; a Audit or certification services on compliance of corporate 7 (1) (viii) governance as required under condition No. 9(1); and a 7 (1) (ix) Any other service that creates conflict of interest. a No partner or employees of the external audit firms shall possess any share of the company they audit at least during the tenure of their audit assignment of that company; his or her family members 7 (2) also shall not hold any shares in the said company: a Provided that spouse, son, daughter, father, mother, brother, sister, son-in-law and daughter-in-law shall be considered as family members. Representative of external or statutory auditors shall remain present in the Shareholders’ Meeting (Annual General Meeting 7 (3) or Extraordinary General Meeting) to answer the queries of the a shareholders. 8 Maintaining a website by the Company: The company shall have an official website linked with the website 8 (1) of the stock exchange. a The company shall keep the website functional from the date of 8 (2) listing. a The company shall make available the detailed disclosures on its 8 (3) website as required under the listing regulations of the concerned a stock exchange(s).

84 IFIC Bank I Annual Report 2018 Compliance Status (ahas been Put in the Condition Remarks Title appropriate column) No. (if any) Not Complied complied 9 Reporting and Compliance of Corporate Governance: The company shall obtain a certificate from a practicing Professional Accountant or Secretary (Chartered Accountant or Cost and Management Accountant or Chartered Secretary) other 9 (1) than its statutory auditors or audit firm on yearly basis regarding a compliance of conditions of Corporate Governance Code of the Commission and shall such certificate shall be disclosed in the Annual Report. The professional who will provide the certificate on compliance 9 (2) of this Corporate Governance Code shall be appointed by the a shareholders in the annual general meeting. The directors of the company shall state, in accordance with 9 (3) the Annexure-C attached, in the directors’ report whether the a company has complied with these conditions or not.

85 IFIC Bank I Annual Report 2018 International Finance Investment and Commerce Bank Limited Head Office : IFIC Tower, 61 Purana Paltan, GPO Box: 2229, Dhaka-1000, Bangladesh Tel: 9563020, IP Phone No. : 09666716250 (Hunting), Fax: 880-2- 9554102, Swift: IFIC BD DH E-mail: info@ificbankbd.com Website: www.ificbank.com.bd

CEO and CFO’s Declaration to the Board

Date: 25 April 2019

The Board of Directors IFIC Bank Limited Head Office Dhaka

Subject: Declaration on Financial Statements for the year ended on 31 December 2018

Dear Sirs,

Pursuant to the condition No. 1(5) (xxvi) imposed vide the Commission’s Notification No. BSEC/ CMRRCD/2006-158/207/Admin/80, dated 03 June 2018 under section 2CC of the Securities and Exchange Ordinance, 1969, we do hereby declare that: (1) The Financial Statements of IFIC Bank Limited for the year ended on 31 December 2018 have been prepared in compliance with International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS), as applicable in the Bangladesh and any departure there from has been adequately disclosed; (2) The estimates and judgments related to the financial statements were made on a prudent and reasonable basis, in order for the financial statements to reveal a true and fair view; (3) The form and substance of transactions and the Company’s state of affairs have been reasonably and fairly presented in its financial statements; (4) To ensure above, the Company has taken proper and adequate care in installing a system of internal control and maintenance of accounting records; (5) Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed; and (6) The management’s use of the going concern basis of accounting in preparing the financial statements is appropriate and there exists no material uncertainty related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern.

In this regard, we also certify that: (i) We have reviewed the financial statements for the year ended on 31 December 2018 and that to the best of our knowledge and belief: (a) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; (b) these statements collectively present true and fair view of the Company’s affairs and are in compliance with existing accounting standards and applicable laws. (ii) There are, to the best of knowledge and belief, no transactions entered into by the Company during the year which are fraudulent, illegal or in violation of the code of conduct for the company’s Board of Directors or its members.

Dilip Kumar Mandal M Shah Alam Sarwar Chief Financial Officer Managing Director & CEO

86 IFIC Bank I Annual Report 2018 Hoda Vasi Chowdhury & Co Chartered Accountants

Annexure-B [Certificate as per condition No. 1(5)(xxvii)]

Report to the Shareholders of IFIC Bank Limited on compliance on the Corporate Governance Code

We have examined the compliance status to the Corporate Governance Code by IFIC Bank Limited (the “Bank”) for the year ended on 31 December 2018. This Code relates to the Notification No. BSEC/ CMRRCD/2006-158/207/Admin/80 dated 03 June 2018 of the Bangladesh Securities and Exchange Commission.

Such compliance with the Corporate Governance Code is the responsibility of the Bank. Our examination was limited to the procedures and implementation thereof as adopted by the Management in ensuring compliance to the conditions of the Corporate Governance Code.

This is a scrutiny and verification and an independent audit on compliance of the conditions of the Corporate Governance Code as well as the provisions of relevant Bangladesh Secretarial Standards (BSS) as adopted by Institute of Chartered Secretaries of Bangladesh (ICSB) in so far as those standards are not inconsistent with any condition of this Corporate Governance Code.

We state that we have obtained all the information and explanations, which we have required, and after due scrutiny and verification thereof, we report that, in our opinion:

(a) The Bank has complied with the conditions of the Corporate Governance Code as stipulated in the above mentioned Corporate Governance Code issued by the Commission (except for Nomination and Remuneration Committee for which the Bank is awaiting directives from Bangladesh Bank);

(b) The Bank has complied with the provisions of the relevant Bangladesh Secretarial Standards (BSS) as adopted by the Institute of Chartered Secretaries of Bangladesh (ICSB) as required by this Code;

(c) Proper books and records have been kept by the Bank as required under the Companies Act, 1994, the securities laws and other relevant laws; and

(d) The Governance of the Bank is satisfactory.

For Hoda Vasi Chowdhury & Co Chartered Accountants

Sabbir Ahmed, FCA Place: Dhaka Partner Dated: 12 May 2019 ICAB Enrolment Number 770

National Office : BTMC Bhaban ( 6th Floor), 7-9 Karwan Bazar Commercial Area, Dhaka-1215, Bangladesh th 87 Chattogram Office : Delwar Bhaban (4 Floor), 104 Agrabad Commercial Area, Chattogram-4100,IFIC Bank Bangladesh I Annual Report 2018 Management Discussion And Analysis

88 IFIC Bank I Annual Report 2018 Management Discussion and Analysis

Year 2018 was very challenging year for banking Investments sector especially for the second half of year 2018 Total investments increased by 12.4% to BDT 31,304 to accommodate the Bangladesh Association of million at 31 December 2018 from BDT 27,858 million Banker’s (BAB) suggestion for implementation of at 31 December 2017 primarily due to increase in lending rate at 9.00% and deposit rate at 6.00% for investment in government securities by BDT 3,315 six months’ tenor. IFIC forgone sizeable amount of million; which included increment of treasury bills of interest income during the second half of year 2018 BDT 4,126 million, treasury bond of BDT 1,889 million as the 9.00% lending rate was effective immediately and decline of BDT 2,699 of Bangladesh Bank bills. whereas Bank struggled to manage deposit cost Loans and advances as deposit size of six months’ bucket was very In the year 2018 Bank’s lending portfolio grew by minimal out of the total deposit. Moreover, due to 15.4% and reached at BDT 206,930 million from the huge gap in the interest rate between deposit BDT 179,264 million of 2017. rate and Bangladesh Shanchya Patra (BSP), banking sector faced challenge to attract deposits from the individual households as the individual depositors are Loans and advances very rate sensitive. Though the overall environment was very challenging in 2018, IFIC posted growth in

terms of new lending, trade, deposit and maintained 206,930 moderate growth in pre-tax profit by balancing its 179,264 overall resources and concentrated on strategic 137,118 business decision, reform and restructuring the 123,269 processes and policies. The analysis of financial 102,282 performance and operating result of the bank is pointed out below: BDT in million

Financial Position of the Bank 2014 2015 2016 2017 2018 Based on separate financial statements Despite the tough economic environment, IFIC has The bank follows a policy of portfolio diversification managed a sustainable growth in its balance sheet and evaluates its total financing in a particular during the year 2018. At the end of year 2018 total sector for sustainable growth in the balance sheet. assets of the bank has increased by 11.8% vis-à-vis The Bank’s Credit Risk Management Division and 28.5% of year 2017. A Summary position of total Risk Management Division (RMD) monitor all major assets of the bank is furnished below: sectors of the economy and specifically track sectors in which the Bank has loans outstanding. BDT in million The bank seeks to respond to economic weakness Particulars 2018 2017 Growth through active portfolio management by restricting exposure to weak sectors and increasing exposure Cash and Cash 28,077 29,932 -6.2% to the segments that are growing and sustainable. Equivalents In line with that the bank focus on increasing the Investments 31,304 27,858 12.4% mortgage backed small ticket home loan under retail Loans and advances 206,930 179,264 15.4% segment. At the end of year 2018 the Bank recorded total home loan at BDT 29,114 million compared to Fixed assets 5,438 3,528 54.1% BDT 26,209 million at the end of year 2017 with Other assets 11,325 12,666 -10.6% posted 11.1% growth over last year. Total assets 283,073 253,249 11.8% Segment wise loan portfolio of the bank at the end of year 2018 are summarized below. Cash and cash equivalents Cash and cash equivalents includes cash in hand BDT in million and balances with Bangladesh Bank and its agent Particulars 2018 2017 Growth banks, balance with ATM, balance with other banks and financial institutions and money at call on short Corporate 141,789 114,269 24.1% notice. Cash and cash equivalents decreased to SME & Agriculture 30,442 32,451 -6.2% BDT 28,077 million at 31 December 2018 from Retail-Mortgage 29,114 26,209 11.1% BDT 29,932 million at 31 December 2017 mainly for decrease in the balances with Bangladesh Bank and Retail-others 5,585 6,336 -11.9% balance held with other bank & FIs. Total 206,930 179,264 15.4%

89 IFIC Bank I Annual Report 2018 Segment wise composition of the Bank’s gross loans Other Assets and advances is demonstrated below: Other assets includes suspense accounts, advance deposits & prepayment, receivable against paid on Segment wise Loan (2018) Shanchaya Patra, advance income tax, deferred 2.7% tax asset, accrued interest receivable, investment 14.1% in subsidiaries & associates, non-banking assets, 68.5% stationery and stamps etc. Other assets reduced by BDT 1,341 million in 2018 from the year 2017 mainly

14.7% Corporate for adjustment of advance income tax due to final SME & Agri settlement of the assessment year 2013 and 2014. Retail-Mortgage Retail-others Liabilities The following table demonstrates the summarized position of liabilities and shareholders’ equity of the Sector-wise Loan Portfolio bank at the end of year 2018: IFIC pays attention to diversified sectors at the time of disbursing loans. During the year 2018, consumer BDT in million finance made up 17.0% of its total loan portfolio, with Particulars 2018 2017 Growth the trade & commerce sector making up to 13.7% Borrowings 9,969 8,474 17.7% and Garments sector 13.2% of total loan portfolio. Subordinated debt 3,500 3,500 0.0%

Loan Portfolio Composition (2018) Deposits 226,333 200,206 13.1%

Consumer ﬁnance Other liabilities 21,155 20,531 3.0% 2.0% 5.4% 2.2% Trade & commerce 17.0% Garments Total liabilities 260,957 232,710 12.1% 2.7% Other service industries 3.2% Housing societies/ Paid up capital 13,387 11,953 12.0% 3.3% companies Other small industries Reserve and surplus 8,729 8,586 1.7% 4.3% 13.7% Textile Construction ﬁrms/ Total shareholders’ companies 22,116 20,539 7.7% 4.5% Telecommunication equity (SE) 4.7% Energy Food products & processing Total liabilities and SE 283,073 253,249 11.8% 13.2% Engineering & metal 4.9% IT sector 9.5% 9.5% Agriculture Borrowings Others Borrowing represents bank borrowed from other banks, financial Institutions and Bangladesh . Bank At the end of year 2018 total borrowings stood at Quality of Portfolio BDT 9,969 million compared to BDT 8,474 million The Bank classifies its assets as performing and non- performing in accordance with Bangladesh Bank’s at 31 December 2017 which is increased by BDT guidelines. At the end of year 2018, the Bank’s NPL 1,496 million mainly for increase in the borrowing ratio stood at 6.16% as opposed to 6.40% at the from Bangladesh Bank under different refinancing end of year 2017. NPL ratio decreased by 0.24% schemes namely EDF and borrowings from outside over prior year mainly for the Bank’s stringent credit Bangladesh (Nepal Bangladesh Bank Ltd. Nepal) for policy, timely initiatives and strong monitoring of Off-shore Banking unit of the Bank. credit portfolio by the management of the bank. The Subordinated Bond bank made well coverage against its NPL portfolio to The Bank with prior consent of Bangladesh Securities mitigate the credit risk. At the end of the year 2018, and Exchange Commission (vide letter no. BSEC/ the Bank has maintained total provision of BDT 5,954 CI/DS-32/2015/644 dated 28 December 2015) million and kept interest suspense of BDT 6,286 and Bangladesh Bank (vide letter no. BRPD (BFIS) million against gross lending portfolio. The Bank has 661/18B (P)/2016-938 dated 08 February 2016 a dedicated team for closely monitoring the NPL and BRPD (BFIS) 661/18B (P)/2016-2475 dated 17 portfolio and closely work with different branches April 2016) issued 07 (seven) years Non-Convertible and bank legal team. The effort will continue with the Coupon Bearing Subordinated Bonds in the 2016. aim of reducing the NPL further in the year 2019. Subordinated Bond is considered as a part of eligible Fixed Assets regulatory capital under Tier-II as per Basel-III. The Fixed Assets includes land, building & premises, interest rate of the Bond is reference Rate + 4.8% computer & equipment, furniture and fixtures etc. margin, where reference rate is the latest 182 days and it increased to BDT 5,438 million at 31 December Bangladesh Govt. Treasury bill rate. The issued 2018 from BDT 3,528 million at 31 December 2017 instrument is un-secured, non-convertible in nature primarily due to purchase of land for extension of and will be redeemed at 20.0% of its face value each Head Office and expansion of branch networks. year which will start from May 2019.

90 IFIC Bank I Annual Report 2018 Deposits Other Liabilities Deposits include different types of deposits including Other liabilities mainly includes provision for loans and bills payable which are summarized below. advances, provision for taxes, interest suspense and BDT in million other operational liabilities. Other liabilities balance stands at BDT 21,155 million at 31 December 2018 Particulars 2018 2017 Growth from BDT 20,531 million at 31 December 2017. The Current deposit and 40,954 30,668 33.5% other liabilities of the bank increased compared to others last year due to increase in provision for unclassified Bills payable 2,066 2,238 -7.7% loan and diminution in value of investments and Savings bank deposits 24,711 27,058 -8.7% interest suspense against irregular accounts. Fixed deposits 158,602 140,241 13.1% Shareholders’ Equity Total Deposits 226,333 200,206 13.1% The shareholders equity contain paid up capital, statutory reserve, general reserve and surplus of Deposits increased by 13.1% and reached at profit and loss account. Bank is continuing its focus BDT 226,333 million at 31 December 2018 from on managing and maintain its capital at appropriate BDT 200,206 million at 31 December 2017. This levels to support the business strategy and meet growth was largely driven by Bank’s fixed deposits, regulatory requirements. At the end of year 2018 amounting to BDT 18,361 million as bank was total shareholders’ equity of the Bank reached to focused on long term liquidity rather than short term BDT 22,116 million compared to BDT 20,539 million liquidity. Simultaneously the bank offering flexible of year 2017 representing 7.7% growth over prior and customized deposit products with attractive year. The Paid up capital at 12.0% through issuance features. IFIC flagship product Aamar Account of stock dividend at 12.0% for the year 2017. On the cater the need of customers in all aspect which other side statutory reserve increased by 11.2% due have helped the bank to maintain optimum deposit to transfer 20.0% of profit before tax of the year growth in 2018. At the end of 2018 total deposit 2018 and the impact of retain earnings because of against Aamar Account stood at BDT 14,565 million surplus in the profit and loss account for the year compared to BDT 5,839 million which demonstrated 2018. net addition of BDT 8,726 with 149.5% growth over prior year. Shareholders' Fund 2018 Deposit and Others 13% 1% 226,333 200,206 n 160,155 146,820

129,746 26% 60% BDT in millio

2014 2015 2016 2017 2018 Paid-up capital Statutory reserve General reserve Retained earnings Aamar Account

Capital Adequacy under Basel-III 98,265 As at 31 December 2018, Bank maintained total 83,650 regulatory capital of BDT 26,904 million representing 12.630% at the end of year 2018 against the required capital of BDT 25,295 million or 11.875% i.e. total 31,538 14,565 regulatory capital of the Bank is BDT 1,609 million 1,816 5,839 or 0.755% higher than the required capital. As per Basel III guidelines of Bangladesh Bank, the Bank 2016 2017 2018 follows the standardized approach for measurement of market risk and basic indicator approach for Amount Number measurement of operation risk. Summary of regulatory capital of the Bank are furnished below:

91 IFIC Bank I Annual Report 2018 BDT in million growth was possible because of our high level of customer service, product innovation, customized Particular 2018 2017 Growth solutions and the continuous effort of the workforces Paid-up capital 13,387 11,953 12.0% in a challenging macro-economic condition. Reserve & Surplus 7,490 6,922 8.2% Interest Expenses Tier 1 Capital 20,877 18,875 10.6% In 2018 total interest expenses stood at BDT Tier 2 Capital 6,026 5,239 15.0% 14,405 million vis-à-vis BDT 9,432 million of year Capital Maintained 26,904 24,114 11.6% 2017. Interest expenses increased by 52.7% over prior year mainly for 13.1% growth on deposit over Required Capital 25,295 21,574 17.2% last year as well as simultaneous increase of Fixed Surplus/(Short) 1,609 2,539 -36.7% Deposit (FD) by BDT 18,361 million - a growth of 13.1% over last year. Overall liquidity position of the Required CRAR 11.875% 11.250% 0.6% banking sector was remained very challenging in CRAR maintained 12.630% 12.574% 0.1% 2018, as such Management of the bank focused on Surplus/(Short) 0.755% 1.324% -0.6% long term liquidity rather than short term liquidity. As a result CASA deposit mix reduced to 21.8% at the end of Y2018 vis-à-vis 21.9% of Y2017. Therefore, Financial Performance of the Bank bank’s effective cost of deposit increased to 6.44% Based on separate financial statements at the end of the year 2018 vis-à-vis 5.03% of the Despite the number of constrains the Bank managed year 2017 which is 1.41% higher than the year 2017. a moderate growth during the year 2018 of its pretax profit. A better reflection of financial performance of IFIC and in-depth financial analysis is given below: Interest Expense

BDT in million

Particulars 2018 2017 Growth 14,405 Interest Income 18,965 14,924 27.1% 9,432 8,907 8,467 IN % Interest expense 14,405 9,432 52.7% 8,182 Net Interest Income 4,560 5,492 -17.0% Non-interest Income 4,441 4,270 4.0% Operating Revenue 9,001 9,762 -7.8% Operating Expense 5,106 5,348 -4.5% 2014 2015 2016 2017 2018 Operating profit 3,895 4,414 -11.8%

Provision 1,035 2,038 -49.2% Net Interest Income – NII Profit before Tax 2,859 2,377 20.3% The interest income of the bank increased by 27.1% Current tax 1,080 750 44.0% in the year 2018 than the year 2017 due to increase Deferred tax 209 (441) -147.4% in the volume of lending portfolio over last year. However to maintain the optimum liquidity and Net Profit after Tax 1,570 2,068 -24.1% rationalize the bank deposit, interest expenses of Interest Income the bank increased by 52.7% compared to last year The total interest income of the bank has increased which has negatively impacted Net Interest Income. to BDT 18,965 million from BDT 14,924 million with a At the end of Y2018 total NII stood at BDT 4,560 growth of 27.1% in 2018 due to increase the lending million vis-à-vis BDT 5,492 million of the year 2017 book by 15.4% in Y2018. The portfolio growth led to increase the interest income and this portfolio Net Interest Income

Interest Income 5,492 4,560 4,375 18,965 3,746 3,392 14,924 12,653 12,557 11,858 BDT in million BDT in million 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

92 IFIC Bank I Annual Report 2018 which is 17.0% lower than year 2017. NII decrease Operating expenses compared to the prior year is mainly for lower level of Operating expenses includes the followings: return on lending portfolio for application of 9.0% of BDT in million interest in line with decision of BAB from the second half of year 2018. Particulars 2018 2017 Growth Investment and non-interest income Salaries and allowances 2,559 2,577 -0.7% Rent, taxes, insurance, The following table demonstrates, for the period 766 687 11.5% indicated, the principal components of non-interest electricity etc. income: Postage, stamp, 63 76 -17.4% telecommunication etc. BDT in million Stationery, printing, 377 433 -12.9% Particulars 2018 2017 Growth advertisement etc. Investment income 2,358 2,071 13.9% Depreciation and repair of 481 492 -2.2% Fees & Commission 1,616 1,667 -3.1% bank’s assets Other operating income 466 532 -12.4% Other expenses 860 1,082 -20.5% Total non-interest income 4,441 4,270 4.0% Total operating expenses 5,106 5,348 -4.5%

At the end of the year 2018 total investment income In the expenses side, the Bank incurred total of the Bank reached at BDT 2,358 million vis-à- operating expenses of BDT 5,106 million during vis BDT 2,071 million of prior year and fees and year 2018 as opposed to BDT 5,348 million of year commission based income including the exchange 2017 which is 4.5% below from prior year. Operating gain of the Bank reached at BDT 2,082 million vis- expenses is lower by BDT 242 million due to savings à-vis BDT 2,199 million compared to prior year. Total in advertisement & publicity and other expenses. non-interest income shows a positive growth of However, in 2018 Rent, taxes, insurance, electricity 4.0% compared to last year mainly for investment etc. expenses have increased by 11.5% compared income which has increased by 13.9% over last year. to year 2017 due to expansion of branch network as well as renewal of number of lease agreement of different branches of the Bank. Though the bank’s Investment Income operating expenses remained 4.5% below than year 2017, due to lower level of NII, cost income ratio of the Bank stood at 56.7% at the end of year 2018 2,377 2,375 235 8 2,077 2071 from 54.8% of last year.

Operating Expenses BDT in Million 5,348 5,106 2014 2015 2016 2017 2018 5,066 4,423 4,391

Operating revenue Though the year 2018 was very challenging to maintain the asset quality and NII of the banking sector, at the end of the year 2018 total operational BDT in million revenue of the bank reached at BDT 9,001 million opposed to BDT 9,762 million which is 7.8% lower 2014 2015 2016 2017 2018 than last year mainly for lower level of NII as explained in the preceding paragraphs. Cost to Income Ratio

Operating Revenue 59.7 58.2 % 56.7 9,762 IN 9,001 8,486 8,037 7,595 54.6 54.8 BDT in million 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

93 IFIC Bank I Annual Report 2018 Provision for loans & investment Return on Assets and Equity The following table demonstrates, for the periods Due to lower level of net profit after tax in the year indicated, the components of provision kept for 2018 the Bank’s return on assets stood at 0.59% at loans, investments and other assets: the end of year 2018 from 0.92% of year 2017 and return on equity of the bank stood at 7.36% which BDT in million was 12.39% at the end of year 2017. Provisions 2018 2017 Growth Loans and advances 813 2,125 -61.7% Return on Equity Investments and others 222 (86) -356.0%

Total Provision 1,035 2,038 -49.2% 15.66

At the end of year 2018 total NPL ratio of the Bank 12.39 9.91 7.96

stood at 6.16% vis-à-vis 6.40% of year 2017. In line IN % 7.36 with the Bangladesh Bank guidelines, IFIC made required amount of provision against its portfolio of both Performing loan and NPL, other assets and investments in shares. During the year 2018 Bank made total provision of BDT 1,035 million against 2014 2015 2016 2017 2018 BDT 2,038 million of Y2017 which is 49.2% below than the last year. Profit Before Tax (PBT) Return on Assets With the negative impact of NII at the end of year 2018 PBT of the bank stood at BDT 2,859 million vis- à-vis BDT 2,377 million of the prior year. During the 1.07 year 2018 total PBT of the Bank increased by 20.3% 0.92 over last year mainly for lower level of general and 0.65 0.59 administrative expenses and loan loss provisioning 0.53 IN % on loans & advances and investment. Provision for tax During the year the bank made BDT 1,080 million provision for current tax after considering the prior 2014 2015 2016 2017 2018 years’ surplus provision as opposed to BDT 750 million made in year 2017 which is BDT 330 million Based on consolidated financial statements higher than the prior year. On the other hand bank also The consolidated profit after tax including the results accounted for BDT 209 million deferred tax expense of operations of the Bank’s subsidiaries reached to in the year 2018 vis-à-vis deferred tax income of BDT 1,650 million in the year 2018 from BDT 2,397 BDT 441 million of year 2017. Consequently, overall million in the year 2017. However, profit after tax of tax expense of the Bank stood at BDT 1,289 million IFIC Securities increased to BDT 54.7 million in the compared to BDT 309 million of year 2017 which is year 2018 from BDT 39.7 million in the year 2017 BDT 980 million higher than prior year. and net loss of IFIC Money Transfer (UK) Limited was Profit After Tax (PAT) reduced to BDT 2.6 million in the year 2018 against The Bank posted net profit after tax of BDT 1,570 loss of BDT 6.1 million incurred in the year 2017. million in the year 2018 vis-à-vis BDT 2,068 million of year 2017 representing 24.1% below from previous year mainly for lower level of NII, higher level of provision for tax.

Proﬁts

2,677 2,859 2,084 2,377 1,615 2,068 1,545 1,570 1,214 BDT IN MLN 887 2014 2015 2016 2017 2018 Proﬁt before tax Proﬁt after tax

94 IFIC Bank I Annual Report 2018 Value Added Statement

The Value Added Statement shows the total value created by the bank and how it was distributed to meet certain obligations and the portion retained for the continued operation and expansion of its business. The following value added statement shows the total worth created by the Bank for the year ended 31 December 2018 and how it was distributed for the socio economic development. BDT in million Value added by banking services 2018 % 2017 %

Income from banking services 23,405.4 19,194.6

+/(-) Provision for loans (1,035.3) (2,037.7)

+/(-) Def. tax income/(expense) (209.2) 441.2

+/(-) Depreciation (287.2) (288.1)

+/(-) Charges on loan losses (109.6) (244.8)

Net Value Added 21,764.1 17,065.2

Distribution of value addition: Government 1,248.7 5.7% 982.7 5.8% Corporate tax 1,056.6 796.5 Value Added Tax (VAT) etc. 192.1 186.2

Employees & Directors 2,576.0 11.8% 2,594.0 15.2% Salaries and benefits 2,574.3 2,592.6 Director’s remuneration 1.7 1.5

Depositors and suppliers 14,934.9 68.6% 10,744.1 63.0% Depositors as interest 14,404.7 9,432.1 Supplier and other vendors 530.1 1,312.1

Shareholders 1,434.4 6.6% 676.6 4.0% Dividend 1,434.4 676.6

Retained in the business 1,570.2 7.2% 2,067.7 12.1% Statutory Reserve 571.9 475.3 Retained earnings 998.36 1,592.4

Total value distributed 21,764.1 100.0% 17,065.2 100.0%

2018 2017

7% 6% 12% 6% 7% 12% 15% To Government 4% To Government To Employees & To Employees & Directors Directors To Depositors and To Depositors and Suppliers Suppliers To Shareholders To Shareholders Retained in the Retained in the Business Business 69% 63%

95 IFIC Bank I Annual Report 2018 Market Value Added Statement (MVA)

Market Value Added Statement value of the bank and the capital 2018 of the bank is BDT 1,205 reflects IFIC’s performance contributed by shareholders. A million vis-à-vis BDT 9,562 evaluated by the capital market high MVA is a better indication of million in Y2017 due to decreased through its share price i.e. MVA performance and it shows that value of share at the end of the is a measurement of external the bank has created substantial year 2018. performance. It is the difference wealth for its shareholders. MVA between the current market for the year ended 31 December

Economic Value Added Statement

“Economic Value-Added is the of EVA is to provide management 2% risk premium is considered to surplus generated by an entity with a measure of their success calculate cost of equity and then after meeting an equitable in increasing shareholders’ the cost of capital employed is charge towards its shareholders. wealth: a better measure than calculated through multiplication It is the post-tax return on profit of how much the company of cost of equity with capital capital employed less the cost had made for shareholders” employed. Upon calculating the of capital employed. A Bank who The EVA is derived upon above, in the year 2018 Economic earns higher returns than cost of deducting taxes and cost of Value Added of the Bank stood capital, creates value, and Bank capital employed from the at BDT 23 million vis-à-vis BDT who earns lower returns than operating profit. Rates of Ten (10) 2,090 million in Y2017 due to cost of capital is deemed harmful years Govt. Treasury bond with higher level of cost of equity and for shareholders’ value. The aim tax expenses. DuPont Analysis

DuPont analysis is an approach broader analysis, Bank used year 2018 effect of RoE factors to decomposing return on equity five factors model that covers (e.g. net profit margin, asset for better understanding about Net Profit Margin, Total Asset turnover, equity multiplier) stood which factor contributed most Turnover and Financial Leverage. at 2.57%. to the RoE and which factor Accommodating lower level caused the RoE to move. For operating profit margin, in the

Human Capital

Human Resource Management IFIC Bank HRM Division is HRM Division has adapted to IFIC Bank considers “Human committed to ensure a resource wide ranging HR software, Resource” as the most pool by recruiting potential which operates the central important factors that can talents, developing and retaining storage of HR data with a add distinguishable value for as high performer. The Bank number of extensive workflows, survival in this competitive develops diverse work force notifications, process automation world. Therefore the Bank by implementing progressive and analytical reports. It always puts high magnitude human resource management establishes a shared environment on development of human policies and strategies through for HR specialists, managers and resource to add advantageous organizational and employee employees in order to provide edge to drive the organization development, compensation & the effective management and towards its goal. HRM Division benefits, HRIS and regulatory compliance. takes leadership in fostering a compliance. For appropriate placement positive work environment that With rapid technological changes of its human resources, IFIC places high value on professional around the world, automation has Bank continuously works on relationships based on fair, been crucial area of development restructuring its organogram competitive and merit based for any organization specially based on functionality and places quality. The Bank recognizes service oriented firms like its employee at the right place individual contributions and do Banks. Accordingly, IFIC Bank through appropriate process. the best to turn into resources.

96 IFIC Bank I Annual Report 2018 Continuous learning initiatives they can be turned into resources Training & Development help the Bank to overcome in entry level. At IFIC Bank, we believe that our employee skill deficiencies. employees must be equipped IFIC Bank always focuses to All the effort in combination with all necessary skills to meet uplift its home grown employees ultimately assists in maximizing the ever-changing demands and do not recruit from outside the outcome in the bottom line. of this fast-faced, competitive organizations if not critically industry. Therefore, we aim to Human Resource Planning required. It gives more focus create a culture of continuous As IFIC Bank believes that on recruiting the fresher in development to enable them to employees are the most valuable Management Trainee and grow and succeed throughout asset, as their professionalism Transaction Service Officer. their careers. and proficiency, along with their diverse backgrounds The investment in training and experience contributes Gender Analysis gives the employee a greater understanding of their significantly to it success. The 21% Bank seeks the most competent responsibilities within their and cultured candidates and role and also an opportunity to never discriminate with regard expand their knowledge base. to their race, language, religious Male The training and development beliefs, gender or age. Only the Female plans of IFIC are designed relevant skills and competencies towards an inclusive training of employees’ are considered plan which ensures skill gap the attributes which create 79% minimization and leadership sustainable values. development. The primary goal of human In 2018, 3697 participants resource management is to attended in 211 Training ensure that the right people Designation Wise Programs on different areas will be in the right position at of Banking, Finance, Customer the right time by the virtue 16% 9% Service, IT and Leadership of the individual quality. IFIC which is surely a landmark in Bank has already fixed the the training arena among other job-wise organogram and HRM commercial banks in the industry. Division determined the HR To align with the organization requirements with support goal, we not only emphasize on of other departments and core banking skill of employees evaluation of jobs. Round the we also want employees to boost year, the Banks circulates Internal 75% up their soft skill and leadership Job Posting Circular (IJPC) openly capabilities. In continuation of to all employees to fill up the Executive Ofﬁcer 2017, out of total training, 25% vacant functional positions at Support Staff training and workshop in 2018 Branches and Divisions, Head was focused on Soft Skill and Office which ultimately assist Leadership development which is in talent acquisition, talent 20% more than that of previous development and succession Employee aging analysis year. planning. Therefore, the best employees are selected for the As part of succession planning, 50+ 18-30 we arrange leadership programs appropriate functional positions 22% 18% at Branches and Divisions, Head with distinguished trainers from Office through a transparent and home and abroad. As a corporate merit based placement process. member of Malaysian Institute of Management (MIM), we are Internal Job Posting Circular continuing leadership program enables the Bank to create with them for last 05 years. more career opportunities for Through intensive training we employees and enhances upward have created a pool of Coaches mobility in organization. The 41-50 31-40 & Mentors in the organization 34% Bank focuses to recruit dynamic 26% who conduct various leadership potential people through multi- programs for our upcoming step merit-based recruitment 18-30 31-40 41-50 50+ potential managers. and selection process so that Besides the in house and

97 IFIC Bank I Annual Report 2018 program on Land & Loan Training and Workshop 2018 Training and Workshop 2017 Documentation in different phases. SS Since the demand for Project 159 143 Management is progressively emerging in the modern banking owing to the fast transformation, IFIC, keeping pace with the contemporary banking, has fruitfully arranged a ‘Project Management Professional’ training for 52 43 potential project managers. SS Also focusing on the need of negotiations in sales and marketing, IFIC Bank has arranged a separate Core Banking Soft Skill and Core Banking Soft Skill and training program on Sales Leadership Leadership and Negotiation for the employees involved in relationship management. customized training programs, Financial Crime Compliance Employee Compensation & employees of our bank are also Academy, Land & Loan Benefits sent to the training programs Documentation etc covering Formulation of “Compensation & arranged by BBTA, BAB all branches and Head Office. Benefits Strategy” in IFIC Bank is Research & Training Centre, Besides these, some general very much challenging ensuring BIBM and other reputed local programs were also conducted HR Budget under control training institutes. In 2018, 90 on Soft Skills Development of through efficient utilization participants attended 43 local relevant desk officials of IT, HR of resources and maintaining external training. and Finance and Accounts. the jobs within competitive Management Trainee Some of the highlights of pay packages. Management Development Program and training events in 2018- of IFIC Bank believes that Induction Program for new attractive Salary & Benefits SS Arranged 06 leadership joiners are regularly conducted. programs for the potential package brings competitive Both on the job and off the job leaders in IFIC Bank in advantage in the industries training programs, Head Office collaboration with Malaysian both for the organization and Orientation followed by case Institute of Management the employees. In line with the presentation and written and (MIM) where we have Management’s mission & vision, practical examinations have been engaged their prominent Human Resource Management conducted to make the training facilitators. Division always conducts both session more effective. formal & informal benefits SS Besides the leadership In 2018, a good number of survey in the industry to make training, we have also participants (50) have attended the same competitive which can collaborated with MIM for different foreign training and be elucidated in the following arranging ‘Relationship conference on Leadership sensible arenas: Based Marketing’ program Development, Strategic particularly focusing on Competitive Pay Package Management, Credit, Trade relationship marketing Pay package is one of the most Processing, IT etc. in Singapore, concept for Relationship effective tools that really attract India, Malaysia, Thailand, UAE. Managers and Branch the potential employees keeping We have more focus on control Managers of our Bank. into account of the macro & compliance issues and economic factors like cost of SS 275 new joiners have ensured training on Money living expenditures, industry successfully completed their practices, Bank capability etc. Laundering Prevention Act- foundation course ‘Induction 2012 & Amendment Act-2015, The bank’s overall competitive program for TSO’ throughout strategy ensures the nominal Anti-Terrorism Act-2009 the year. & Amendment Act-2013, salary adjustment by cost of Integrated Supervision System SS … respective participants living adjustment which in fact (ISS), Corresponding Banking have attended one day ensures purchasing capacity

98 IFIC Bank I Annual Report 2018 of the employee while Pay for Salary, Increment, Bonuses, providing emergency medical Performance strategy highly Leave Fare Assistance (LFA), services in Head Office. It provides encourages to boost individual Salary Overdraft (OD) and Car medical insurance facilities to employee performance. Modern Reimbursement effectively and all employees as well as family and effective performance efficiently so as to slash the members. Likewise, the Bank appraisal system based on processing time & cost. Likewise, provides Earned Leave, Maternity the theory of Management by Key Performance Indicators Leave, mandatory Annual Leave to Objectives (MBO) triggers the (KPI) for Performance Appraisal the employee to maintain healthy performance of the employees. of all eligible employees has work family life. The employee Balanced Scorecard model come under the purview of HR specially the female employee are has been followed in designing Software for prompt processing. always encouraged to leave office individual employees Key after completing their assigned Employee Engagement Performance Indicators (KPI) tasks on time. Programs and Awards which reflect the overall business The Bank believes the employee Grievance Management performance of IFIC Bank. as part of “IFIC Family” who are As part of complying Code of Other Benefits of the bind together to grow together to Conduct, IFIC Bank is committed Employees achieve mutual goals. Employee to equal opportunity, unbiased To keep the employee motivation engagement activities are aimed treatment of all individuals based level high, IFIC Bank provides at enhancing the employee on job related qualifications numerous benefits which commitment and sense of rather than any other basis or includes Staff House Building belongingness towards the Bank. status. The Bank’s policy is to Loan, Car Purchase Finance IFIC Bank regularly arranges provide a work environment Scheme, Salary Overdraft & Staff welcoming program for new that is free from intimidation or Salary Loan. As a part of long born children of its employees, harassment. Such harassment term service benefits, Provident awards our meritorious children, by co-workers, supervisors or Fund, Gratuity Fund, Earned celebrates Pohela Boishakh, outsiders is strictly prohibited. Leave Encashment are provided Hemonto Sondhya and Pitha The Bank treats every individual as per compensation & benefits Utshob, arranges Art Festival in the same way in similar policy. These facilities are for our kinds that help to build circumstances and deals with designed in such a way so that a collaborative environment grievance issues fairly and employees will have a handsome that promotes teamwork and reasonably. The Bank has a amount of benefits while leaving fellowship. specific guidelines to redress the bank to enjoy a decent life Health and Work-Life Balance of grievance and resentment with family. IFIC Bank believes that healthy of employees. The Bank Process Management for employees will remain sustainably encourages the employees to Compensation & Benefits engaged and productive. To be aware of what’s expected Using standard HR software, ensure health and well-being of them in terms of standards Human Resource Management of our people, IFIC Bank has and the likely consequences of Division is managing the equipped its Branches and continued failure to establish automated process fully/partly Head Office with modern safety transparency in workplace. in disbursement of Monthly measures and already started

Team Building and Leadership Training at BRAC CDM, Savar in 2018

99 IFIC Bank I Annual Report 2018 06 months long Management Trainee Development Program 2017

An activity of Team Building and Time Management during the training course ‘Effective Branch Management’

An activity during “Leading Teams” Training which is also a collaboration with MIM

A session of ‘Relationship Based Marketing’ Training which IFIC Bank has organized in collaboration with Malaysian Institute of Management (MIM)

100 IFIC Bank I Annual Report 2018 Project Management Professional Training

Project Visit at Ashulia, as a part of Basic Course on Credit Management

Sales and Negotiation Skills Development Training at IBA

02 Participants attended training on Customer Relationship Management in Banking at NIBM, Pune, India

02 Branch Managers attended “Towards Supervisory Excellence” training in Kuala Lumpur, Malaysia

101 IFIC Bank I Annual Report 2018 Branding and Promotional Activities

IFIC Bank undertook sustained promotional activities to create awareness about the brand and products in the year 2018. IFIC celebrated its 42nd anniversary in 2018 by undertaking a series of activities engaging its customers, patrons, stakeholders and employees. An advertisement on the anniversary day was published at national dailies; nationwide branches were decorated with promotional materials along with anniversary cake cutting with valued customers and employees. To promote the groundbreaking product IFIC Aamar Account, a 360 degree campaign was launched across all available media (TVC and RDC airing in different channels, series of newspaper advertisements in national and local dailies, billboard advertisements at different strategic points, digital media advertisements along with field level activation). Promotional activities for IFIC Home Loan and IFIC Aamar Account across the media was very successful in 2018. The Bank received positive response from customers as a result of those activities. The bank also promoted its One Stop Service among other branches. IFIC Bank organized a Pitha Utshab at Gulshan Branch premises. Top customers, eminent personalities of the society, Honorable Shareholders and high management personnel attended the program. The Bank celebrated the beginning of Bangla new year Pahela Boishakh by organizing various activities including an employee event and painting alpona in front of IFIC Tower.

102 IFIC Bank I Annual Report 2018 Different television programs including Kemon Budget Chai in NTV, Ekushay Boi Mela Sorasori and Rangtulite Muktijudhdho in Channel i were sponsored by the Bank. The Bank also sponsored country’s biggest quiz show “Bangladesh Jiggasha”. And branding of the news scroll and a documentary titled “IFIC Bank Ei Banglaye’ in ATN News to increase the Bank’s brand visibility. The Bank also sponsored a good number of events including the Police Week 2018 and DMP’s Founding Anniversary. As well as the Bank has also published its benchmark product ‘Aamar Account’ advertisement in the form of souvenir advertisement in different publications throughout the year. The Bank also ran its media campaign thoughout the year by digital media channels, Televisions, online news portals.

103 IFIC Bank I Annual Report 2018 Media Highlights

104 IFIC Bank I Annual Report 2018 105 IFIC Bank I Annual Report 2018 106 IFIC Bank I Annual Report 2018 Shareholders’ Information

107 IFIC Bank I Annual Report 2018 Directors’ Shareholding Status Shareholding of Directors as at 31 December 2018

Sl. Name of the Directors Status Holding in % 2018 2017 1 Mr. Salman F Rahman Chairman 2.00 26,782,314 23,912,781 Mr. Ahmed Shayan Fazlur Rahman* 2 Vice Chairman 2.39 32,057,175 28,622,478 (Since 03 February 2019) 3 Mr. Anwaruzzaman Chowdhury Independent Director Nil Nil Nil 4 Ms. Rabeya Jamali Independent Director Nil Nil Nil 5 Mr. Jalal Ahmed** Govt. nominated Director 6 Mr. A. R. M. Nazmus Sakib** Govt. nominated Director 32.75 438,417,626 391,444,309 7 Ms. Quamrun Naher Ahmed** Govt. nominated Director 8 Mr. M Shah Alam Sarwar Managing Director & CEO Nil Nil Nil

* Represents M/s. New Dacca Industries Limited against its holding of 2.41% shares (32,257,175 nos. shares as on 31 January 2019) in the Bank. ** Directors nominated by the Ministry of Finance, Govt. of the People’s Republic of Bangladesh against its holding of 32.75% shares in the Bank. Distribution of Shareholding

31-Dec-18 31-Dec-17 Category No. of Share % Amount in Taka No. of Share % Amount in Taka Sponsors 52,541,011 3.92 525,410,110 46,911,623 3.92 469,116,230 Directors 26,782,314 2.00 267,823,140 23,912,781 2.00 239,127,810 Government (Director also) 438,417,626 32.75 4,384,176,260 391,444,309 32.75 3,914,443,090 Sponsors & Directors 517,740,951 38.67 5,177,409,510 462,268,713 38.67 4,622,687,130 Institutions 301,327,505 22.51 3,013,275,050 257,334,656 21.53 2,573,346,560 Foreign Investors 24,126,033 1.80 241,260,330 23,104,033 1.93 231,040,330 General Investors 495,544,246 37.02 4,955,442,460 452,595,040 37.87 4,525,950,400 Total 1,338,738,735 100.00 13,387,387,350 1,195,302,442 00.00 11,953,024,420

* Mr. Salman F Rahman is a Sponsor as well as a Director of the Bank. However, his shares are shown against Directors’ Category. ** The Government is representing in the Board of the Bank by nominating 03 (Three) Directors and as such, Sponsors & Directors are at present holding 38.67% shares of the Bank.

Shareholding status (%) : 2018 Shareholding status (%) : 2017

Sponsors 3.92 6.48 2.00 2.00 Directors

32.75 Government 33.73 37.02 Institutions 32.75

Foreign Investors 0.70 1.80

General 22.51 24.34 Investors

108 IFIC Bank I Annual Report 2018 Five Years Performance

Key Financial Data and Indicators BDT in million Particulars 2018 2017 2016 2015 2014 Financial Position Authorized capital 20,000 20,000 20,000 20,000 20,000 Paid-up capital 13,387 11,953 5,638 5,034 4,377 Reserves and Surplus 8,729 8,586 7,202 6,620 6,251 Shareholders’ equity 22,116 20,539 12,840 11,654 10,628 Deposits 226,333 200,206 160,155 146,820 129,746 Borrowings 9,969 8,474 5,827 7,201 5,621 Subordinated debt 3,500 3,500 3,500 - - Other liabilities 21,155 20,531 14,728 12,659 10,344 Total liabilities 260,957 232,710 184,210 166,680 145,711 Total Liability and Shareholders’ Equity 283,073 253,249 197,051 178,334 156,339 Cash and cash equivalents 28,077 29,932 23,076 17,572 23,892 Loans and advances 206,930 179,264 137,118 123,269 102,282 Investments 31,304 27,858 25,205 28,498 22,845 Fixed assets 5,438 3,528 3,488 3,230 2,929 Other Assets 11,325 12,666 8,164 5,765 4,390 Total assets 283,073 253,249 197,051 178,334 156,339 AD ratio 86.83% 85.04% 81.64% 83.96% 78.83% Total off-balance sheet items 60,436 58,620 52,602 47,779 47,824 Interest earning assets 245,250 216,239 166,860 151,499 132,838 Non-interest earning assets 37,823 37,010 30,191 26,835 23,501 Financial Performance Interest income 18,965 14,924 12,557 12,653 11,858 Interest expenses 14,405 9,432 8,182 8,907 8,467 Net interest income (NII) 4,560 5,492 4,375 3,746 3,392 Non-interest income 4,441 4,270 4,111 4,291 4,204 Investment income 2,358 2,071 2,077 2,375 2,377 Administrative expenses 5,106 5,348 5,066 4,391 4,423 Operating profit 3,895 4,414 3,420 3,646 3,173 Provision for loans and assets 1,035 2,038 1,336 2,031 496 Profit before tax 2,859 2,377 2,084 1,615 2,677 Current tax 1,080 750 700 950 1,290 Deferred tax expense/(income) 209 (441) 170 (222) (158) Provision for Tax 1,289 309 870 728 1,132 Profit after tax 1,570 2,068 1,214 887 1,545 Trade Business Import 101,642 97,908 92,927 87,307 85,326 Export 98,257 88,677 94,410 96,080 89,894 Remittance (Inward) 22,827 19,569 21,335 22,537 18,762

109 IFIC Bank I Annual Report 2018 Particulars 2018 2017 2016 2015 2014 Capital Measure Risk weighted assets (RWA) 213,011 191,773 150,523 117,314 111,574 Common Equity Tier 1 Capital 20,877 18,875 11,609 10,508 9,695 Tier-2 Capital 6,026 5,239 5,318 1,305 1,613 Regulatory Capital 26,904 24,114 16,928 11,813 11,308 Common Equity Tier 1 to RWA 9.80% 9.84% 7.71% 8.96% 8.69% Tier 2 Capital to RWA 2.83% 2.73% 3.53% 1.11% 1.45% Capital to Risk-weighted Asset Ratio (CRAR) 12.63% 12.57% 11.25% 10.07% 10.14% Assets Quality Non-performing loans (NPLs) 12,740 11,478 7,251 7,962 5,061 Provision for loans and advances 5,954 5,909 4,677 4,030 3,521 NPLs to total loans and advances 6.16% 6.40% 5.29% 6.46% 4.95% Share Information Number of shares outstanding 1,339 1,195 564 503 438 Number of shareholders 41,721 44,421 31,569 35,949 44,444 Market price per share 10.9 18.0 20.9 21.2 26.1 Operating profit per share 2.91 3.69 6.07 7.24 7.25 Earnings per share 1.17 1.54 1.38 1.57 3.07 Stock Dividend 10.00% 12.00% 12.00% 12.00% 15.00% Dividend coverage ratio (times) 1.17 1.44 1.79 1.47 2.35 Market capitalization 14,592 21,515 11,784 10,672 11,425 Net asset value (NAV) per share 16.52 15.34 22.77 23.15 24.28 Price earnings ratio (times) 9.29 8.92 15.18 13.48 8.51 Profitability Ratio (%) Return on average assets (RoA) 0.6% 0.9% 0.7% 0.5% 1.1% Return on average equity (RoE) 7.4% 12.4% 9.9% 8.0% 15.7% Net interest margin on average earning assets 2.0% 2.9% 2.7% 2.6% 2.8% Return on Advances 9.8% 9.6% 10.0% 11.9% 13.4% Cost of fund 5.3% 4.2% 4.2% 5.3% 5.9% Administrative cost 1.9% 2.4% 2.7% 2.6% 3.1% Cost to income ratio 56.7% 54.8% 59.7% 54.6% 58.2% Operating profit per employee (million) 1.52 1.76 1.35 1.46 1.26 Liquidity Ratio (%) Cash reserve ratio (CRR) 5.8% 6.7% 6.6% 6.4% 6.6% Statutory liquidity ratio (SLR) 15.0% 15.6% 15.0% 18.4% 16.7% Other information (Figure in Number) Number of employees 2,556 2,512 2,536 2,489 2,527 Number of branches 147 141 134 129 120 Number of correspondent banks 440 475 500 497 471 Number of ATMs 93 88 72 59 50 Number of deposit account 776,867 819,350 760,634 667,785 544,198 Number of loan account 41,301 36,624 27,968 34,414 33,056

110 IFIC Bank I Annual Report 2018 Five Years Graphical Presentation

Deposits Loans and Advances 226,333 200,206 6 206,930 179,264 160,155 146,820 137,118 129,74 123,269 102,282 BDT in million BDT in million

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Total assets Shareholders' equity 22,116 283,073 9 20,53 9 n 253,249 197,051 178,334 12,840 11,654 156,33 10,628 BDT in million BDT in millio

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Interest Income Interest Expenses

18,965 14,405 14,924 12,653 12,557 11,858 8,907 9,43 2 8,46 7 8,18 2 BDT in million BDT in million

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Net interest Income Non-interest Income 4,44 1 5,49 2 4,56 0 4,37 5 4,291 4,27 0 3,74 6 3,39 2 4,20 4 4,11 1 BDT in million BDT in million

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Administrative Expenses Operating Proﬁt 5,34 8 5,10 6 5,06 6 4,41 4 4,391 3,89 5 3,646 4,42 3 3,42 0 3,17 3 BDT in million BDT in million

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

111 IFIC Bank I Annual Report 2018 Proﬁt before Tax Provision for Taxation 1,289 1,132 2,859 2,677 870 2,377 2,084 728 1,615 309 BDT in million BDT in million

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Proﬁt after Tax Regulatory Capital 26,904 2,068 24,114 1,570 1,545 16,928 1,214 11,813 11,308 887 BDT in million BDT in million

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Capital Adequacy Ratio Earnings Per Share 12.63% 12.57% 11.25 % 10.14% 10.07% 3.07 1.57 1.5 4 1.38 In % 1.1 7 Figure in BDT

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Net Asset Value Per Share Price Earning Ratio 15.18 13.4 8 24.28 23.15 22.77 11.6 5 9.29 16.5 2 8.5 1 15.34 In Times Figure in BDT

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

112 IFIC Bank I Annual Report 2018 Dividend Return on Equity 15.7% 15.00% 12.00% 12.00% 12.00% 12.4% 10.00% 9.9% 8.0% In % 7.4% In %

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Return on Assets Cost of Fund 1.1% 5.9% 0.9% 5.3% 5.3% 4.2% 4.2% 0.7% 0.6% In % 0.5% In %

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Return on Advances AD Ratio 86.83 % 85.04 % 83.96% 13.4% 81.64 % 11.9% 78.83% 10.0% 9.8 % 9.6% In % In %

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Cost to Income Ratio NPL Ratio 6.46% 59.7% 6.40% 6.16% 58.2% 56.7 % 5.29% 54.8% 54.6% 4.95 % In % In %

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

113 IFIC Bank I Annual Report 2018 Market Price Information

Monthly High, Low & Close price and volume of Company’s shares traded on Dhaka Stock Exchange Ltd. (DSE) and Chittagong Stock Exchange Ltd. (CSE) during the year 2018:

DSE CSE Total Volume on Month Closing Closing High Low Volume High Low Volume DSE & CSE Price Price January’18 18.20 16.60 16.60 24,621,992 18.30 16.50 16.80 2,390,246 27,012,238 February’18 17.70 15.60 15.80 17,321,381 17.40 15.70 15.90 1,353,052 18,674,433 March’18 16.30 13.70 14.90 18,523,831 16.40 13.70 14.90 1,653,306 20,177,137 April’18 16.40 14.80 15.10 29,310,115 16.70 14.80 15.00 3,105,325 32,415,440 May’18 15.40 12.40 12.70 13,383,235 13.40 12.50 12.70 1,634,929 15,018,164 June’18 13.40 12.60 12.70 13,383,235 13.40 12.50 12.70 1,634,929 15,018,164 July’18 12.80 10.80 10.90 23,546,450 12.90 10.90 10.90 2,722,436 26,268,886 August’18 13.10 10.90 12.50 36,902,117 13.10 11.00 12.60 2,833,093 39,735,210 September’18 12.60 10.70 10.90 21,400,326 12.60 10.80 10.90 1,652,699 23,053,025 October’18 11.40 10.20 10.60 22,844,549 11.40 10.30 10.60 1,826,789 24,671,338 November’18 11.10 10.20 10.30 17,926,286 10.90 10.20 10.40 1,125,019 19,051,305 December’18 11.20 10.30 10.90 11,222,626 11.20 10.20 11.00 1,456,024 12,678,650

20.00 20.00 18.00 18.00 16.00 16.00 14.00 14.00 12.00 12.00 10.00 CSE High 10.00 DSE High 8.00 8.00 CSE Low 6.00 6.00 DSE Low 4.00 CSE Closing 4.00 DSE Closing 2.00 Price 2.00 Price 0.00 0.00 July’18 July’18 May’18 May’18 June’18 June’18 April’18 April’18 March’18 March’18 August’18 August’18 January’18 January’18 October’18 October’18 February’18 February’18 December’18 December’18 November’18 November’18 September’18 September’18

DSE Volume CSE Volume January’18 January’18 February’18 February’18 March’18 March’18 April’18 April’18 May’18 May’18 June’18 June’18 July’18 July’18 August’18 August’18 September’18 September’18 October’18 October’18 November’18 November’18 December’18 December’18

114 IFIC Bank I Annual Report 2018 Financial Calendar

Although Bank makes all-out effort to observe the below mentioned dates, all the future dates are provisional and subject to change. 21 April 2019 Compliance under Listing Regulation 19(1) 29 April 2019 Approval of audited Financial Statements for the year ended 31 December 2018 29 April 2019 Disclosure on Price Sensitive Information 23 May 2019 Record Date for 42nd Annual General Meeting 30 May 2019 Notice for 42nd Annual General Meeting 04 July 2019 42nd Annual General Meeting 3rd week of July 2019 10% Stock Dividend distribution for the year 2018 14 May 2019 Announcement of first quarter (Q1) financial results Last week of July 2019 Announcement of second quarter (Q2) financial results Last week of October 2019 Announcement of third quarter (Q3) financial results

Other Information Stock Details

Particulars DSE CSE Stock Symbol IFIC IFIC Company Code 11103 22010 Listing Year 1986 1997 Market Category A A Electronic Share Yes Yes Face Value (BDT) 10.00 10.00 Market Lot (number) 1 1 Total Number of Securities 1,338,738,735 1,338,738,735 Redressal of Investors’ Complaints

Investors are warmly treated at IFIC. Complaints received from the investors are handled promptly with utmost care to mitigate/resolve the issues at the earliest.

Availability of Annual Report 2018 and Information about IFIC Annual Report 2018 and other information about IFIC Bank may be viewed on Bank’s website at www. ificbank.com.bd. Copies of Annual Report 2018 also submitted to the Bangladesh Securities and Exchange Commission, Bangladesh Bank, Dhaka Stock Exchange Ltd., Chittagong Stock Exchange Ltd. and the Registrar of Joint Stock Companies & Firms.

Investors’ Inquiries All correspondences with regard to share matters and other related issues to be made to the following address:

The Company Secretary IFIC Bank Limited Head Office : IFIC Tower, 61 Purana Paltan, Dhaka-1000 IP Phone No. 09666716250, Ext. 122, Fax No. 02-9554102

115 IFIC Bank I Annual Report 2018 Glimpses of the 41st AGM

Honourable Chairman addressing the shareholders in the 41st Annual General Meeting

Shareholders’ attendance

116 IFIC Bank I Annual Report 2018 Welcoming the Honourable Chairman of the Bank

Distribution of Attendance Slip

Shareholders’ Registration

117 IFIC Bank I Annual Report 2018 Market Discipline - Disclosures on Risk Based Capital (Under Pillar III of Basel III Framework)

For the year ended 31 December 2018 objective of the company is to carry on the Consolidated Basis business of stock brokers/ dealers in relation to shares and securities dealings and other services Background as mentioned in the Memorandum and Articles of Association of the company. The operation of the In order to make the bank’s capital adequacy company started on 10 March 2011. assessment more risk sensitive and to abide by the 2. IFIC Money Transfer (UK) Limited: IFIC Money international norms and practices, Bangladesh Bank Transfer (UK) Limited was incorporated as took the initiative to implement Basel–III framework. a private limited company with Companies Banks in Bangladesh went live under Basel–III since House in England and Wales under registration 01 January, 2015. These disclosures under Pillar III of no. 07379137 on 16 September 2010. The Basel III are made following ‘Guidelines on Risk Based company is a wholly owned subsidiary of IFIC Capital Adequacy (RBCA) - Revised Regulatory Bank Limited. IFIC Bank Limited got permission Capital Framework for banks in line with Basel III’ for from Bangladesh Bank for opening a fully owned banks. These quantitative and qualitative disclosures subsidiary in UK. IFIC Money Transfer (UK) are intended to complement the Minimum Capital Limited obtained Money Laundering registration Requirement (MCR) under Pillar I and Supervisory on 17 January 2011 issued by HM Customs and Review Process (SRP) under Pillar II of Basel III. The Excise. The company got registration from purpose of these disclosures is to present relevant Financial Services Authority (FSA) on 16 June information on the adequacy of capital in relation to 2011 under Payment Services Regulations 2009. overall risk exposures of the Bank so that the market The company commenced its operation on 31 participants can assess the position and direction of August 2011. The registered office is located the Bank in making economic decisions. at Ferrari House, 2nd Floor, 102 College Road, Harrow, Middlesex, United Kingdom HAI IES, A) Scope of Application London, UK. Qualitative Disclosures Brief Description of the Joint Ventures/ Associates (a) The name of the top corporate entity in the group of the Bank to which this guidelines applies. 1. Nepal Bangladesh Bank Limited: Nepal The Risk Based Capital Adequacy and related Bangladesh Bank Limited (NBBL) was disclosures are applicable for “International Finance incorporated in Nepal and registered with Office Investment & Commerce Bank Limited” (known as of Company Registrar (50-050/051, Dated IFIC Bank Limited) which is the top corporate entity January 14, 1994) as a public company limited by of the group. shares. NBBL was established as a joint venture (b) An outline of differences in the basis of bank with IFIC Bank Ltd., Bangladesh. The Bank consolidation for accounting and regulatory started its banking business form 6th June 1994. purposes, with a brief description of the entities IFIC’s investment in the share capital of NBBL is within the group (a) that are fully consolidated; (b) 40.91%. that are given a deduction treatment; and (c) that are 2. Oman Exchange LLC: Oman Exchange LLC neither consolidated nor deducted (e.g. where the (OE), an exchange company incorporated investment is risk-weighted) under the laws of the Sultanate of Oman having Brief Description of the Subsidiaries its registered office is Hamriya, PO Box 114, Post code 994, Hey Al Mina, Hamriya, Muscat, 1. IFIC Securities Limited: IFIC Securities Limited, Sultanate of Oman. It was established in 1985 a fully owned subsidiary company of IFIC Bank as a joint venture between IFIC Bank Limited Limited was incorporated as a Public limited and Oman Nationals, to facilitate remittance by company in Bangladesh on 2 November 2010 Bangladeshi wage earners in Oman. IFIC Bank vide certificate of incorporation no. C-87904/10 holds 25% shares and the balance 75% is held by having registered office at IFIC Tower, 61 the Omani sponsors. Purana Paltan, Dhaka-1000, Bangladesh. It acquired membership of Dhaka Stock Exchange Brief Description of Off-shore Banking Unit: Off- Limited for brokerage transaction vide Security shore Banking Unit (OBU) is a separate business Exchange Commission certificate no. 3.1/DSE- unit of IFIC Bank Limited. Bank obtained permission 192/2009/316 dated 1 January 2009. The main for OBU operations from Bangladesh Bank vide

118 IFIC Bank I Annual Report 2018 its letter no. BRPD (P-3) 744 (104)/2009-4233 Capital is further subdivided into (a) Common Equity dated 17 November 2009. The unit commenced its Tier 1 (CET1) and (b) Additional Tier 1. Total eligible operation from 19 May 2010. Presently the Bank has regulatory capital of IFIC Bank Limited consists of 01 (one) Off-shore Banking Unit in Bangladesh. The partly CET1 Capital and partly Tier-2 Capital. The OBU is governed under the rules and regulations of CET1 Capital of the bank comprises Paid-up Capital, Bangladesh Bank. Statutory Reserve, General Reserve and Retained Earnings. Paid-up Capital of the Bank is already Basis for Consolidation The quantitative disclosures are made on the basis above the minimum requirement of BDT 4,000.00 of consolidated audited financial statements of the Million as per the directives of Bangladesh Bank. In bank and its subsidiaries as at and for the year ended addition, Tier-II Capital includes General Provision, December 31, 2018. The consolidated financial Sub-ordinated Bond and Revaluation Reserve of statements have been prepared in accordance with Fixed Assets and Securities (up to 50 percent). Bangladesh Accounting Standards 27: Separate Banks are required to maintain a capital conservation Financial Statements and Bangladesh Financial buffer of 1.875% during the year 2018, above the Reporting Standards 10: Consolidated Financial regulatory minimum capital requirement of 10%. Statements. The consolidated financial statements No distribution of capital (i.e. paying dividends or are prepared to a common financial year ended bonuses in any form) is allowed in case capital level 31 December 2018. All intra-group transactions, falls within the range between 10.00% to 11.875%. balances and any unrealized income and expenses However, the bank will be able to conduct business as arising from intra-group transactions are eliminated normal. Capital conservation buffer is applicable both in preparing consolidated financial statements. at the solo level as well as at the consolidated level. Unrealized losses are eliminated in the same way as As per the Bangladesh Bank instructions contained unrealized gain, but only to the extent that there are in BRPD letter No. BRPD (BFIS) 661/14B(P)/2015- no evidence of impairment. 18014 dated 24 December 2015, Deferred Tax (c) Any restrictions, or other major impediments, Assets arising out of Specific Provision on Classified on transfer of funds or regulatory capital within the Loans is allowable to a maximum of 5% as Common group. Equity Tier-1 Capital (CET-1) while calculating CET-1 as per Basel III. During the year one of the associate/joint venture namely Nepal Bangladesh Bank Limited has decided Non-convertible Sub-ordinated Bond to increase their paid up capital through issuance In the year 2016, the Bank issued 07 (seven) of Rights Issue to comply with minimum capital years Tier-II Non-Convertible Coupon Bearing requirement of their Central Bank. IFIC Bank Limited Subordinated Bonds to several banks. The issued being one of the sponsor shareholder has already instrument is un-secured, non-convertible in nature rd, 4th, 5th, 6th obtained permission to subscribe in the said Rights and will be redeemed at the end of 3 and 7th year of maturity at 20% of bond value Issue and necessary remittance has been done respectively. as per approval of Bangladesh Bank. In all cases any Transfer of funds or regulatory capital can be This subordinated bond has been rated by CRAB performed as per approval and/or directives of the as AA3 (Hyb) in Long Term category with ‘Stable’ regulatory bodies. outlook valid up to 28 June 2019 which is judged to be of very high quality, subject to very low credit risk. Quantitative Disclosures A total interest of BDT 271.08 Million was paid on 29 (d) The aggregate amount of surplus capital May 2018 and 29 November 2018 as fourth and fifth of issuance subsidiaries (whether deducted or semi-annual coupon payment at the rate of 8.49% subjected to an alternative method) included in the and 7.00% p.a. respectively. capital of the consolidated group. Not Applicable Quantitative Disclosures (b) The amount of Regulatory capital, with separate disclosure of: B) Capital Structure CET1 Capital Qualitative Disclosures (a) Summary information on the terms and conditions Particulars BDT in million of the main features of all capital instruments, Fully Paid-up Capital 13,387.39 especially in the case of capital instruments eligible Statutory Reserve 5,696.42 for inclusion in CET 1, Additional Tier 1 or Tier 2. Under Basel-III capital adequacy framework, total General Reserve 155.07 regulatory capital of a bank are categorized into two Retained Earnings 4,267.06 tiers: (1) Tier 1 Capital (going-concern capital), and CET1 Capital Total [A] 23,505.94 (2) Tier-2 Capital (gone-concern capital). The Tier 1

119 IFIC Bank I Annual Report 2018 Particulars BDT in million Approach and summed-up to determine total Risk Weighted Assets and thereafter the Minimum Additional Tier 1 Capital [B] Nil Capital Requirement (MCR). The Bank assesses the Total Tier 1 Capital [C]=[A]+[B] 23,505.94 capital requirement considering the existing size of portfolio, concentration of portfolio to different General Provision 2,514.59 risk weight groups, asset quality, profit trend etc. on Subordinated Debt 3,500.00 quarterly rest. The Bank also forecasts the adequacy of capital in terms of its capacity of internal capital Revaluation Reserves as on generation, maintaining the size of the portfolio, 31 December 2014 asset quality, conducting credit rating of the (50% of Fixed Assets and 58.45 borrowers, segregation of portfolio to different risk Securities) weight groups etc. Tier 2 Capital Total [D] 6,073.04 IFIC Bank has maintained Capital to Risk-weighted Asset Ratio (CRAR) of 12.99% as on 31 December 2018, whereas Minimum Capital Requirement (MCR) (c) Regulatory Adjustments/Deductions from capital is 11.875% from 01 January 2018 as per BRPD circular No.18 dated 21 December 2014. The Bank Particulars BDT in million has thus maintained excess capital of 1.115% above Deferred tax assets (DTA)[1] 1,110.44 the minimum requirement of 11.875%. However, the Bank is continuously evaluating its capital position Revaluation Reserves for Fixed in comparison to its risk weighted asset’s position Assets, Securities & Equity 46.76 and exploring ways and means to raise capital both Securities (Phase-in deductions) internally and externally. Regulatory Adjustments/ Quantitative Disclosures Deductions from capital [E] 1,157.19 (d) Total eligible capital Particulars BDT in million 28,421.79 [F]=[C]+[D]-[E] (b) Capital requirement for Credit Risk C) Capital Adequacy On-Balance Sheet 21,526.52 Qualitative Disclosures Off-Balance Sheet 2,682.43 (a) A summary discussion of the bank’s approach to assessing the adequacy of its capital to support Total 24,208.95 current and future activities. (c) Capital requirement for According to BB Guidelines, IFIC Bank is assessing Market Risk Risk Based Capital Adequacy under Basel-III from Interest Rate Related 59.97 01 January 2015. Under Basel-III framework the Instruments capital requirement is determined for Credit Risk and Market Risk under Standardized Approach Equities 194.68 and Operational Risk under Basic Indicator Foreign Exchange Position 32.86 Approach and summed-up to determine total Risk Weighted Assets and thereafter the Minimum Commodities Nil Capital Requirement (MCR). The Bank assesses the Total 287.51 capital requirement considering the existing size of portfolio, concentration of portfolio to different (d) Capital requirement for 1,485.82 risk weight groups, asset quality, profit trend etc. on Operational Risk quarterly rest. The Bank also forecasts the adequacy of capital in terms of its capacity of internal capital (e) Total capital, CET1 capital, Total Tier 1 capital generation, maintaining the size of the portfolio, and Tier 2 capital ratio: asset quality, conducting credit rating of the borrowers, segregation of portfolio to different risk • For the consolidated group Ratios weight groups etc. Total Capital 12.99% According to BB Guidelines, IFIC Bank is assessing CET1 Capital 10.24% Risk Based Capital Adequacy under Basel-III from 01 January 2015. Under Basel-III framework the Total Tier 1 Capital 10.24% capital requirement is determined for Credit Risk Total Tier 2 Capital 2.75% and Market Risk under Standardized Approach and Operational Risk under Basic Indicator • For stand alone Ratios

120 IFIC Bank I Annual Report 2018 • For the consolidated group Ratios expiry date for repayment or after the demand by the bank will be treated as past due/overdue Total Capital 12.63% from the following day of the expiry date; CET1 Capital 9.80% iii. In case of any installment(s) or part of Total Tier 1 Capital 9.80% installment(s) of a Fixed Term Loan is not repaid within the fixed expiry date, the amount of unpaid Total Tier 2 Capital 2.83% installment(s) will be treated as past due/overdue from the following day of the expiry date. (f) Capital Conservation Buffer iv. The Short-term Agricultural and Micro-Credit As per Bangladesh Bank Transitional Arrangements if not repaid within the fixed expiry date for for implementation of Basel III, creation of Capital repayment will be considered past due/overdue Conservation Buffer (CCB) has been made effective after six months of the expiry date. However, from 1 January 2016, 2017, 2018 and 2019 at 0.625%, a continuous loan, demand loan or a term loan 1.25%, 1.875% and 2.50% respectively above the which will remain overdue for a period of 02 (two) regulatory minimum capital requirement of 10%. The months or more, will be put into the “Special minimum total capital plus CCB for the year 2018 is Mention Account (SMA)”, the prior status of 11.875%. becoming the loan into impaired/classified/ (g) Available Capital under Pillar 2 Requirement nonperforming. Definition of impaired / classified /non-performing Particulars BDT in million loans and advances are as follows: Total Eligible Regulatory Capital 28,421.78 Continuous loan is classified as follows: [A] Substandard: If it is past due /overdue for 3 (three) Minimum Capital Requirement 21,879.81 months or beyond but less than 6 (six) months; under Pillar 1[B] Doubtful - If it is past due / overdue for 6 (six) months C a p i t a l C o n s e r v a t i o n B u f f e r [ C ] [ 1 ] 4,102.46 or beyond but less than 9 (nine) months; Minimum Capital Requirement 25,982.27 Bad/Loss - If is past due / overdue for 9 (nine) months including CCB[D=B+C] or beyond. Available Capital for Pillar 2 2,439.50 Demand loan is classified as follows: [E=A - D] Substandard - If it remains past due / overdue for 3 (three) months or beyond but not over 6 (six) months D) Credit Risk from the date of expiry or claim by the Bank or from the date of creation of forced loan; Qualitative Disclosures Doubtful - If it remains past due / overdue for 6 (six) (a) The general qualitative disclosure requirement months or beyond but not over 9 (nine) months from with respect to credit risk, including: the date of expiry or claim by the Bank or from the Definitions of past due and impaired (for accounting date of creation of forced loan; purposes). Bad/Loss - If it remains past due / overdue for 9 (nine) As per relevant Bangladesh Bank guidelines, the months or beyond from the date of expiry or claim by Bank defines the past due and impaired loans and the Bank or from the date of creation of forced loan. advances for strengthening the credit discipline and Fixed Term Loans are classified are as follows: mitigating the credit risk of the Bank. The impaired loans and advances are defined on the basis of (i) In case of any installment(s) or part of installment(s) Objective/ Quantitative Criteria and (ii) Qualitative of a Fixed Term Loan is not repaid within the due judgment. For this purpose, all loans and advances date, the amount of unpaid installment(s) will be are grouped into four (4) categories, namely- (a) termed as ‘past due or overdue installment’. In case Continuous Loan (b) Demand Loan (c) Fixed Term of Fixed Term Loans: - Loan and (d) Short-term Agricultural & Micro Credit. Substandard - If the amount of past due installment Definition of past due/overdue: is equal to or more than the amount of installment(s) due within 03 (three) months, the entire loan will be i. Any Continuous Loan if not repaid/renewed classified as ‘’Sub-standard’’. within the fixed expiry date for repayment or after the demand by the bank will be treated as Doubtful - If the amount of past due installment is past due/ overdue from the following day of the equal to or more than the amount of installment(s) expiry date; due within 06 (six) months, the entire loan will be classified as ‘’Doubtful”. ii Any Demand Loan if not repaid within the fixed

121 IFIC Bank I Annual Report 2018 Bad/Loss - If the amount of ‘past due installment is Short-term Agricultural and Micro-Credit is classified equal to or more than the amount of installment(s) as follows: due within 09 (nine) months, the entire loan will be The Short-term Agricultural and Micro-Credit will classified as ‘’Bad/Loss’’. be considered irregular if not repaid within the due Fixed Term Loans are classified are as follows: date as stipulated in the loan agreement. If the said In case of any installment(s) or part of installment(s) irregular status continues, the credit will be classified of a Fixed Term Loan is not repaid within the due as ‘Substandard ‘ after a period of 12 months, as date, the amount of unpaid installment(s) will be ‘Doubtful’ after a period of 36 months and as ‘Bad/ termed as ‘past due or overdue installment’. In case Loss’ after a period of 60 months from the stipulated of Fixed Term Loans: - due date as per the loan agreement. Description of approaches followed for specific and Substandard - If the amount of past due installment is equal to or more than the amount of installment(s) general allowances and statistical methods due within 03 (three) months, the entire loan will be The Bank is following the general and specific classified as ‘’Sub-standard’’. provision for loans and advances/investments on the basis of Bangladesh Bank guidelines issued from Doubtful - If the amount of past due installment is equal to or more than the amount of installment(s) time to time (please refer to Annexure - I). due within 06 (six) months, the entire loan will be Discussion of the bank’s credit risk management policy classified as ‘’Doubtful”. The Board approves the credit policy, credit exposure Bad/Loss - If the amount of ‘past due installment is limits and credit risk management policy keeping equal to or more than the amount of installment(s) in view relevant Bangladesh Bank guidelines to due within 09 (nine) months, the entire loan will be ensure best practice in credit risk management and classified as ‘’Bad/Loss’’. maintain quality of assets. Authorities are properly delegated ensuring checks and balance in credit In case of any installment (s) or part of installment (s) operation at every stage, i.e. screening, assessing of a Fixed Term Loan amounting up-to Taka 10 lacs risk, identification, management and mitigation of is not repaid within the due date, the classification is credit risk as well as monitoring, supervision and as under: recovery of loans with provision of early warning Substandard - If the amount of past due installment system. There is a separate credit risk management is equal to or more than the amount of installment division for dedicated credit risk management, (s) due within 6 (six) months, the entire loan will be separate credit administration division for ensuring classified as ‘Sub- standard’; perfection of securities and credit monitoring Doubtful - If the amount of past due installment is and recovery division for monitoring and recovery equal to or more than the amount of installment (s) of irregular loans. Internal control & compliance due within 9 (nine) months, the entire loan will be division independently assess the quality of loans classified as ‘Doubtful’; and compliance status of loans at least once in a year. Bad/Loss -If the amount of past due installment is Quantitative Disclosures equal to or more than the amount of installment (s) due within 12 (twelve) months, the entire loan will be (b) Total gross credit risk Please refer to classified as ‘Bad/Loss’. exposures broken down Annexure – II. by major types of credit In case of any installment (s) or part of installment (s) exposure. of a Fixed Term Loan amounting up-to Taka 10 lacs is not repaid within the due date, the classification is (c) Geographical distribution of Please refer to as under: exposures, broken down in Annexure – III. significant areas by major Substandard - If the amount of past due installment types of credit exposure. is equal to or more than the amount of installment (s) due within 6 (six) months, the entire loan will be (d) Industry or counterparty Please refer to classified as ‘Sub- standard’; type distribution of Annexure – IV. exposures, broken down Doubtful - If the amount of past due installment is by major types of credit equal to or more than the amount of installment (s) exposure. due within 9 (nine) months, the entire loan will be classified as ‘Doubtful’; (e) Residual contractual Please refer to maturity breakdown of the Annexure – V. Bad/Loss -If the amount of past due installment is whole portfolio, broken equal to or more than the amount of installment (s) down by major types of due within 12 (twelve) months, the entire loan will be credit exposure. classified as ‘Bad/Loss’.

122 IFIC Bank I Annual Report 2018 (f) By major industry or Please refer to reasons; and counterparty type: Annexure – VI. Differentiation between holdings of equities for ¨¨ Amount of impaired capital gain and those taken under other objectives loans and if available, is being clearly identified. Investment in equity past due loans, provided securities is broadly categorized into two parts: separately i. Quoted Securities (Common or Preference Shares & Mutual Fund) that are traded in the Particulars BDT in million secondary market (Trading Book Assets) through the organization itself or other Portfolio Manager. • Specific and general provisions Investment in quoted shares/securities are Specific provision 3,439.33 revalued at the end of the reporting period. General provision 1,970.05 ii. Unquoted securities are categorized as banking book equity exposures which are further sub- • Charges for specific allowances divided into two groups: unquoted securities and charge-offs during the period which are invested without any expectation Specific provision 612.99 that these will be quoted in near future, i.e. held to maturity (HTM), and securities those are General provision 287.28 acquired under private placement or IPO and are going to be traded in the secondary market (g) Non-Performing Assets ( after completing required formalities. Unquoted BDT in Million NPAs): securities are valued at cost. Gross non-performing assets 12,740.13 The equity positions are reviewed periodically by the (NPAs) senior management. Non-Performing Assets (NPAs) to 6.16% Discussion of important policies covering the Outstanding Loans & advances valuation and accounting of equity holdings in the banking book. This includes the accounting Movement of Non-Performing techniques and valuation methodologies used, Assets (NPAs) including key assumptions and practices affecting Opening balance 11,477.88 valuation as well as significant changes in these practices. Additions 15,163.27 Important policies covering equities valuation and Reductions (13,901.02) accounting of equity holdings in the Banking Book Closing balance 12,740.13 are based on the use of the cost price method for valuation of equities. The primary aim is to invest Movement of specific provisions in these equity securities for the purpose of capital for NPAs gain by selling them in the future or held for dividend Opening balance 3,594.11 income. Dividends are recognized in Profit and Loss Account only when the Bank’s right to receive Provisions made during the 612.99 payment of the dividend is established, it is probable period that the economic benefits associated with the Write-off (933.47) dividend will flow to the Bank and the amount of the dividend can be measured reliably. Both Quoted and Write-back of excess provisions Nil Un-Quoted equity securities are initially recognized Provision transferred to general Nil at cost and necessary provisions are maintained if the reserve prices fall below the cost price after comparing with their fair value. As per to Bangladesh Bank guidelines, Closing balance 3,439.33 the HFT equity securities are revalued once in each week using marking to market concept. However E) Equities: Disclosures for Banking equity investment in associates/joint ventures are Book Positions initially recognized at cost and provision is maintained if cost is higher than lower of market value and net Qualitative Disclosures assets value of that investee as per instruction of (a) The general qualitative disclosure requirement Bangladesh Bank. Preference is given to purchase with respect to equity risk, including: of shares of strong companies at face value through placement/ IPO. Important policies covering equities Differentiation between holdings on which capital valuation and accounting of equity holdings in the gains are expected and those taken under other Banking Book are based on the use of the cost price objectives including for relationship and strategic

123 IFIC Bank I Annual Report 2018 method for valuation of equities. The primary aim is Qualitative Disclosures to invest in these equity securities for the purpose of (a) The general qualitative disclosure requirement capital gain by selling them in the future or held for including the nature of IRRBB and key assumptions, dividend income. Dividends are recognized in Profit including assumptions regarding loan prepayments and Loss Account only when the Bank’s right to and behavior of non-maturity deposits, and receive payment of the dividend is established, it is frequency of IRRBB measurement. probable that the economic benefits associated with Interest Rate Risk is managed through the use of the dividend will flow to the Bank and the amount Gap analysis of rate sensitive assets and liabilities of the dividend can be measured reliably. Both and monitored through prudential limits and stress Quoted and Un-Quoted equity securities are initially testing. The IRRBB is monitored in movements/ recognized at cost and necessary provisions are changes on a monthly basis and the impact on Net maintained if the prices fall below the cost price after Interest Income is assessed. Interest rate risk is comparing with their fair value. As per to Bangladesh the risk where changes in market interest rates Bank guidelines, the HFT equity securities are might adversely affect a bank’s financial condition. revalued once in each week using marking to market Changes in interest rates affect both the current concept. However equity investment in associates/ earnings (earnings perspective) as well as the net joint ventures are initially recognized at cost and worth of the bank (economic value perspective). provision is maintained if cost is higher than lower of Re-pricing risk is often the most apparent source market value and net assets value of that investee of interest rate risk for a bank and is often gauged as per instruction of Bangladesh Bank. Preference is by comparing the volume of a bank’s asset that given to purchase of shares of strong companies at mature or re-price within a given time period with face value through placement/ IPO. the volume of liabilities that do so. The short term Quantitative Disclosures impact of changes in interest rates is on the bank’s (b) Value disclosed in the balance sheet of investments, Net Interest Income (NII). In a longer term, changes as well as the fair value of those investments; for in interest rates impact the cash flows of the assets, quoted securities, a comparison to publicly quoted liabilities and off-balance sheet items, giving rise share values including mutual funds where the share to a risk to the net worth of the bank arising out of price is materially different from fair value all re-pricing mismatches and other interest rate sensitive position. The ALCO formulates the policy Particulars In million BDT and strategy depending on the market conditions to Cost price of quoted shares 922.11 maximize Net Interest Income. Quantitative Disclosures Fair value of quoted shares 749.56 (b) The increase (decline) in earnings or economic Decrease in value 172.55 value (or relevant measure used by management) (c) The cumulative realized gains for upward and downward rate shocks according (losses) arising from sales and to management’s method for measuring IRRBB, 4.88 liquidations in the reporting broken down by currency (as relevant). period. Please refer to Annexure – VII. (d) • Total unrealized gains (losses) 307.81 G) Market Risk Qualitative Disclosures • Total latent revaluation gains Nil (losses) (a) Views of BOD on trading/investment activities The trading/investment activities in the IFIC Bank • Any amounts of the above Nil Limited are managed cautiously so that maximum included in Tier 2 capital. returns are obtained without taking undue risks. (e) Capital requirements broken down by appropriate The Board approves all policies related to market equity groupings, consistent with the bank’s risk, set limits and review compliance on a regular methodology, as well as the aggregate amounts and the basis. The objective is to provide cost effective type of equity investments subject to any supervisory funding to finance asset growth and trade related provisions regarding regulatory capital requirements. transactions. Market risk is the possibility of losses of assets in the balance sheet and off-balance sheet Capital Charge on Equities In million BDT positions arising out of volatility in market variables i.e., interest rate, exchange rate and price. Allocation S p e c i fi c R i s k 97.34 of capital is required in respect of the exposure to General Market Risk 97.34 risks deriving from changes in interest rates and equity prices in the bank’s trading book, in respect Total 194.68 of exposure to risks deriving from changes in foreign

124 IFIC Bank I Annual Report 2018 exchange rates and commodity price in the overall Policy of the Bank as approved by the Board ensures banking activity. effective management of the Market Risk through a well-structured Treasury function which includes The market risk covers the followings risks of the a Front Office, Mid Office and Back Office andan Bank’s balance sheet: ALCO body. The aim of the Market Risk Management i. Interest rate risk System is to minimize the impact of losses on ii. Equity price risk earnings due to market fluctuations. iii. Foreign exchange risk; and Policies and processes for mitigating market risk iv. Commodity price risk The policy contains sound Portfolio management Methods used to measure Market risk procedures and best practices such as minimizing risks through diversification of portfolio. Policy The Bank uses the Standardized (rule based) Approach for managing Market Risk has been set out by to calculate the Market Risk for Trading Book the Board of Directors of the Bank where clear Exposures. The total capital requirement in respect instructions have been given to Loan Deposit Ratio, of market risk is the aggregate capital requirement Whole Sale Borrowing Guidelines, Medium Term calculated for each of the risky sub-categories. For Funding, Maximum Cumulative Outflow, Liquidity each risk category minimum capital requirement is Contingency Plan, Local Regulatory Compliance, measured in terms of two separately calculated capital Recommendation/ Action Plan etc. Furthermore, charges for ‘specific risk’ and ‘general market risk’. special emphasis has been put on the following Maturity Method has been prescribed by Bangladesh issues for mitigating market risk: Bank in determining capital against market risk. SS Interest Rate Risk Management: Treasury In the maturity method, long or short positions in Division reviews the risks of changes in income debt securities and other sources of interest rate of the Bank as a result of movements in market exposures, including derivative instruments, are interest rates. In the normal course of business, slotted into a maturity ladder comprising 13 times- the Bank tries to minimize the mismatches bands (or 15 times-bands in the case of low coupon between the duration of interest rate sensitive instruments). Fixed-rate instruments are allocated assets and liabilities. Effective Interest Rate Risk according to the residual term to maturity and Management is done as under: been put on the floating-rate instruments according to the residual following issues for mitigating market risk: term to the next re-pricing date. i. Market Analysis: Market analysis over interest In Standardized (rule based) Approach the capital rate movements are reviewed by the Treasury requirement for various market risks (interest rate Division of the Bank. The type and level of risk, price, and foreign exchange risk) are determined mismatch interest rate risk of the Bank are separately. managed and monitored from two perspectives, The total capital requirement in respect of market being an economic value perspective and an risk is the sum of capital requirement calculated for earnings perspective. each of these market risk sub-categories. e.g. ii. Gap Analysis: ALCO has established guidelines i. Capital Charge for Interest Rate Risk = Capital in line with the central Bank’s policy for the Charge for Specific Risk + Capital Charge for management of assets and liabilities, monitoring General Market Risk; and minimizing interest rate risks at an acceptable level. ALCO in its regular monthly ii. Capital Charge for Equity Position Risk = Capital meeting analyzes Interest Rate Sensitivity by Charge for Specific Risk + Capital Charge for computing GAP i.e. the difference between Rate General Market Risk; Sensitive Assets and Rate Sensitive Liability and iii. Capital Charge for Foreign Exchange Risk = take the decision of enhancing or reducing the Capital Charge for General Market Risk; GAP according to the prevailing market situation Capital Charge for Commodity Position Risk = Capital aiming to mitigate interest rate risk. charge for General Market Risk. SS Foreign Exchange Risk Management: Risk Market Risk Management System arising from potential change in earnings resulted from exchange rate fluctuations, adverse The Asset Liability Management Policy of the exchange positioning or change in the market Bank as approved by the Board ensures effective prices are considered as Foreign Exchange Risk. management of the Market Risk through a well- Treasury and International Division manage this structured Treasury function which includes a Front risk in the following fashion: Office, Mid Office and Back Office and an ALCO body. The aim of the Market Risk Management System is i. Continuous Supervision: The Bank’s Treasury to minimize the impact of losses on earnings due to Division manages and controls day-to-day market fluctuations.The Asset Liability Management trading activities under the supervision of ALCO

125 IFIC Bank I Annual Report 2018 that ensures continuous monitoring of the level H) Operational Risk of assumed risks. Treasury Division monitors the foreign exchange price changes and Back Office Qualitative Disclosures of the Treasury Division verifies the deals and (a) Views of BOD on system to reduce Operational passes the entries in the books of account. Risk ii. Treasury Back Office separated from the IFIC Bank manages its operational risk by identifying, Treasury Front Office: Treasury Back Office is assessing, monitoring, controlling and mitigating conducting its operation in separate locations the risk, rectifying operational risk events and apart from the Treasury Front Office. Treasury implementing any additional procedures required for Back Office is responsible for currency compliance with regulatory requirements. Operational transactions, deal verification, limit monitoring risk management responsibilities are assigned to the and settlement of transactions independently. senior management. Internal auditors are assigned Treasury Back Office gathers the market rates for recording, identification and assessment of from an independent source other than dealers operational risks and to prepare reports for the Audit of the same organization, which helps to avoid Committee. any conflict of interest. Operational risk is defined as the risk of loss resulting iiii. Mark-to-Market Method for Approved from inadequate or failed internal processes, Securities and Foreign Exchange Revaluation: people and systems or from external events. This All foreign exchange reserves and balances along definition includes legal risk, but excludes strategic with approved securities are revalued at Mark- and reputation risk. It is inherent in every business to-Market method according to Bangladesh organization and covers a wide spectrum of issues. Bank’s guidelines. Such valuations are made The Board of Director (BOD) of the Bank and its after a specific time interval as prescribed by Management firmly believe that this risk through Bangladesh bank. a control based environment in which processes iv. Nostro Accounts: Nostro accounts are see documented, authorization as independent maintained by the Bank with various currencies and transactions are reconciled and monitored. and countries. These Accounts are operated by This is supported by an independent program of the International Division of the Bank. All Nostro periodic reviews undertaken by internal audit, and by accounts are reconciled on a monthly basis. The monitoring external operational risk events, which management reviews outstanding entry beyond ensure that the group stays in line which industry 30 days for settlement purpose. best practice and takes account or lessons learned from publicized operational failures within the SS Equity Risk Management: Equity Risk is the risk financial services industry. of loss due to adverse changes in the market price of equities held by the Bank. Equity Risk is The BOD has also modified its operational risk managed by the following fashion: management process by issuing high level standards, supplemented by more detailed formal guidance. i. Investment Portfolio Valuation: Mark-to-Market This explains how the bank manages operational risk valuations of the share investment portfolio by identifying, assessing, monitoring, controlling and are followed in measuring and identifying risk. mitigating the risk, rectifying operational risk events, Mark-to-Market valuation is done against a and implementing any additional procedures required predetermined cut loss limit. for compliance with local regulatory requirements. ii. Diversified Investment to minimize Equity Risk: The Bank maintains and tests contingency facilities IFIC minimizes the Equity Risks by Portfolio to support operations in the event of disasters. diversification as per investment policy of the Bank. Additional reviews and tests are conducted in the event that any branch of the bank is affected by a Margin Accounts are monitored very closely: business disruption event, to incorporate lessons Where Margin loan is allowed, security of investment, learned in the operational recovery from those liquidity of securities, reliability of earnings and risk circumstances. Plans have been prepared for the factors are considered and handled professionally. continued operation of the bank’s business, with Quantitative Disclosures reduced staffing levels. Operational risk loss data are collected and reported (b) The capital requirements for In million BDT to the senior management. Identifying, monitoring Interest rate risk 59.97 and recording of fraud, irregularities, unauthorized works, system breakdown, etc. are done by the Equity position risk 194.68 Management and details of the untoward incidents Foreign exchange risk 32.86 are reported to the Bank’s Audit Committee. Commodity risk Nil Performance gap of executives and staffs

126 IFIC Bank I Annual Report 2018 Human Resources Development is focused on SS Damage to assets: Potential for loss or damage recruitment and in-house training for both on the to physical assets and other property from job and off the job. IFIC Bank Training Academy, natural disaster and other events. the oldest institution in the private sector, was SS Safety and security: Potential for loss or damage conceived of as an in-house training center to take to health or safety of staff, customers or third care of the training needs of the Bank internally. parties arising from the effects of external The academy is fully equipped with a professional events. library, modern training aids and professional faculty. The library has a huge number of books on banking, SS External financial crime: Potential for loss due economics, accounting, management, marketing to criminal acts by external parties such as fraud, and other related subjects. Main training activities theft and other criminal activity. consist of in-depth foundation programs for entry SS Political condition and general business: IFIC’s level Management Trainees. Specialized training performance greatly depends on the general programs in the areas like general banking, advance, economic conditions of the country. The effect foreign exchange, marketing and accounts etc. are of recession is still unfolding which may result also organized by the Academy depending on need. to slow down in business environment. Political Frequently outreach programs are organized to stability is must for growth in business activities. meet demand for new and specialized skills. SS Credit quality of borrowers: Risk of deterioration During its many years of existence, the Academy not of credit quality of borrowers is inherent in only conducted courses, workshops and seminars as banking business. This could result due to the required by the Bank, but it also organized training global economic crisis and supply side distortion. programs for the Bank of Maldives, Nepal Bangladesh The changes in the import prices affected the Bank Limited (NBBL) and Oman International commodity sectors and ship breaking industry. Exchange LLC. In addition, the Academy has also A deterioration in credit quality requires the credit of organizing system of Bank of Maldives. provisioning. In addition to conducting courses internally, The Academy also selects candidates for nomination to SS Basel-III implementation: Basel-III is fully various courses conducted by distinguished training effective from 2015 and IFIC needs to be organizations in the country, including Bangladesh complied with respect to credit risk management, Bank Training Academy and Bangladesh Institute of its supervision and establishment of effective Bank Management. The Academy also re-designs internal control. The grading of the borrowers its courses, programs, etc., regularly to meet the and its link with the capital required may slow requirement of new skills arising out of various down the credit expansion. The establishment directives, guidelines of the Central Bank and of effective control requires more investment in significant changes in the banking sector from time technology and operating expenses are likely to to time. increase. Performance goals are most often attained by SS Equity markets Volatility: The Bangladesh executives and staffs with a few exceptions. Every Securities and Exchange Commission and the organization needs to effectively manage its human stock exchanges improved their supervisory role, resources to get the maximum contribution from its but the equity market is still volatile. If volatility employees. continues it is likely to affect the performance of the bank. Potential external events SS Changes in market conditions: Changes in Losses from external events, such as a natural market conditions, particularly interest rates on disaster that damages a firm’s physical asset or deposits and volatility in the foreign exchange electrical or telecommunications failures that market are likely to affect the performance of disrupt business, are relatively easier to define than the bank. Depositors are becoming increasingly losses from internal problems, such as employee price sensitive and any unilateral upward change fraud and product flaws. It is needless to say that by a bank will exert pressure on the interest rate there are certain risk factors which are external in structure of the banking sector. It is feared that nature and can affect the business of the Bank. The wage earners remittances may decline due to fall factors discussed below can significantly affect the in job opportunity in international market. Unless business: offset by export performances, there may be SS External rules and regulations: Potential for pressure in the foreign exchange market. actual or opportunity loss due to failure to comply SS The litigation risk: In the ordinary course of with laws or regulations, or as a result of changes business, legal actions, claims by and against the in laws or regulations or in their interpretation or bank may arise. The outcome of such litigation application. may affect the financial performance of the bank.

127 IFIC Bank I Annual Report 2018 Policies and processes for mitigating operational risk In line with the provisions of liquidity risk management The Operational Risk Management Policy adopted under Basel III, Bangladesh Bank has identified the (i) by the Bank outlines organizational structure and Liquidity Coverage Ratio (LCR); (ii) Net Stable Funding detailed processes for management of operational Ratio (NSFR); and (iii) Leverage under the purview risk. The basic objective of the policy is to closely of ‘Liquidity’ ratio vide BRPD Circular No. 18 dated integrate operational risk management system into 21 December 2014 and DOS Circular No. 1 dated 1 day-to-day risk management process of the bank January 2015. The Board of Directors (BOD) reviews by clearly assigning roles in effectively identifying, the liquidity risk of the Bank on quarterly rest while assessing, monitoring and controlling and mitigating reviewing the Quarterly Financial Statements, Stress operational risk. Operational risks in the Bank Testing Report etc. ALM Policy Guideline approved are managed through a comprehensive and well- and revised time to time by the Board of Directors. articulated internal control frameworks. An overview on liquidity position and liquidity ratios are submitted annually to the BOD and the BOD Approach for calculating capital charge for approve the strategic plan for managing optimum operational risk liquidity. The Board always strives to maintain The Bank follows the Basic Indicator Approach (BIA). adequate liquidity to meet up Bank’s overall funding The BIA stipulates the capital charge for operational need for the depositors, borrowers’ requirements as risk is a fixed percentage, denoted by (alpha) of well as maintain regulatory requirements comfortably. average positive annual gross income of the Bank over the past three years. It also statesα that if the Methods used to measure Liquidity risk annual gross income for any year is negative or zero, The maintenance of Cash Reserve Requirement that should be excluded from both the numerator (CRR) and Statutory Liquidity Ratio (SLR) are and denominator when calculating the average considered as the fundamental methods/tools to gross income. The capital charge for operational risk measure the liquidity position/risk of IFIC Bank. is enumerated by applying the following formula: However, under Basel III, the following methods and tools are mandated for measuring the liquidity risk. K = [(GI1 + GI2 + GI3) × ] / n Where: SS Liquidity Coverage Ratio (LCR): Liquidity α Coverage Ratio ensures to maintain an adequate K = the capital charge under the Basic Indicator level of stock of high quality liquid assets that Approach can be converted into cash to meet its liquidity GI = only positive annual gross income over the needs (i.e. total net cash outflows) over the next previous three years (i.e., negative or zero gross 30 calendar days. income if any shall be excluded) SS Net Stable Funding Ratio (NSFR): Net Stable = 15 percent Funding Ratio aims to limit over-reliance on short-term wholesale funding during times of n = number of the previous three years for which α abundant market liquidity and encourage better gross income is positive. assessment of liquidity risk across all on- and off- Besides, Gross Income (GI) is calculated as “Net balance sheet items. The minimum acceptable Interest Income” plus “Net non-Interest Income”. value of this ratio is 100 percent, indicating The GI is also the net result of: that, available stable funding (ASF) should be at least equal to required stable funding (RSF). ASF i. Gross of any provisions; consists of various kinds of liabilities and capital ii. Gross of operating expenses, including fees paid with percentage weights attached given their to outsourcing service providers; perceived stability. RSF consists of assets and iii. Excluding realized profits/losses from the sale of off-balance sheet items, also with percentage securities held to maturity in the banking book; weights attached given the degree to which they are illiquid or “long-term” and therefore requires iv. Excluding extraordinary or irregular items; stable funding. v. Excluding the income derived from insurance. In addition to the above, following measures have been Quantitative Disclosures put in place to monitor the liquidity risk management position of the Bank on a continued manner: i) Asset- (b) The capital requirements for operational risk: Liability Maturity Analysis (Liquidity profile); ii) Whole BDT 1,485.82 Million sale borrowing capacity; and iii) Maximum Cumulative Outflow (MCO). Besides, following tools are also used I) Liquidity Ratio for measuring liquidity risk: i) Stress Testing (Liquidity Stress); and ii) Net open position (NOP) limit - to Qualitative Disclosures monitor the FX funding liquidity risk. (a) Views of BOD on system to reduce liquidity Risk Liquidity risk management system

128 IFIC Bank I Annual Report 2018 At the management level of IFIC Bank Limited, the SS To maintain Advance-to-Deposit Ratio (ADR): liquidity risk is primarily managed by the Treasury The business of the Bank is forecasted based Division (Front Office) under oversight of Asset on the current loan, investment and funding Liability Committee (ALCO) which is headed by strategies, and anticipated funding need. the Managing Director along with other senior SS To maintain LCR: Liquidity coverage is management. Treasury Division (Front Office) upon maintained by- reviewing the overall funding requirements on daily basis sets their strategy to maintain a comfortable/ i. Increasing investment in T-bills, BGTB, BB Bill, adequate liquidity position taking into consideration Reverse Repo of Bank’s approved credit deposit ratio, liquid assets ii. Additional investment in Govt. Security shall be to total assets ratio, asset-liability maturity profile, made in short/mid/long combination to meet Bank’s earning/profitability as well as overall market liquidity as well as optimize the return behavior and sentiment etc. Apart from the above, Basel Unit also monitors & measures the liquidity iii. Balance in FC Accounts with BB to be increased risk in line with the Basel III liquidity measurement iv. Deposit from FIs and Borrowing are to be reduced tools, namely, LCR, NSFR, Leverage Ratio. The and replaced by increasing Customer Deposit, unit addresses the key issues and strategies to and maintain the Basel III liquidity ratios to the respective v. Lending/Placement with FI should be more division(s) on regular interval. preferable than lending to others. Policies and processes for mitigating liquidity risk SS To maintain NSFR: Stable Funding is maintained The Asset-Liability (ALCO) policy leads the process & by increasing Capital, increasing stable customer procedures for mitigation of liquidity risk of IFIC Bank. Deposits, increasing Mortgage Loan and Lending ALCO works under specific Terms of References having 50% risk weight, decreasing Investment approved by the Board. Treasury Division (Front in Capital Market, and controlling growth of Fixed Office) and ALM desk under regular supervision Assets. of Top Management reviews the overall liquidity Quantitative Disclosures position of IFIC Bank and takes appropriate strategy, process in line with the industry position for managing (b) Liquidity Ratio In million BDT liquidity risk of the Bank. The general liquidity risk management policies of the bank are as follows: Liquidity Coverage Ratio 118.43%

SS To maintain CRR Net Stable Funding Ratio (NSFR) 1027.66% i. Under the surplus liquidity condition, Treasury Stock of High quality liquid assets 42,669.00 will handle the excess liquidity by providing more Total net cash outflows over the loans, investing the excess liquid fund in highly 36,029.00 next 30 calendar days marketable fixed income securities, and lending to other Banks, Financial Institutions and Reverse Available amount of stable funding 214,084.00 Repo to Central Bank. Required amount of stable funding 198,860.00 ii. The treasury will handle the liquidity shortfall if happened with increasing the core deposit of J) Leverage Ratio the Bank from the depositors for supporting the loans and advances portfolio of the Bank, Qualitative Disclosures and borrowing from other Banks, Financial (a) Views of BOD on system to reduce excessive Institutions and Central Bank. leverage iii. The treasury will assess the level of interbank An underlying cause of the global financial crisis borrowing capacity and raise funds to meet was the build-up of excessive on- and off-balance liquidity from the most reliable sources. sheet leverage in the banking system. In many cases, SS To maintain SLR: Statutory Liquidity banks built up excessive leverage while apparently Requirement (SLR) is maintained as per directives maintaining strong risk-based capital ratios. The of Bangladesh Bank from time to time by way of BOD of IFIC Bank manages leverage risk and are investment in approved securities. conscious to address the risk of excessive leverage in a precautionary manner by taking due account of SS To maintain NOP: The treasury manages the potential increases in the risk of excessive leverage necessary foreign currency required by the Bank caused by reductions of the bank’s own funds by using its own intelligence and skill and they through expected or realized losses, depending on do the following trade- Spot, Forward, Swap, the applicable accounting rules. The BOD primarily Other Foreign Exchange Deals by using different views on the growth of On and Off balance sheet hedging techniques. exposures commensurate with its expected capital

129 IFIC Bank I Annual Report 2018 growth so that the excessive leverage is reduced. Where, Total Exposure = On-Balance Sheet Exposure Within the On-balance components, again, the Board + Off-Balance Sheet Exposure - Total Deduction from emphasizes on the growth of the prime component On and Off-Balance Sheet Exposure/Regulatory i.e. the loans and advances and maintaining good adjustments made to Tier 1 capital asset quality so as to maximize the revenue as well SS On-Balance Sheet Items: The Bank includes as the capacity to generate capital internally (in the items using its accounting balance sheet for the form of retained earnings) to trade-off the excessive purposes of the leverage ratio. Total On balance leverage supposed to be caused by asset growth. sheet exposure can be derived by deducting Policies and processes for managing excessive on ‘Total Specific Provision’ from ‘Total On-Balance and off-balance sheet leverage Sheet Assets’. In order to avoid building-up excessive on- and off- Off-Balance Sheet Items: The Bank calculates the balance sheet leverage in the banking system, a off-balance sheet (OBS) items specified in Credit simple, transparent, non-risk based leverage ratio has Risk chapter (Table 12) of ‘Guidelines on Risk Based been introduced by the Basel Committee. A minimum Capital Adequacy (RBCA) - Revised Regulatory Tier 1 leverage ratio of 3% is being prescribed both Capital Framework for banks in line with Basel III’ at solo and consolidated level. The leverage ratio is under the section of “Risk Weights Off-Balance calibrated to act as a credible supplementary measure Sheet Exposure” by applying a uniform 100% credit to the risk based capital requirements. The leverage conversion factor (CCF). For any commitments that ratio is intended to achieve the following objectives- are unconditionally cancellable at any time by the (a) constrain the build-up of leverage in the banking bank without prior notice, a CCF of 10% is being sector which can damage the broader financial applied. system and the economy, and (b) reinforce the risk Quantitative Disclosures based requirements with an easy to understand and a non-risk based measure. Predominantly, Bank’s (b) Leverage Ratio In million BDT policy is to maintain the Leverage Ratio well above the regulatory requirement. To this end, the striking Leverage Ratio 7.12% components of balance sheet, namely, the deposits On balance sheet exposure 283,089.45 & borrowing, loans & advances, other liquid assets (treasury bills, bonds, fund placements) are analyzed. Off B/S exposure 32,505.56 Measures are taken to contain the growth of overall Total exposure 314,484.57 size of balance sheet considering short term outlook of the industry indicators as well as possible growth of equity (Tier 1 capital) of the Bank on quarterly rest. K) Remuneration With regard to managing the excessive leverage, Qualitative Disclosures the regulatory stance through the monetary policy (a) Information relating to the bodies that oversee initiatives i.e. the scope of expected business potential remuneration. (growth), estimated money supply, inflation, resulting the estimated overall liquidity of the industry as well Name, composition and mandate of the main body as the Bank in particular is also considered. overseeing remuneration. Approach for calculating exposure The Board of Directors sets the remuneration structure. Based on approval of pay package from The Bank follows the accounting measure of the Board, Human Resource Management Division exposure for the leverage ratio. In order to measure disburses remuneration centrally which is supervised the exposure consistent with financial accounts, the by the Management. Bank applies following: External consultants whose advice has been sought, i. On balance sheet, non-derivative exposures the body by which they were commissioned, and in will be net of specific provisions and valuation what areas of the remuneration process. adjustments. No external body/consultants are involved to seek ii. Physical or financial collateral, guarantee or advice. For market research, external data are credit risk mitigation purchased is not allowed to collected informally while setting remuneration reduce on-balance sheet exposure. structure. ii. Netting of loans and deposits is not allowed. A description of the scope of the bank’s remuneration The formula for Leverage Ratio is as follows: policy (eg by regions, business lines), including the extent to which it is applicable to foreign subsidiaries “Leverage Ratio =” and branches. “Tier-1 Capital (considering all regulatory adjustments)” Bank’s remuneration policy governs the IFIC Bank Total Exposure Ltd, IFIC Securities Ltd. for employees regardless of

130 IFIC Bank I Annual Report 2018 cost centers/business lines. Separate remuneration compliance & reputational risk are mostly considered package is practiced in case of foreign subsidiaries. when implementing the remuneration measures for A description of the types of employees considered each employee/group of employee. Financial and as material risk takers and as senior managers, liquidity risks are also considered. including the number of employees in each group. An overview of the nature and type of the key Generally MANCOM members or Strategic measures used to take account of these risks, Management Team (SMT) members are considered including risks difficult to measure (values need not as material risk takers and the grade of Senior Vice be disclosed). President (SVP) and above are considered as senior Performance based remuneration is a justified way managers. to ensure equity in remuneration. The motto of (b) Information relating to the design and structure “Performance Based Remuneration” is to attract of remuneration processes. talented & skilled workforce, increase employee motivation, productivity and reduce employee An overview of the key features and objectives of turnover. remuneration policy. A discussion of the ways in which these measures The remuneration structure of the Bank is primarily affect remuneration. designation wise range based which is designed to be market competitive to attract and retain talents. While evaluating the performance of each employee It is directly linked to the annual performance of annually, all the financial and non-financial indicators an employee. Based on annual performance rating as per pre-determined set criteria are considered; of the employees, yearly increment (Inflationary and accordingly the result of the performance varies adjustment & Performance Pay) is given to the from one to another and thus affect the remuneration employee from the range of 5 percent to 14 percent as well. which is calculated on initial basic salary of each job A discussion of how the nature and type of these grade. measures has changed over the past year and Whether the remuneration committee reviewed the reasons for the change, as well as the impact of firm’s remuneration policy during the past year, and if changes on remuneration so, an overview of any changes that were made. The performance based pay package is offered There is no specific remuneration committee to to the suitable employees based on individual review the policy. Since the remuneration structure performance. This system has been introduced is linked to performance, Management of the Bank to motivate the talented staff and to attract the decides every year to adjust the pay structure with suitable resources. national inflation and individual performance to (d) Description of the ways in which the bank make it more market competitive with the approval seeks to link performance during a performance of the Board of Directors. measurement period with levels of remuneration. A discussion of how the bank ensures that risk An overview of main performance metrics for bank, and compliance employees are remunerated top-level business lines and individuals. independently of the businesses they oversee. Based on Key Performance Indicators (KPI) for the Employees’ remuneration is fully co-related with Bank, Management segregates the target to the individual performance. At the beginning of the individual branches and division which ultimately year, mutually agreed business targets/objectives helps in setting individual KPI at branch and are set for each employee irrespective of place head office level. The most common KPIs are the of posting or cost center and end of the year achievement of loan, deposit and profit target with employee performance is evaluated by immediate the threshold of NPL ratio, cost-income ratio, cost supervisor. The evaluation process is overviewed of fund, yield on loans, provision coverage ratio, by “Performance Evaluation Review Committee”. capital to risk weighted asset ratio (CRAR), ROE, Hence, a fair performance evaluation is ensured that ROA, liquidity position (maintenance of CRR and risk and compliance employees are remunerated SLR) etc. independently of the businesses they oversee. A discussion of how amounts of individual (c) Description of the ways in which current and future remuneration are linked to bank-wide and individual risks are taken into account in the remuneration performance. processes. As part of yearly increment, performance pay An overview of the key risks that the bank takes (Individual performance & bank’s performance) is into account when implementing remuneration adjusted through giving certain percentage load on measures. basic salary to the eligible employees in addition to inflationary adjustment. The business risk including credit/default risk,

131 IFIC Bank I Annual Report 2018 A discussion of the measures the bank will in general (h) Number of employees implement to adjust remuneration in the event that having received a variable 22 performance metrics are weak. remuneration award during the In case of weak performance, the amount of yearly financial year. increment will not insignificant. For instance, Number and total amount of 02 Festival inflationary adjustment is given for ‘average’ and guaranteed bonuses awarded Bonus & Pohela ‘above average’ rating but nothing is adjusted for during the financial year. Boisakh Bonus ‘below average’ rating. for employee (e) Description of the ways in which the bank seek to (Total amount adjust remuneration to take account of longer-term BDT : 10.91 Mill) performance. Number and total amount of A discussion of the bank’s policy on deferral and sign-on awards made during Nil vesting of variable remuneration and, if the fraction of the financial year. variable remuneration that is deferred differs across Number and total amount of employees or groups of employees, a description severance payments made Nil of the factors that determine the fraction and their during the financial year. relative importance. In case of deferred benefits, gratuity amount is relatively increased with longer period based on (i)Total amount of outstanding service tenure. Additionally, provident fund amount deferred remuneration, split is also affected positively with the cumulative into cash, shares and share- BDT in million interest applied on the fund balance. linked instruments and other A discussion of the bank’s policy and criteria for forms. adjusting deferred remuneration before vesting and Cash Nil (if permitted by national law) after vesting through claw back arrangements. Shares Nil Not applicable Share-linked instruments Nil (f) Description of the different forms of variable Other forms Nil remuneration that the bank utilizes and the rationale Total amount of deferred for using these different forms. remuneration paid out in the Nil An overview of the forms of variable remuneration financial year. offered (i.e. cash, shares and share-linked (j) Breakdown of amount of instruments and other forms. remuneration awards for the In Million BDT Variable remuneration is offered in case of yearly financial year to show: increment application. Moreover, bonus may be variable based on approval from the Board. fi xe d a n d v a r i a b l e . 6.67 A discussion of the use of the different forms of deferred and non-deferred. Nil variable remuneration and, if the mix of different different forms used (cash, forms of variable remuneration differs across shares and share linked Nil employees or groups of employees), a description instruments, other forms). the factors that determine the mix and their relative importance (k) Quantitative information about employees’ exposure to implicit (e.g. fluctuations in the value No other variable remuneration except yearly of shares or performance units) and explicit increment which is done based on performance. adjustments (e.g. clawbacks or similar reversals Qualitative Disclosures or downward revaluations of awards) of deferred The quantitative disclosures detailed below covers remuneration and retained remuneration: only senior management and other material risk takers. Total amount of outstanding Not applicable (g) Number of meetings held deferred remuneration by the main body overseeing and retained remuneration remuneration during the N/A* exposed to ex post explicit financial year and remuneration and/or implicit adjustments. paid to its member.

132 IFIC Bank I Annual Report 2018 Total amount of reductions Not applicable Particulars of required provision on Off-balance during the financial year Sheet Exposure due to ex post explicit Acceptances and endorsements 1.00% adjustments. Letters of guarantee 1.00% Total amount of reductions Not applicable during the financial year Irrevocable letters of credit 1.00% due to ex post implicit Bills for collection 1.00% adjustments. Annexure – II: Total gross credit risk exposures SS Management generally oversees remuneration broken down by major types of credit exposure on monthly basis. Annexure – I: Rate of general and specific provision Particulars BDT in million for loans and advances as per Bangladesh Bank Term loan industrial 18,014.36 Guideline Term loan consumer finance 406.15 Rate (%) of Category of Loans & Advances Agricultural loan 3,307.82 provision Term loan women entrepreneur 8.51 General Provision-for Unclassified Term loan-others 52,513.48 Loans and advances (excluding SMA) House building loans 32,118.75 Consumer finance (house building) 1.00% Staff loan 1,616.15 Transport loan 175.13 Small and medium enterprise 0.25% Loan general 3,478.84 Loans to BHs/MBs/SDs share etc. 2.00% Demand loan 5,902.09 Consumer Finance 5.00% Overdrafts 41,966.93 Consumer Finance (card) 5.00% Cash credit 25,608.25 Short Term Agri. Credit and Microcredit 1.00% Credit card finance 218.92 All other unclassified loans 1.00% Loan against trust receipt (LTR) 7,269.61 Lease Finance 399.77 Special Mention Account (SMA) Margin Loan 4,002.66 Small and medium enterprise 0.25% Bills purchased and discounted 12,261.52 House building loan and loan for Off-shore banking unit 1,663.35 professional 2.00% Total 210,932.29 Loans to BHs/MBs/SDs share etc. 2.00% Consumer Finance 5.00% Annexure-III: Geographical distribution of exposures, broken down into significant areas by Consumer finance (card) 2.00% major types of credit exposure Short Term Agri. Credit and Microcredit 1.00% Particulars BDT in million All other unclassified loans 1.00% Dhaka Division 173,663.08 Off-shore banking unit Chattogram Division 18,918.85 Unclassified loans 1.00% Sylhet Division 1,552.60 Specific provision-for Classified Rajshahi Division 6,813.46 Sub-standard 20.00% Khulna Division 4,238.23 Sub-standard- Short term Agri. Credit 5.00% Barishal Division 1,006.18 Doubtful 50.00% Rangpur Division 3,175.72 Doubtful- Short term Agri. Credit 5.00% Mymensingh division 1,564.17 Bad/loss 100.00% Total 210,932.29

133 IFIC Bank I Annual Report 2018 Annexure-IV: Industry or counterparty type Particulars BDT in million distribution of exposures, broken down by major types of credit exposure Over 1 year but not more than 5 years 66,212.88 Particulars BDT in million Over 5 years 31,351.43 Agriculture Industries 4,100.87 198,670.77 Jute Industries 3,409.94 Bill purchased and discounted 12,261.52 Textile Industries 9,634.91 Total 210,932.29 Garments Industries 27,329.64

Chemical and Chemical Products 65.64 Annexure-VI: Impaired and Past Due Loans Cement Industries 493.61 BDT in million Bricks & Ceramic 1,256.96 Status-wise amount of impaired/ Food Products & Processing 6,598.73 Major Type classified loans Total SMA SS DF BL Engineering & Metal 5,503.95 Continuous 361.65 598.82 270.10 3,961.95 5,192.52 Drugs & Pharmaceuticals 836.64 Loan Demand Hospital & Clinics 112.63 478.16 1,523.02 57.87 467.73 2,526.78 Loan Paper & Paper Products Term Loan 10,168.37 1,801.47 300.08 3,711.20 15,981.12 Industries 1,946.99 Other Loan 0.00 26.83 17.54 3.51 47.88 Other Small Industries 10,081.82 Total 11,008.18 3,950.14 645.59 8,144.39 23,748.30 IT Sector 4,531.03 Annexure-VII: Interest Rate Risk in the Banking Other Service Industries 19,672.97 Book Trade & Commerce 28,450.19 (In Million BDT) IFIC Securities Ltd. 4,002.66 CRAR before-shock (%) - 12.63% Transport 380.63 Interest rate stress Minor Moderate Major Construction Firms/Companies 9,350.47 Assumed change in 1.0% 2.0% 3.0% Housing Societies/Companies 19,577.45 interest rate Cold Storage 135.55 Net interest income

impact Consumer Finance - <12 months 4.90 9.80 14.70 Energy 6,884.49 Capital after-shock 26,952.65 27,001.64 27,050.64 Telecommunication 8,805.96 CRAR after-shock Others 2,572.27 (%) 12.65 12.68 12.70 Total 210,932.29 Change in CRAR after-shock (%) 0.02 0.05 0.07 Annexure-V: Residual contractual maturity Repricing impact breakdown of the whole portfolio, broken down by major types of credit exposure Change in the value of the bond portfolio -58.44 -116.88 -175.33 Particulars BDT in million Capital after-shock 26,368.22 25,832.79 25,297.36 On demand 33,896.56 CRAR after-shock (percent) 12.38 12.13 11.88 Up to 1 month 5,233.30 Change in CRAR Over 1 month but not more than after-shock (%) -0.27 -0.55 -0.82 3 months 17,823.89 Overall change Over 3 months but not more than in CRAR (NII and 1 years 44,152.71 repricing impact, %) -0.25 -0.50 -0.75

134 IFIC Bank I Annual Report 2018 Report on Sustainable Finance (Green Banking)

135 IFIC Bank I Annual Report 2018 Report on Sustainable Finance

Green Products of the Bank

IFIC Bank has following Green Products with the aim of providing financial supports for Eco-friendly business activities. An amount of BDT 7,452.72 million was disbursed as Green Finance in 2018. The bank participated in different Green events to showcase bank’s green products.

Product Purpose

Domestic For integrated cow raring & setting up of bio-gas plant. Bio-gas plant For setting up bio-gas plant in existing cattle/poultry farm. For setting up of bio-gas plant in existing cattle/poultry farm & produce Commercial bio-gas plant electricity through gas generator. To meet the financial need for purchasing of 2 cows, construction of shade Vermin compost and for other expenses to produce vermin compost fertilizer for own use/ business purpose. Finance for Brick Kiln To set-up HHK or equivalent technology plant. Efficiency Improvement Projects Conversion of traditional FCK into Improved Zig Zag Brick Kiln 1. To purchase/reinstall of Fire fighting/Fire safety equipments. 2. To Construct/Repair/Reconstruction of overhead and underground water reservoir/tanks. To purchase/reinstall of Fire fighting/Fire safety Finance at Fire Fighting & equipments. Safety Equipment 3. To Construct/Repair/Reconstruction of overhead and underground water reservoir/tanks. 4. To purchase/install water pumps, Sprinkler etc to protect fire incidents.

Awareness Activities Green Finance Disbursemnet IFIC Bank conducted training on SDGs & Financial literacy during the year 2018 for the youth; organised conference on School Banking & participated at “Bankers-SME Women Entrepreneurs 6% Meeting and Display Fair” in 2018. SME Events-2018

94%

IFIC Bank has organised a day long training on “SDGs & Green Industry Financial literacy for youth” for University students with the aim of assisting the National Development Goals & to Project having ETP enlighten the youth with basics of financial literacy.

136 IFIC Bank I Annual Report 2018 Women Entrepreneur Ms. Sharmin Sultana, proprietor of ‘Time World’, Pabna is receiving a cheque of BDT 15 lac from Hon’ble Speaker of national parliament Ms. Shirin Sharmin Chowdhury while Governor of Bangladesh Bank Mr. Fazle Kabir and Deputy Managing Director of IFIC Bank Mr. Md. Nurul Hasnat were present in ‘Bankers-SME Women Entrepreneurs Meeting and Display Fair 2018’ .

Financial Literacy and School Banking Conference at Bhola.

Existing Key Loan Products under SME, Agri & Sustainable Finance:

SL No Name of Product Purpose 1 IFIC-Krishi Shilpo Loan for Agro based Industry 2 IFIC-Shilpo Sohay Loan for Cottage & Micro Industry. 3 IFIC-Shilpo Shongjog Loan for Manufacturing & Service Industry 4 Protyasha Loan for Women Entrepreneurs. 5 IFIC-Prantonari Loan for Grassroots Women Entrepreneurs. 6 Easy Commercial Loan Loan against financial instruments. 7 CHBL Loan for commercial house building. 8 IFIC-Suborno Gram Loan for crops, fisheries & livestock. 9 Sech Soronjam Loan for irrigation instruments. 10 Krishi Soronjam Loan for cultivation instrument. 11 Domestic Bio-gas plant For setting-up Bio-gas plant For setting-up Bio-gas plant to produce electricity through 12 Commercial bio-gas plant gas generator for business purpose. 13 Vermin compost To produce vermin compost To set-up HHK or equivalent technology plant. Finance for Brick Kiln Efficiency 14 Improvement Projects Conversion of trad Conversion of traditional FCK into Improved Zig Zag Brick Kiln Finance at Fire Fighting & Safety 15 Finance for Fire fighting equipment & safety measurement. Equipment

137 IFIC Bank I Annual Report 2018 Report on Risk Management

138 IFIC Bank I Annual Report 2018 Introduction

Banks play an important role in Risk is defined as anything that Another one is ii) Unsystematic the financial system contributing can create hindrances in the risk is due to the influence of to efficient and well-functioning way of achievement of certain internal factors prevailing within transfers of capital and risk objectives. Definitions of risk an organization. Such factors are between those in excess (savers) range from narrow definitions normally controllable from an and those in need (borrowers) - risks to people or machinery organization’s point of view. Risk of money. In this role banks resulting from hazards - to cannot be totally mitigated but it themselves are exposed to risks, wide definitions that see risk is worse effect can be minimized which they have developed risk as any uncertainty of outcome. to certain stage. IFIC Bank has a management practices to handle. There are two types of risks i) comprehensive risk management So, the core business of a bank Systematic risk is due to the processes to identify, evaluate, is to manage risk and provide a influence of external factors on monitor, control and mitigate return to shareholders in line with an organization. Such factors risks and assess the overall the accepted risk profile. are normally uncontrollable from capital adequacy in relation to its an organization’s point of view. risk profile.

Risk Management Structure 1. Risk Management Division including Value at Risk (VaR) control exists and that the analysis are done. Stress testing related returns reflect these Over the past few decades, is being conducted on a regular risks and the capital allocated risk management division basis. to support them. in banking has been passed through different stages. Most Risk management refers to the SS Setting of portfolio objectives specifically, this change took practice of identifying potential and tolerance limits/ place in response to regulators risks in advance, analyzing them parameters for each of the both global and local due to the and taking precautionary steps risks. to reduce/curb the risk. Risk is global financial crisis. This same SS Establishment of strategies an integral part of the Banking is true for IFIC Risk Management and different models Division also. But as the nature business and IFIC Bank’s aim consistent with risk of banking changes over the is to deliver and maximize management policy based next decade, so too will risk shareholders’ value by achieving on IT policy and in house IT management need to evolve. an appropriate trade- off support which can measure, Banks have to conduct their between risk and returns. monitor and maintain business and merely just because The Risk Management Division acceptable risk level of the there is some uncertainty is responsible to ensure the Bank. they cannot just sit back. Risk following: management Division of IFIC is in SS Development of Management the process of knowing what type SS Serving as secretariat of Risk Information System (MIS) of uncertainties are out there so Management Committee of inflow process and data that IFIC can find out what are the the Management. management capabilities to support the Risk steps are there to take against SS Development/review these and be fully prepared for of risk management Management functions of the eventualities. Decisions have policies, methodologies, Bank. to be taken, business needs guidelines, and procedures SS Highlighting of risky portfolios to be conducted as well. Thus for risk Identification, and deficiencies of the IFIC RMD helps to identify risk measurement, risk Bank in timely manner with uncertainties to make informed monitoring, determining recommendations and decisions by the management. acceptance level of risk, suggestions. risk controlling in line with Risk Management Division SS Analyzing data/information the guidelines provided by review and monitor the risks through preparation of Risk continuously of the Banks’ Bangladesh Bank. Management Paper and place Risk Management policies, SS Review and update of all before the Risk Management methodologies, guidelines and risks in a systematic basis as Committee for submission to procedures for risk identification, necessary at least annually, Bangladesh Bank on a regular measurement and acceptance preferably twice a year, basis. level of risk. Various analysis ensuring that adequate

139 IFIC Bank I Annual Report 2018 SS Identifying, evaluating/ SS Analyzing of the bank’s own believes in not ignoring the risks measuring, controlling, resilience capacity towards or believing they can be passed monitoring of major risks in facing financial difficulties of off also. So the objectives have line with Risk Management the Bank. been set accordingly. guidelines provided by SS Undertaking/reviewing of The objective of the Bank is Bangladesh Bank. periodic Stress Testing as per to maximize shareholders SS Reviewing of the assessment Bangladesh Bank Guidelines. wealth by increasing bank of Risk Based Capital business activities within board SS Reviewing of the Bank’s risk Adequacy and oversee determined risk appetite. rating systems to ensure that the capital management they are fit for the purpose Bank is careful of achieving functions of the Bank as per and adequately utilized to this objective in line with the Basel III Accord. control risk in the Bank. interests of all stakeholders while achieving risk management SS Identifying, assessing and SS Recommending appropriate quantifying of key transaction objectives. The prime objective action to mitigate any risks inherent in a given of risk management is trade- other risk through the Risk off between risk and reward transaction to ensure that the Management Committee or quality of the assumptions are in our business portfolio. The to the top management of the purpose of risk management is tested against due diligence bank. carried out by different to identify potential problematic operational business units. 2. Objectives of RMD areas before they occur so that risk handling strategies may be SS Reviewing of market The objective of risk planned and invoked in advance conditions and recommending management in IFIC is not to across the life of the product taking precautionary prohibit or prevent risk taking or project to mitigate adverse measures towards facing activity, but to ensure that the impacts on achieving objectives. abnormal market situation & risks are consciously taken with The Objectives of IFIC is vulnerability of investments of full knowledge, clear purpose mentioned in the following figure: the Bank. and understanding so that it can be measured and mitigated. IFIC

Develop a common understanding of risk across the bank involving every Create Awarenes employee at all levels for pro-actively addressing the risk.

Risk Ownership Establish speciﬁc ownership of risks and control to mitigate the risks.

Ensure all the policies and guidelines for core risks are in practice. It will Control Enforcement ensure control in place to mitigate these risks.

Strategy aligned Finally, RMD is focused in achieving risk mitigation strategy to achieve in Risk Mitigation line with bank’s strategy and target.

Figure 1: IFIC Risk Management Objectives

RMD follows the detail risk and taking various steps for provide a copy to the management process to achieve identification, measurement, Managing Director & CEO for the objectives. monitoring, and control or acknowledgement. mitigation of various existing 3. Scope of RMD SS IFIC entrusts in the RMD the and potential risks. For responsibility of monitoring SS Sound risk management is stronger and updated risk implementation of required the broader scope of RMD. management activities, the There are many circulars, corrective action, related to following tasks are under the objections revealed in the policies, guidelines have been purview of IFIC RMD: issued by regulators and inspections conducted on SS The RMD reports high-risk internal source from time to the basis of the core risk related matters, identified time with a view to ensuring management guidelines. by the management-level proper application of sound SS The RMD determines the risk risk committee, directly to risk management in Bank. appetites on yearly basis for the Board risk management All these ensure building the all possible measurable risk committee, and shall necessary infrastructure areas. These areas include,

140 IFIC Bank I Annual Report 2018 but are not limited to, sector, ¨¨ introduce leverage ratio strategy and objectives set by industry and area- wise loan to serve as a backstop the highest authority of the targets, credit concentration to the risk-based capital institution; among top-20 borrowers, measure; SS The expected payoffs off-balance sheet exposure ¨¨ raise the standards for compensate for the risks as a percentage of total the supervisory review taken; and assets, the annual growth process (Pillar 2); and rate for loans and advances, SS Sufficient capital is available limitations on the percentage ¨¨ Public disclosures (Pillar as a buffer to take risks. of financial liabilities sourced 3) etc. IFIC Bank is tailoring its Risk from the top-10 suppliers, the All Basel related activities are Management Process to its gaps between total assets under the purview of RMD. need and circumstances as per and liabilities in different Bangladesh Bank guideline. 4. Risk Management Process time buckets of the liquidity Hence, managing of risks profile, the gap between Risk Management Process consists of the following six rate-sensitive assets and helps management to arrive at steps: rate-sensitive liabilities desired indicators of profitability in different time buckets, and to avert illogical resource Risk various ratios regarding deployment. IFIC Bank’s risk Identiﬁcation liquid assets, expected management process is based on loss from operational risk, a clear understanding of various These risk appetites are risks, disciplined risk assessment Reporting Risk approved by the Board and measurement procedures Measurement and sent to Department of and continuous monitoring. The Off-Site Supervision (DOS), policies and procedures for risk Bangladesh Bank by the end management are approved by of first quarter of every year. Board of Directors and the Board Planning Risk Measurement SS RMD prepares the stress of Directors has oversight on all testing results and share with the risks assumed by the bank. Bangladesh Bank at given Risk Management Division is to frequency. Risk identify and quantify the overall Aggregation SS Basel refers to risk inherent with the banking business. After are identified and the capital and liquidity Figure 2: Risk Management Process standards prescribed by measured risks we take initiative the Bank for International to minimize the risks and keep it i) Risk Identification within the risk appetite. IFIC Bank Settlements (BIS) to The process of managing risk always monitor and control the promote stability of of the bank starts with the risks. international banking system. identification of potential risks. Bangladesh Bank (BB) Risk management is a discipline Hence, risk identification can circulated ‘Guidelines on Risk at the core of every financial start with the root cause of Based Capital Adequacy’ vide institution and encompasses a problem. Risk sources may BRPD circular no. 18 dated 21 all activities that affect its risk be internal or external to the December 2014 for gradual profile. It involves identification, system that is the target of risk implementation of Basel III measurement, and monitoring, management. IFIC RMD team which started from 01 January controlling and reporting risks to uncover, recognize and describe 2015 in Bangladesh. These ensure that: risks relating to bank’s six core new global regulatory and SS The individuals who take risks and few other categories supervisory standards mainly or manage risks clearly risks (explained later part) by addressed the following understand it. using different processes and it is areas: a continuous process. SS The organization’s risk ¨¨ raise the quality and exposure is within the limits ii) Risk Measurement level of capital to ensure established by the highest banks are better able to Once risks have been identified, authority of the institution; absorb losses on both a they are measured in order to going concern and a gone SS Risk taking decisions are determine their impact on the concern basis; explicit and clear; bank’s profitability and capital. The above-mentioned types ¨¨ increase the risk coverage SS Risk taking decisions are of risks are to be consistently of the capital framework; in line with the business assessed and that is an essential

141 IFIC Bank I Annual Report 2018 prerequisite for successful risk This applies to risks both within and monitored to make sure management. a risk category as well as across whether the risks actually Credit risk assessment different risk categories. incurred lie within the stipulated and measurement in IFIC is Further, approach to manage limits, thus ensuring the capacity calculated on the basis of risks at transaction level– i.e. of bank to bear those risks. possible losses from the credit at branch level where business vi) Reporting portfolio. Potential losses in transactions are undertaken Reporting is the last and the credit business can be – and at aggregate level – i.e. most essential part of the divided into expected losses and sum total of all transactions risk management process. unexpected losses. Expected undertaken at all branches – Depending on the risk categories, losses are derived from the differs. they are reports in different borrower’s expected probability iv) Planning internal and regulatory reports. of default. Unexpected losses These are also placed in different result from deviations in losses Overall risk exposure of IFIC committees to take preventive from the expected loss. Bank is planned in a well- organized manner. Risks are actions as applicable. iii) Risk Aggregation actively managed and controlled Recently Bangladesh Bank has When aggregating risks, it is according to plan. given a guideline to establish important to take into account the risk management process v) Controlling & Monitoring correlation effects which cause a with seven steps and RMD is in bank’s overall risk differing from The risks involved in the banking process to implement it in 2019. the sum of the individual risks. business are properly controlled

Risk Governance Structure

1. Board management that bank’s bank. It is also responsible for IFIC Board is very closely related management that risk implementing risk management with Risk Management Division. management is not an strategies and policies and The board of directors has the impediment to the conduct ensuring that procedures are put ultimate responsibility for the of business and not a mere in place to manage and control risks taken by the bank. So, they supplement to a company’s the risks in accordance with are in focus to enhance corporate overall compliance program but those policies keeping in view governance and make valuable is, instead, an integral component the strategic direction and risk contributions to the prudent of the company’s strategy, culture appetite specified by board. and value generation process. management of the institution. 3. Committees of Risk Board is providing optimal risk 2. Senior Management Management oversight at IFIC by ensuring the Senior management A Board-approved organogram following functions: is responsible for the of the risk management division SS Establish the risk appetite implementation of risk policies. is there. The Chief Risk Officer They ensure execution of Board’s (CRO) is at DMD level and not SS Approve bank’s risk management policy strategic direction in all levels of in-charge of the Internal Control the bank. They are to transform and Compliance department, and SS Determine the strategic the strategic directions set by the also form a management-level direction Board into operational policies, risk management committee SS Create an environment for procedures, and processes for with the CRO as the head. Bank effective risk management effective risk management. has appointed FVP as the head establishment The senior management of IFIC of the RMD who is a member of are fully aware of the activities all important committees related SS Oversee governance of risk- to risk. taking in the organization undertaken by the bank that could expose it to various All the committees, where RMD SS Ensure appropriate inclusion risks. They have the necessary is involved, are mentioned below: of risk in compensation policy knowledge and skills to be able i) BRMC SS Oversee and sign-off risk to align the risk levels with the related disclosure. board’s strategies through risk As per Bangladesh Bank guideline, assessment and treatment. IFIC has a strong Board Risk Board has a clearly They ensure that the policies are Management Committee (BRMC). communicated to bank’s embedded in the culture of the All the members have the risk

142 IFIC Bank I Annual Report 2018 oversight of the bank with a clear Management Committee (ERMC) in December 2018. Under both understanding of all types of risks with 12 senior officials of the names, the committee ensured inherent in business lines. They bank. IFIC Top management is to follow all the guidelines regularly take appropriate steps aware of bank’s risk profile on an of Bangladesh Bank for the to ensure continued awareness ongoing basis and updated with committee. of any changes in the level of regularly report it to ERMC for iii) Basel Unit risks. IFIC have 4 members in review. For effective oversight of BRMC. All the directives given by risk management by ERMC, the Basel Unit has supervisory Bangladesh Bank are meticulously members of ERMC is provided committee consist of seven (7) followed by the committee. BRMC with sufficient information and members team headed by CRO. regular approve as well as review they get enabled to understand They have also a working team of the strategies and significant risk the bank’s risk profile, how risks 3 members. In 2018, there took management policies which are are assessed and as well. 4 meetings of the supervisory developed by senior executives. committee. To serve this purpose of BRMC is very much aware of ERMC, members oversee the iv) Supervisory Review Process the nature of risks, significant development, implementation and (SRP) to the bank and for ensuring maintenance of an appropriate that the management is taking SRP has following three layers Management Information System necessary steps to implement (MIS) that identify, measure, ¨¨ Strategic Layer (Risk those strategies and manage monitor and control bank’s Management Committee accompanying risks. various risks. And finally through of the Board (04 BRMC ensures to take place effective communications among Members) bears the minimum once in a quarter. the members of the committee responsibility) But also they sit, as and when provide necessary guidance ¨¨ Managerial Layer (09 required also. In 2018, there took which are mentioned in respective Members headed by CEO) six (6) BRMC meeting against minutes and ensured necessary ¨¨ Operational Layer (Risk the Bangladesh Bank meeting action taken by the concerned Management Division is requirement of four (4). parties. This committee sat every responsible) month during 2018 with the name ii) ERMC of ‘Risk Management Committee This committee has 6 meeting IFIC has its Executive Risk (RMC)” and it names as ERMC during 2018.

Risks handled by IFIC

1. Risk Categories: focused on other material risks core risks and other risks. that have significant impact on IFIC handles its risk management All the risks addressed by IFIC its business activities to achieve activities through managing core Risk Management Division is the goal. Thus we divide all risks in risks identified by the central bank mentioned in the below diagram: of Bangladesh. The bank is also two broad categories, which are

Credit risk Asset-liability risk Foreign exchange risk Core Risks Money laundering risk Information and communication technology risk; and Internal control and compliance risk

Liquidity Risk Interest Rate Risk Other Risks Equity Price Risk Environmental and Social Risk Reputational Risk Compliance Risk

Figure 3: Risk Categories

143 IFIC Bank I Annual Report 2018 Bangladesh Bank has issued credit risk. However, credit Basel-III as well as in order to policy guidelines for prudent risk could stem from both on- keep pace with the changed management of the core risks. balance sheet and off-balance environment of money market, Accordingly, IFIC has formulated sheet activities such as credit cultures, risks diversity & these guidelines and also set own dimension. The bank optimizes policies for the same in line with guarantees. It may arise risk-adjusted return from the BB guideline. A snapshot of all from either an inability or an loan and advance portfolio. So, these risks are given below. unwillingness to perform in to control this credit risk, the the pre-committed contracted bank takes into cognizance A. Core Risks manner. Credit risk comes from a the credit risk inherent in the i) Credit Risk bank’s dealing with households, bank’s entire portfolio as well Credit risk arises from the small or medium-sized as the risks associated with potential that a bank’s borrower enterprises (SMEs), corporate individual credit proposal. The will fail to meet its obligations in clients, other banks and financial bank carefully appraises the accordance with agreed terms, institutions, or a sovereign. relationship between credit risk resulting in a negative effect on IFIC bank formulates its own and other risks while supporting the profitability and capital of the credit risk management its transactions. To manage bank. policy in line with the policy credit risk in a prudent manner, guidelines of Bangladesh the bank forms two committees Generally credits are the largest mentioned below: and most obvious source of Bank, implementation of

Credit Risk Management The committee is empowered to oversee credit risk taking activities Committee (CRMC) and overall credit risk management functions of the bank.

Credit Committee The role of credit committee is restricted to only review of proposals i.e. recommendation or review of bank's loan portfolio.

Figure 4: Credit risk governance committee

IFIC bank has Corporate, SME SS Ensuring adequate controls procedures for individual loans and Retail divisions at head over credit risk. are sound enough, we may have office level and marketing & For effective credit risk high credit risk and/or poor credit sales department at branch management, the bank follows risk management if the loan book level entrusted with the the below principles additionally: is concentrated. Concentration responsibilities of maintaining risk arises when the bank invests effective relations with SS Portfolio Composition its most or all of the assets to customers, marketing credit IFIC bank is focused on home single or few individuals/entities/ products, exploring new business loan financing. However, the sectors/ instruments. opportunities. For ensuring bank is also concurrently Downturn in concentrated proper risk mitigation, the bank exploring opportunities to grow activities and/or areas may cause has following teams: its corporate and retail loan huge losses to the bank relative SS Credit approval segments. The bank’s portfolio to capital and can threaten comprises a variety of products the bank’s health or ability to SS Credit administration; and based on the risk-return trade- maintain its core operations. SS Remedial asset management. off. The different types of Bank’s management always pays All these teams also ensure loans (sectoral loans, industrial attention to the following credit sound credit risk management loans, home loans, auto loans, concentration risk areas: loans for trade & commerce, practices by SS Sector wise exposure construction loan, etc.) have SS Establishing an appropriate uneven risk–return factors and SS Division wise exposure credit risk environment; hence opportunities are pursued (Geographic Concentration) accordingly, also depending upon SS Operating under a sound SS Group wise exposure credit granting process; the prevailing market conditions and industry prospects. SS Single borrower wise SS Maintaining an appropriate exposure credit administration SS Credit Concentration SS Top borrower wise exposure measurement and monitoring Even if the bank’s origination (Top 10-50 borrowers will be process; and administration policies and counted)

144 IFIC Bank I Annual Report 2018 The Board of Director of the bank that accepting some level of measures and monitors the approves risk appetite statement interest rate risk is necessary in Foreign exchange risks. The and sector, division, group, single order to achieve realistic profit bank has formulated a foreign borrower, top borrower wise goals. exchange guideline which has exposure cap to achieve the goal IFIC bank has the asset liability been implemented for managing of the bank. management policy to monitor, foreign exchange risks as per directives of Bangladesh Bank. SS Credit Quality measure and manage the risks associated with the balance The functions of treasury front Credit risk determination office, mid office and back involves review of the borrower’s sheet and protects the bank against any unforeseen losses/ office have been segregated. credit history, income and cash The operational guidelines have flow assessment i.e. the credit threats to survival. The policy is revised to accommodate also been formulated specifying worthiness of the borrowers. the roles and responsibilities The bank has established credit regulatory and organizational changes over time. The bank sets of front, mid and back office so approval system, disbursement that various foreign exchange process, maintaining a robust several liquidity risk indicators that are used to monitor the transactions can be conducted administration & monitoring according to the policy guidelines process and ensuring status of its liquidity position and to achieve the goal: of the Bangladesh Bank and simultaneous control. Marketing the risks can be measured, and sales team at branch level, SS Loan – Deposit Ratio monitored and mitigated. credit team and business team SS Wholesale Borrowing at head office level identify Treasury Front Office: The front Guidelines (WBG) these risks by engaging in office acts as the bank’s interface physical visits across different SS Commitments to international and domestic disbursement phases. These financial market. The front office SS Maximum Cumulative is the center for market risk checks also enforce corporate Outflow (MCO) borrowers to improve their management activities in the environmental and social SS Liquidity coverage ratio (LCR) bank. The front office is the unit that interacts with the market performance while improving SS Net stable funding ratio within the generally approved their credit record. Stressed (NSFR) loans are monitored by risk framework and the authority SS Structural liquidity gap management division, credit given to dealers by the Board of analysis administration and remedial Directors of the bank. asset management division. SS Liquid asset to short-term Treasury Front office ensures the Furthermore, RAM division is deposit following activities to achieve the continuously monitoring the SS Liquid asset to short-term goal: classified & written off loans and liability SS Statutory management recovery against those. Bank’s robust capabilities enable to SS Cash Reserve Requirement SS Optimization of risk return identify, measure, monitor and (CRR) through specialization and control credit risks, thereby SS Statutory Liquidity management enabling a rigorous control Requirement (SLR) SS Funding of the balance sheet on NPLs as well as ensuring at optimum prices that adequate capital against The responsibility of managing these risks is maintained with the asset/liability management SS Proposing interest rate matrix satisfactory compensation procedures is monitored by the to the ALCO Asset-Liability Management against potential losses. SS Analyze various economic Committee (ALCO). ALCO trends and propose ii) Asset-Liability Risk meeting is held once or more in The assets and liabilities of every month to analyze, review SS Balance sheet strategy to the IFIC Bank Ltd. are managed in and formulate strategies in ALCO order to maximize stake holder’s order to manage the assets and SS Quotation of various foreign value, to enhance profitability liabilities of the bank. exchange and interest rates and increase capital, to serve iii) Foreign Exchange Risk to customers customer and community Management SS Dealing in foreign exchange needs, and to protect the bank for position covering as well from any disastrous financial Foreign Exchange risk arises as for own account trading consequences arising from from adverse movements in exchange rates in the market. changes in interest rate/liquidity. SS Various funding activities The Board of Directors believes Treasury Division of the bank through various derivatives

145 IFIC Bank I Annual Report 2018 SS Provide structured treasury Vostro account. developing countries. However, solutions to customer being the principal regulatory Treasury Mid Office: IFIC bank body of banks/ financial SS Remain vigilant for any has an independent mid office institutions, Bangladesh Bank arbitrage opportunities and the mid office is responsible has provided valuable guidance to independently monitor SS Marketing activities for future through guidance notes, policies, measure and analyze risks business growth circulars, circular letters, inherent in treasury operations instructions etc., in compliance SS Record/maintain all foreign of the bank. The mid office with the laws of the land. exchange and money performs risk review function of Treasury Back Office: The day-to-day activities and prepare IFIC’s Board views money market risk exposure and various risk reports to check laundering prevention as part of particularly front office activities whether there is any violation or its risk management strategy are monitored by the back office. not and submit the risk reports to and not simply as a standalone The back office is responsible for the top management. If there is requirement imposed by monitoring of deal confirmation, any violation of activities of TFO legislation. The bank is fully deal settlement, funding to & TBO the mid office informs the committed to condemn money Nostro account, maintenance concerned department to take laundering and terror financing. and reconciliation of Nostro necessary measures. The bank has formulated account etc. Monitoring and Treasury mid office ensures the comprehensive policy on money reporting of all limits including following functions to manage laundering prevention and open positions, counterparty foreign exchange risk in prudent combating terrorist financing settlement, overall limits and manner and to achieve the policies and all these policies portfolio limits are also the organizational goal: are approved by the Board. responsibility of the back office. The management of the bank SS Limits monitoring and Treasury back office performs managing limit always strives to enhance the following functions for bank’s policies, procedures, smooth operation of foreign SS Adherence to various internal systems and technological exchange and to achieve the as well as regulatory policies resources on the guidance of organizational goal: SS Monitoring & management of the Board. The management various foreign exchange and also issues multiple circulars and SS Input, verification and money market positions instructions in compliance with settlement of deals the updated regulations. As part SS Monitoring & management of SS Receiving and sending of deal of bank’s anti-money laundering onfirmation Certificates various cash flows and cash policy, every year, IFIC Bank positions communicates a statement to all SS Preparation of currency SS Proposals/ renewals for employees through the Managing positions (of previous day- various internal limits Director & CEO that clearly sets end) and report to traders forth the way forward for the year prior to mencement of day’s SS Monitor for trader’s and shares the initiatives taken dealings adherence to various internal over the last year pertaining to and regulatory limits SS Reconciliation of currency combating money laundering and positions SS Monitor for trader’s terrorist financing. adherence to various SS Rate appropriateness IFIC bank has a Chief Anti-Money counterparty limits function for all deals done Laundering Compliance Officer SS Prepare, monitor and manage SS Revaluation of all foreign (CAMLCO) and Deputy CAMLCO. exchange positions at a pre- all balance sheet gaps Both of them together ensure determined frequency iv) Money Laundering Risk that the bank is compliant with all AML guidelines. The Branch Anti SS Managing discrepancies and Money Laundering and Terrorist Money Laundering Compliance disputes Financing are major threats to Officer (BAMLCO) is accountable the world’s Financial Service SS Daily calculation for for AML compliance at the adherence to Industry. Money laundering is respective branch. During the thought as a financial crime that year 2018, the bank arranged SS statutory maintenance aims to conceal, misrepresent several training courses on The bank has established a and disguise details with regard prevention of money laundering reconciliation department and to illegal income sources, taking and combating financing of it performs all foreign currency advantage of the vulnerability of terrorism where executives/ reconciliation in the Nostro and the financial institution, mostly in officers of the Bank attended.

146 IFIC Bank I Annual Report 2018 v) Information and SS Ensure continued compliance and abroad as part of awareness Communication Technology with the business objectives, buildup among the employees (ICT) Risk regulatory and legal of the bank and to ensure Information Technology in requirements related to ICT proper ICT risk management. Banks has greatly contributed to security. As the business processes and initiatives are now driven by IT, improve operational efficiency, SS Support to formulate transparency, speed and ICT risk management therefore, the bank continues IT accuracy in banking transactions. framework/process and to up gradation to ensure sound and The customers are benefited by establish acceptable ICT risk secure IT operation. getting a number of options for thresholds/ICT risk appetite vi) Internal Control and doing banking through a different and assurance requirements. Compliance (ICC) delivery channels according to SS Periodic review and provide Good governance and strong their convenience. The business approval for modification in internal control system is people are also getting benefit of ICT security process. the precondition for any faster realization of receivables organization’s development. from their clients and making The Bank has scaled its Internal control is the process, payments to their suppliers technology infrastructure to guided by a company’s Board, instantly and securely through create a contemporary, secure management and other various established payment and robust infrastructure and personnel. Internal control is channels. In line with the key taken several initiatives to designed to provide reasonable trends shaping technology today, protect its information assets assurance regarding the the bank has rolled-out various from cyber threats. IFIC has attainment of objectives in the initiatives leveraging mobility, established its Data Center efficiency of operations and digitalization and innovation in (DC) and Disaster Recovery Site reliability of financial reporting payments technology. (DRS) keeping in mind future expandability to meet emerging and compliance with applicable IFIC strictly adheres to the needs and for high availability. laws, regulations and internal latest guidelines provided by During setup of Data Center, policies. IFIC bank has an Bangladesh Bank regarding ICT environmental security has been internal control policy approved Security. The bank develops provided highest priority. The by board. Internal controls its ICT policies to handles the Core Banking Software (CBS) represent policies/procedures ICT risk properly. ICT policy has been upgraded to its latest established and implemented provides a framework for best release to enhance existing alone, or in coordination with practices that are followed by all features and functionalities and other policies/ procedures, to employees while also ensuring ensure transaction security. control a particular risk/business overall data and information activity, or a combination of risks/ assurance for the organization. The Bank has reviewed its business activities, to which It outlines the responsibilities ICT infrastructure and taken the company is exposed to or and requirements of the bank pragmatic steps to procure state in which it is engaged. A sound and its employees with regards of the art IT Security solutions internal control function plays an to its IT resources. The bank’s (Hardware and Software) for important role in contributing to information security team works implementation of multi-layer the effectiveness of the internal prudently and manages ICT risks. security with multiple security control system. solutions for Network, Mailing To strengthen ICT risk System, Web/ Internet and The primary objective of internal management activities, the the end users devices. The control system of the bank is to bank formed an ICT security Business Continuity Plan (BCP) perform in a sound and prudent committee headed by DMD & and Disaster Recovery Plan manner. Through an effective CRO. The role and responsibility have also been revised. The internal control system, the of this ICT security committee SWIFT payment channel has bank identifies its operational are as follows: been reviewed and restructured weakness and take appropriate measures to overcome the SS Ensure development and through separating its network same. The main objectives of the implementation of ICT connectivity from Office LAN. internal controls are categorized security objectives, ICT Internet access of SWIFT user as follows: security related policies and PCs and file sharing with other procedures. PCs have also been blocked. SS Operational Objectives: It Several training on ICT Security relates to the effectiveness SS Providing ongoing and risk management has been management support to and efficiency of the Bank by arranged throughout the year at the Information security using its assets and others the training institute of the bank processes. resources for achievement of

147 IFIC Bank I Annual Report 2018 the bank’s basic mission and to statutory & regulatory vision. requirement and also bank’s IFIC bank is following the below own policy & procedures. By SS Reporting objectives: It indicators of interest rate risk addresses the preparation enforcing effective and sound analysis & these are calculated of timely, accurately and internal control system, ICC is on regular basis: comprehensive reporting in performing its activity for further SS Net Interest Income both internal and external. improvement of its activities towards achieving the bank’s SS Net Interest Margin SS Compliance Objective: It goal. demonstrates that all banking SS Interest Earning Asset to activities are performed in B. Other Risks Total Assets compliance with applicable i) Liquidity Risk SS Average Interest Rates of rules and regulations of Bank Deposits generally have Loan regulatory bodies, own policy, a much shorter contractual plan and procedures. SS Average Interest Rates of maturity than loans and liquidity Deposit The Internal Control & management needs to provide Compliance (ICC) Division a cushion to cover anticipated SS Value at Risk (VaR) is working independently to deposit withdrawals. Liquidity SS Sensitivity Analysis evaluate the Internal Control is the ability to efficiently SS Maturity profile Analysis System of the Bank so as to accommodate deposit as also ensure good governance, reduction in liabilities and to fund iii) Equity Price Risk transparency & accountability. the loan growth and possible Equity risk is termed as losses The ICC Division is conducting funding of the off-balance sheet incurring from changes in the comprehensive internal audit of claims. The cash flows are placed market price of equity held by a the branches as well as different in different time buckets based bank. To measure and identify the divisions/departments of Head on future likely behavior of risk, mark-to-market valuations Office in ongoing basis. The assets, liabilities and off-balance of the share investment Division reviews the activities sheet items. The bank has portfolios are done. IFIC bank of branch’s Internal Control ALM policy approved by board. has equity exposures and the Unit (ICU) continuously through The treasury, ALCO team and bank is proactively managing the different control processes to dedicated money market team of equity exposures by analyzing minimize irregularities/ lapses, the bank manages liquidity of the of both quoted and unquoted to prevent fraud/ forgery and to bank properly to optimize return shares. The bank always maintain control existing/emerging risks. of the bank. the standard ratio of equity The significant deficiencies ii) Interest Rate Risk investment set by BB. identified by the audit team are placed before the senior Interest rate risk arises when iv) Environmental and Social management as well as the the bank is obliged to pay more Risk Audit Committee of the Board. interest for liabilities but cannot Environmental and climate Audit Committee of the Board charge more on its assets. It is change risk refers to the regularly monitors the functions difficult to eliminate this risk as uncertainty of losses that may of Internal Control & Compliance the re-pricing period of assets originate from any adverse Division with their necessary and liabilities are different. environmental/climate change suggestions/ recommendations However the bank manages its events and/or non-compliance and also reports to the Board of rate sensitive asset and liabilities with prevailing environmental Directors from time to time. in proper way and always try to regulations. IFIC bank is always minimize gap of the rate sensitive Risk Based Internal Audit (RBIA) concentrated on environmental assets and liabilities to manage is being carried out annually for and social changes. Natural interest rate risk. Interest rate risk profiling/risk categorization calamities tend to have a risk, on other way to describe, is of the branches based on the negative impact on the bank’s the potential impact on a bank’s level of its various risks. Strong business. IFIC bank deals with earnings and net asset value due monitoring & close supervision such challenges proactively. to changes in market interest ensure functional efficiency Moreover, additional capital is rates. The bank’s ALCO team of the branches & different allocated as per the bank’s ICCAP continuously monitor market divisions/departments of Head by considering the environmental interest rate and manages Office by maintaining control and social risks. interest rate risk by setting environment at operational interest rate of both asset and v) Reputational Risk level. Compliance culture is liability products. Reputational risk is the possible developed by strict adherence

148 IFIC Bank I Annual Report 2018 loss of the organisation’s sustainability, quality, and governed by local regulations as reputational capital resulting innovation. IFIC is focused here well as creditor covenants. All in decline of the organisation’s as well. the departments of IFIC is having overall value and/or increased significant awareness on this. vi) Compliance Risk: regulatory or other costs. It includes adverse events related The Bank is exposed to to ethics, safety, security, compliance risk given that it is

Disclosure of Risk Reporting

1. Reporting Categories: verify the timeliness, accuracy risk management policies, Risk reporting is a core element. and relevance of these reporting procedures and practices. system and internal controls in The reports fully reflect the RMD of IFIC prepares different general. Reports are analyzed identified problem areas. To regulatory and internal reports. with a view to improve existing ensure the usefulness and Some of them are mentioned risk management performance reliability of these reports, below: management should regularly as well as developing new

Monthly Risk Management Report (MRMR) Comprehensive Risk Management Report (CRMR) Regulatory Reporting Risk Appetite Statement Stress Testing Basel reporting under Pillar I, II, III

Self assessment Questionnaire Internal Reporting Summary of Board Meeting Minutes

Table 1: Reporting Categories i) Monthly Risk Management reporting for managing the core Central Bank and assessment Report (MRMR): The format of risk of the bank and up gradation are carried out on quarterly basis. the report is given by Bangladesh of the same. Regarding MCR calculation Risk Bank which summarizes the Management Division of the iv) Basel reporting under Pillar regular information relevant to bank will perform necessary I, II, III RMD. analysis to understand the trend Pillar – 1: Minimum Capital of MCR of the bank, develop ii) Comprehensive Risk necessary model to predict the Management Report (CRMR): Requirement (MCR) overall MCR of the bank, place This format is also given by The MCR is a Basel prescribed necessary recommendation for Bangladesh Bank. It contains minimum capital assessment improvement. much detail data and its process against credit, market frequency is half-yearly. and operational risk of the bank. The snapshot on Basel report for the year 2018 is presented iii) Internal Core Risk The underlying assessment is a below: Questionnaire: This is an internal mandatory requirement of the

BDT in Million

Particulars Q1 2018A Q2 2018A Q3 2018A Q4 2018

Credit Risk 181,235 191,432 196,028 198,679 Market Risk 2,662 2,739 3,509 2,421 Operational Risk 13,171 13,143 13,143 11,911 Total RWA 197,068 207,314 212,680 213,011 Fully Paid-up Capital 11,953 11,953 13,387 13,387

149 IFIC Bank I Annual Report 2018 Particulars Q1 2018A Q2 2018A Q3 2018A Q4 2018

Other Capital 6,827 7,510 6,607 7,490 Total Common Equity Tier (CET) -1 Capital 18,780 19,463 19,995 20,877 Total Tier-2 Capital 5,229 5,905 6,497 6,026 Total Capital Maintained 24,009 25,368 26,492 26,904 CRAR 12.18% 12.24% 12.46% 12.63% Required Capital in % 11.875% 11.875% 11.875% 11.875% Surplus/(Shortage) in % 0.31% 0.36% 0.58% 0.76% Required Capital in Amount 23,402 24,619 25,256 25,295 Surplus/(Shortage) in Amount 607 749 1,236 1,609

Table 2: Data on Basel Reporting

Pillar – 2: Supervisory Review probable loss of assets. For SS Negative shift in NPL Process (SRP) the said purpose, IFIC Bank categories developed a set of disclosure The Supervisory Review SS Decrease in FSV in collateral Process of the risk-based capital containing the key pieces of SS Increase in NPLs adequacy framework is intended information on the assets, risk to ensure that banks have exposures, risk assessment SS Interest rates processes, and hence the capital adequate capital (in addition to SS FEX: Currency depreciation capital requirement under Pillar- adequacy to meet the risks. 1) to support all the risks in the v) Stress Testing SS Equity shocks business and, concurrently to Bangladesh Bank provides the Stress testing is done assuming encourage banks to develop and specific templates for sensitivity three different hypothetical utilize superior risk management analysis and duration gap scenarios comprising: techniques in monitoring and analysis under stress testing. i) Minor level shocks: The shock managing risk. Importantly the IFIC conducts stress testing that parameters are specific for each Supervisory Review Evaluation presents the effects of several factors and those are set by the Process (SREP) of Bangladesh assumptions applied to measure central bank. Bank ensure a constant dialogue the capital base level in stressed between itself and the bank’s ii) Moderate level shocks: These scenarios. SRP team followed by the visualize medium level shocks disclosure of findings/evaluation IFIC bank conducts stress and the level is defined in each of the bank’s ICAAP. IFIC Bank testing on quarterly basis as per risk factor separately. prescribed format of BB with a has an own ICAAP Policy which iii) Major level shocks: These view to determine sensitivity and was approved by the Board of involve big shocks to all the stability of its capital base. This Directors of the Bank in the 2015. risk factors and is also defined technique is designed to ensure separately for each risk factor. Pillar – 3: Market Discipline that the bank has enough capital The purpose of Market discipline to meet unforeseen scenarios. vi) Risk Appetite Statement in the Revised Capital adequacy The following situations are This is Bangladesh Bank’s Framework is to complement the considered to assess the format report. It defines the risk minimum capital requirements sensitivity of the bank’s capital appetite, risk tolerance and risk and the supervisory review base with respect to each limit that helps to set ultimately process. The aim of introducing situation: the risk strategies. Market discipline in the revised SS Performing loan directly 2. Data Presentation framework is to establish downgraded to BL: top more transparent and more sectoral concentration 1 Under the above mentioned disciplined financial market so report categories, different data that stakeholders can assess SS Performing loan directly is presented. Among them, some the position of a bank regarding downgraded to BL: top major information is shared in holding of assets and to identify sectoral concentration 2 this section through graphical the risks relating to the assets SS Increase in NPLs due to presentation. and capital adequacy to meet default of a large borrower

150 IFIC Bank I Annual Report 2018 Economic Purpose wise Loan Concentration

42.74%

26.88% 20.65%

5.78% 2.00% 0.15% 0.66%1.15%

Agriculture, Industry Trade & ConstructionTransport Consumer Loans to Miscellaneous Fishing, Commerce ﬁnancing ﬁnancial Forestry institutions

Industrial Loan

Service 33.80% RMG 21.84% Other manufacturing/extractive 17.56% Textile 8.09% Power and gas 7.87% Food and allied 7.34% Ship breaking 1.54% Pharmaceutical 0.76% Ship building 0.60% Cement and ceramic 0.56% Chemical, fertilizer, etc. 0.03%

Negative Shift in NPL Categories

12.50% 12.16% 12.02% 11.79% 11.75%

12.00% 11.72% 11.56% 11.37%

11.50% 11.24%

11.00% 10.94% 10.68 % 10.55%

10.50% 10.27 % 10.00% 9.50% 9.00% Mar'18 June'18 Sep'18Dec'18

Minor Mederate Major

151 IFIC Bank I Annual Report 2018 Increase in NPL

14.00% 11.67 % 11.54% 11.38% 12.00% 11.32% 9.34% 9.24% 10.00% 9.21 % 8.98 %

8.00% 5.38 % 5.27 %

6.00% 5.18% 5.03 %

4.00%

2.00%

0.00% Mar'18 June'18 Sep'18Dec'18

Minor Mederate Major

Interest Rate Shock

12.40% 12.30 % 12.23 % 12.20% 12.05% 12.01 % 12.01 %

12.00% 11.96% 11.79% 11.79% 11.78%

11.80% 11.74%

11.60% 11.55% 11.51 %

11.40%

11.20%

11.00% Mar'18 June'18 Sep'18Dec'18 Minor Mederate Major

Foreign Exchange Shock

12.60% 12.54% 12.54% 12.53% 12.50% 12.43% 12.40% 12.40% 12.37 % 12.30% 12.22 % 12.20 % 12.19% 12.17%

12.20% 12.15% 12.13% 12.10% 12.00% 11.90% Mar'18 June'18 Sep'18Dec'18

Minor Mederate Major

152 IFIC Bank I Annual Report 2018 Equity Shock

12.60%

12.40% 12.38 % 12.29 % 12.22 %

12.20% 12.12% 12.07 % 12.01 % 12.00% 11.90% 11.88% 11.83% 11.80% 11.79%

11.60% 11.56% 11.48 % 11.40%

11.20%

11.00% Mar'18 June'18 Sep'18Dec'18

Minor Mederate Major

Total Risk Weighted Asset (BDT in million)

212,680 213,011

215,000 207,314 210,000 205,000 197,068 200,000 195,000 190,000 185,000 Q1 2018A Q2 2018A Q3 2018A Q4 2018A

Total Capital Maintained (BDT in million)

26,904 26,492 27,000 26,500 25,368 26,000 25,500 25,000 24,009 24,500 24,000 23,500 23,000 22,500 Q1 2018A Q2 2018A Q3 2018A Q4 2018A

153 IFIC Bank I Annual Report 2018 CRAR

12.63% 12.46% 12.60% 12.24% 12.40% 12.18%

12.20%

12.00%

11.80% Q1 2018A Q2 2018A Q3 2018A Q4 2018

Concluding Remarks

Risk management in banking so the risk management need management process to support has been transformed and will be evolved accordingly. The the Board member to set the shaped over the past decade. boundary of Risk Management most appropriate risk appetite. The main factor behind the Division is increasing and in line This risk appetite will be in line change is in response to with that IFIC RMD is broadening with the bank’s strategy. Thus regulations that emerged from its role as well. They are getting the ultimate goal, maximizing the global financial crisis. But armed with the right tools and shareholders wealth will be as the nature of the banking human resources to accelerate rightly achieved by IFIC Bank changes over the next decade, the risk discovery as well as risk Limited.

154 IFIC Bank I Annual Report 2018 Corporate Social Responsibility

155 IFIC Bank I Annual Report 2018 Corporate Social Responsibility

Prime Minister Sheikh Hasina receiving a cheque of BDT 5.00 Crore from the Managing Director & CEO, Shah A Sarwar as donation to the Prime Minister’s Relief and Welfare Fund at a program at Ganabhaban

Award recipients posing for a photograph with Bangladesh Bank Governer Fazle Kabir, IFIC Bank Chairman Salman F Rahman and IFIC Bank Managing Director & CEO Shah A Sarwar. Eminent writer Hasan Azizul Huq received the first Sahitya Ratna Sommanona

Donation actvities for the year 2018, are mentioned below: 1. The Bank donated blankets for poor people through Prime Minister’s Relief Fund. 2. The Bank donated to Dhaka University for enhancement as in IFIC Bank Trust Fund. 3. The Bank donated to Rama Pada Bhattacharjee for his treatment of kidney transplantation. 4. The Bank donated to Economic Reporters Forum (ERF) for establishing their office and training institute. 5. The Bank donated to Dinajpur Sreenigmananda Sharosshoto Shebaasram for purchasing an ambulance. 6. The Bank donated to Research and Development Collective (RDC) for conducting research on martyred intellectuals at Dhaka University. 7. The Bank donated Biswa Shahittya Kendra for educational activities. 8. The Bank donated to Jatio Grihaion Kortripokkho for research contribution on a book of Father of the Nation Bangabandhu Sheikh Mujibur Rahman. 9. The Bank donated for entertainment and honorarium on training program on sustainable development goal.

156 IFIC Bank I Annual Report 2018 Sponsored by IFIC Bank, Bishwo Shahitto Kendro (BSK) awarded 744 students under its year-long book reading program at Bangladesh Shilpakala Academy Auditorium. IFIC Bank sponsored the book reading program of Bishwo Shahitto Kendro in 516 colleges around the country

IFIC Bank MD & CEO Shah A Sarwar handing over a cheque for BDT 50.00 lac to Dhaka University Vice Chancellor Professor Dr. Md Akhterzzaman for its Trust Fund at Dhaka University Senate Bhaban

157 IFIC Bank I Annual Report 2018 Products and Services

Deposit Products

Current Account Sanchita -Female Savings Monthly Income Scheme Account Savings Account Double Return Deposit Millionaire Dream Plan (MDP) Scheme Smart Savings Account Special Notice Deposit-SND Freedom Flexi DPS IFIC Aamar Account Fixed Deposit Receipt-(FDR) IFIC Aagami School Savings Plan Pension Savings Scheme-PSS IFIC Corporate plus

Loan Products

Term Loan (Industrial) Salary Loan IFIC -Subornogram Term Loan (Others) Credit Card Krishi Soronjam Rin Loan General IFIC Krishi Shilpo Sech Soronjam Rin OD-Working Capital Loan IFIC Shilpo Sohay IFIC-Green earth Amar Account OD IFIC Shilpo Shongjog IFIC-Joibo Shakti Easy Loan IFIC-Prantonari Fire Fighting & Safety Equipment Consumer Durable Loan WEC Loan Protyasha Parua (Educational Loan) WEC Loan Joyeeta IFIC Home Loan Transport Loan IFIC Peshajeebi Loan Commercial House Building Loan Auto Loan Bidders Loan Any purpose loan Contractors Loan Marriage Loan Easy Commercial Loan CNG Conversion Loan Lease Finance Premium Overdraft

158 IFIC Bank I Annual Report 2018 Financial Statements

159 IFIC Bank I Annual Report 2018 Howladar Younus & Co. House-14(Level 4 & 5) Road-16A, Gulshan-1 Dhaka-1212 Bangladesh : +880 2 9883863

Independent Auditor’s Report To the Shareholders of IFIC Bank Limited Report on the Audit of the Consolidated and Separate Financial Statements Opinion We have audited the consolidated financial statements of IFIC Bank Limited and its subsidiaries (the Group“ ”) as well as the separate financial statement of IFIC Bank Limited (the Bank“ ”) which comprise the consolidated and separate Balance sheet as at 31 December 2018, consolidated and separate profit and loss accounts, consolidated and separate cash flow statement, consolidated and separate statement of changes in equity for the year then ended, and notes to consolidated and separate financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements of the Group and separate financial statements of the Bank give a true and fair view of the consolidated balance sheet of the Group and the separate balance sheet of the Bank as at 31 December 2018, and its consolidated and separate profit and loss accounts and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as explained in note 2.1.1. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), Bangladesh Securities and Exchange Commission (BSEC) and Bangladesh Bank, and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the Institute of Chartered Accountants of Bangladesh (ICAB) Bye Laws. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1. Measurement of provision for loans and advances

See notes no. 7, 8 and 15.1 to 15.3 to the financial statements.