Auditors’ Report

To the Shareholders of Bangladesh Shilpa Bank


We have audited the accompanying Balance Sheet of Bangladesh Shilpa Bank as of 30 June, 2006 and the related Profit and Loss Account, Cash Flow Statement, Statement of Changes in Equity and Statement of Liquidity together with the notes 1 to 33 for the year then ended. The preparations of these financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with Bangladesh Standards on Auditing (BSA). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.


Our audit revealed the following:


i.         Long time outstanding Debenture (Principal + interest) was amounting to Tk. 114,304,741. But provision has been made for Tk. 69,161,538 only against the above amount. No provision has been made for the balance amount of Tk. 45,143,203 and the amounts appeared to us not realizable. However, out of the total debenture Tk. 11.43 crore a sum of Tk. 9.8 crore lying with Beximco Synthetics Ltd. & Beximco Denims Ltd., which is under the process of rephasement.


ii.        As per BSB’s books of accounts “Balance with Bangladesh Bank” held by DCBO (Dhaka Commercial Branch Office) as on 30.06.06 was amounting to Tk. 192,775,075 but as per Bangladesh Bank confirmation, the balance of the same account is Tk. 37,598,574. Out of the difference of Tk. 155,176,501, a sum of Tk. 2,027,135 remained unreconciled till the date of our audit, which will be reconciled by the bank shortly as reported by the Bank management.


iii.                  Income tax deducted at source since 1986-87 to the tune of Tk. 195,775,918 has not been credited by the tax department, for which no adjustment has been made in the accounts. It is reported that initiative has been taken to adjust the amount.  


iv.       No dividend has been received since long from few companies’ shares against the investment of Tk. 740,000.


v.         On our verification it is observed that deposits and other accounts of liability side include Tk. 2,006,916 being unclaimed by the depositors over ten years. Where as section 35 of the bank companies Act. 1991 dictates that such unclaimed liabilities should be transferred to Bangladesh Bank, it is yet to be implemented.


vi.         Under the head ‘other liabilities ‘ inter office current account of DCBO shown debit balance of Tk. 281,381,310 remained unreconciled.  As such accuracy of the balance are subject to confirmation by respective branches.



vii.        Deferred tax as per BAS 12 not yet implemented.


viii.       No statutory reserve has been created on net profit during the year under audit. 


Except the fact stated above, the financial statements give a true and fair view of the financial position of the Bank as of 30 June, 2006 and of the result of its operations and its cash flows for the year then ended and comply with the Bank Companies Act 1991, the Rules and regulations issued by Bangladesh Bank and the other applicable laws and regulations.


Except for the matters as mentioned above we further report that :


i)          we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit and made due verification thereof ;


ii)         in our opinion, proper books of account as required by law have been kept by the Bank so far as it appeared from our examination of those books and proper returns adequate for the purposes of our audit have been received from branches ;


iii)         the Bank’s Balance Sheet and Profit and Loss Account dealt with by the report are in agreement with the books of account and returns ;


iv)        the financial statements have been drawn-up in conformity with the Bank Companies Act, 1991 and in accordance with the accounting rules and regulations issued by the Bangladesh Bank ;


v)         the expenditure was incurred for the purposes of Bank’s business ;


vi          the financial position of the Bank at 30 June 2006 and the profit for the year then ended have been properly reflected in the financial statements ; the financial statements have been prepared in accordance with the generally accepted accounting principles ;


vii)        adequate provision has been made for advances and other assets which are, in our opinion, doubtful of recovery;


viii)       the records and statements submitted by the branches have been properly maintained and consolidated in the financial statements ;


ix)        the financial statements conform to the prescribed standards set in the accounting regulations issued by the Bangladesh Bank after consultation with the professional accounting bodies of Bangladesh ;


x)         the information and explanations required by us have been received and found satisfactory ;


xi)        80% of risk weighted assets of the bank as at June 30,2006 has been audited.


xii)        we were not aware of any other matters which are required to be brought to the notice of the shareholders.





Khan Wahab Shafique Rahman & Co.                             Rahman Mostafa Alam & Co.

Chartered Accountants                                                        Chartered Accountants


Dated : Dhaka

October 10,2006





Bangladesh Shilpa Bank

Notes to the Financial Statements

For the year ended 30 June, 2007




1.0       Background Information :



1.1       Establishment and Status of the Bank :


Bangladesh Shilpa Bank (BSB) was established on 31 October, 1972 under the Bangladesh Shilpa Bank Order, 1972 (as amended 1st November, 1992 ) and owned by the Government. Bangladesh Shilpa Bank has 15 branches all over Bangladesh.



1.2       Nature of Business :


Bangladesh Shilpa Bank as the prime development financing institution of the country extends financial assistance both in local and foreign currencies for setting up new industries and rehabilitation of sick industries. Besides, the bank started full-fledged commercial banking function from 1993.


1.3       Employees Benefit :

Employees benefit as per Provident Fund, Employees Benevolent Fund and Superannuation Fund has been provided adequately. Gratuity as per IAS-19 in not applicable for this Bank. 


Significant Accounting Policies :



2.1       Basis of Preparation of Financial Statements


These financial statements have been prepared under the historical cost convention on a going concern basis in accordance with Bangladesh Accounting Standards and in the format prescribed by the Bangladesh Bank vide BRPD Circular # 03 dated 18 April, 2000 and Circular # 14 dated 25 June, 2003.



2.2       Consolidation of accounts :


A separate set of records for consolidating the trial balances for the Branch offices and Loan Accounting Department is maintained at the Central Accounts Department, Head Office from which financial statements of the bank are drawn up.



2.3       Fixed Assets and Depreciation:

*           Fixed assets other than land are stated at cost less accumulated depreciation. Land is stated at cost.


*           Depreciation is being charged on fixed assets other than motor vehicles & Computer   on reducing balance method. Depreciation on motor vehicles & Computer is being charged on straight-line method.




Furniture & Fixtures


Electric/Gas Installation


Typewriters, Ceiling Fans, Office Equipment


(including Computer) & SBBL Gun


Motor Cars, other Vehicles



Depreciation at the applicable rates is charged proportionately on additions made during the year from the month of their acquisition.


Upon retirement of items of fixed assets the net book values are eliminated from the accounts and the resulting gains or losses, if any, are transferred to Profit and loss Account.


Repairs and maintenance costs of fixed asset are charged to Profit and Loss Account when incurred.


2.4       Revenue Recognition :

            Loans and Advances :

i.          Interest on unclassified loan and advance is calculated on a daily product basis but charged and accounted for quarterly basis and in some cases yearly on accrual basis.


            ii.          No interest is charged on loan classified as bad and loss.


iii.         Interest is charged on classified loans and advances as per BCD Circular # 34 of 1989, BCD Circular # 20 of 1994, BCD Circular # 12 of 1995, BRPD Circular # 16 of 1998 and BRPD Circular # 9 of 2001 and such interest is not included in income and credited to interest suspense account.

iv.         Interest suspense and penal interest, if any, calculated on classified advances is taken as income in the year of receipt of such interest from the defaulting borrowers.


2.5       Other Information:

            i)          No income was generated from interest fluctuation and foreign exchange                           dealing.

            ii)         No assets were pledge as security for liabilities because no securities were                       held by Bangladesh Bank and Government against these loans.

            iii)         No assets and liability has been set off during the year under audit.

            iv)        Value of pledge collaterals amounting to Tk. 280.07 crore comprising of land                      & buildings.

            v)         Core Risk management has been introduced by the Bank Management.                            Details has been shown on Note 2.25.


Investment :


i.          Income on investment, other than shares in different limited companies have been accounted for on accrual basis.


            ii.          Dividend/other operating income is recognized at the time when it is realized.


iii.         Commission charged to customers on letters of credit and letters of guarantee are credited to income at the time of effecting the transactions.



2.6       Loans and Advances :


i.          Loans and advances have been stated at gross value as per requirement of The Bank Companies Act, 1991.


ii.          Provision for loans and advances are made on the basis of information furnished by the branches and of instructions contained in Bangladesh Bank. BCD Circular # 12 dated 4 September 1995, BRPD Circular # 16 dated 6 December 1998, BRPD Circular # 9 dated 14 May 2001 and BRPD circular # 5 dated 11 June 2006 stating the following rates:



                        General provision on unclassified loans and advances             1%

                        Provision on Special Mentioned Accounts                                 5%

Provision on substandard loans and advances                       20%

                        Provision on doubtful loans and advances                              50%

                        Provision on bad/loss loans and advances                            100%


iii.         Loans and advances are written off to the extent that there is no realistic prospect of recovery as per BRPD Circular # 2 dated 13 January, 2003.



2.7       Events after Balance Sheet Date :


After the balance sheet date, no significant changes/transactions has taken place which would further require adjustment to or disclosure in the financial statements except as stated below:


i.          The bank has paid an amount of Tk.20.33 crore to Bangladesh Bank, which was previously borrowed from Bangladesh Bank.


            ii.          The bank has paid an amount of Tk.2.65 crore to Govt. as DSL.


            iii.         Recovery upto 30.09.07 stands at Tk. 12.34 crore.




2.8       Foreign Currency Translation:


a.         Foreign Currency Transaction :


i.          Transactions in foreign currencies are translated into BDT currency at the rate      of exchange prevailing on the date of such transactions and resulting gains or    losses are credited/charged to Profit & Loss Account.


ii.          Monetary assets and liabilities in foreign currencies are expressed in taka terms at the rate of exchange ruling on the balance sheet date except other than those in pre-liberation Pakistani currency which have been translated at Tk.1 = Pak Rupee 1.


b.         Forward foreign exchange contracts valued at forward rates applicable to their respective maturities.



2.9       Share Capital :


The Authorized Capital of the bank is two billion taka divided into two million shares of taka one thousand each of which cent percent has been subscribed and paid-up by the Government.



2.10     Statutory Reserve :


An amount of Tk. 5,90,37,341 has been transferred to Statutory Reserve out of profit.



2.11     General Reserve :


No reserve has been created on profit during the year under audit.



2.12     Special Reserve :


No reserve has been created on net profit during the year under audit.



2.13     Reserve for Unforeseen Losses :


No reserve for unforeseen losses has been created on net profit during the year under audit.


2.14     Provision for Taxation :


Provision for taxation amounting to Tk. 4,97,25,330.00 has been made on net profit after adjustment of accumulated loss as per prevailing taxation rule.


2.15     Provision for Bad and Doubtful Debts :


Required provision for bad and doubtful debts has been made as per Bangladesh Bank's BCD Circular # 34/89, 20/94, 21/94, 12/95, BRPD Circular # 16/98 and BRPD Circular No 05/06.


2.16     Pension Plan :


With the introduction of BSB Employees Service Regulation 1984, vide the Official Gazette published on 26 December, 1984 by the Finance Division of the Ministry of Finance, the Pension and Death-Cum-Retirement Benefit Scheme, General Provident Fund (GPF) Scheme, etc. have been implemented extending benefits thereof to all full time employees of the Bank who became members of the said schemes. The fund is being managed and administrated by a separate trust formed for the purpose.


2.17     Special Assistance Fund :


In accordance with the Industrial Policy 1986, a Special Assistance Fund (SAF) has been created by BSB as the prime DFI of the country to provide concessional loans to projects: 


            a.         Based on local innovation and invention of products and processes;

            b.         Utilizing locally manufactured capital goods; and

            c.         For production of capital machinery and other non-traditional items.


2.18     Quasi-Equity :


This was created as per Government decision in 1982 by converting Taka counterpart fund of the 3rd, 5th, 6th and 8th UK Credits.


2.19     Investment :


a.         Investments have been shown under two broad categories : Government Securities and Other Investments.


b.         Investments in shares and securities have not been revalued at the end of the financial year.


c.         The current and long-term investment in securities have been shown at cost price which is lower than the market price.



2.20     Deposits and Other Accounts :


Deposits and other accounts includes bills payable and have been analyzed in terms of the maturity grouping showing separately other deposits and inter-bank deposits. Unclaimed deposits for 10 years or more held by the Bank have been shown separately.




2.21     Reconciliation Position:

            a.         NOSTRO A/c.


There are three NOSTRO accounts being maintained with Foreign Banks as on 30 June, 2007.


b.         Inter Branch Transactions:


To maintain inter branch transactions a number of current accounts are being maintained among Loan Accounting Department, Central Accounts Department of Head office and fifteen branches namely LAD Current Account, CAD Current Account and Inter Branch Account.



2.22     Audit Committee :


2.22.1  Member :


An audit committee has been constituted by the Board of Directors of the Bank in its 400th meeting held on 06 April 2003 which position as on 30-06-2007  as under :






Status with the Bank

Status with the Committee


Mr. Md. Aminul Islam Bhuiyan

BA(Hons.) MA, MS




Dr. Mohammad Ayub Mia

BA(Hons.) MA, PhD




Begum Dilruba





Mr. Abdul Awal Chowdhury





2.22.2 Meetings :


During the Year 2006-07, 1 (one) meeting of the Audit Committee was held on 28/06/07.


2.22.3 Activities :


The committee reviews the policy and planning executed by the Board of Directors for smooth operation of the bank. The committee acknowledges their responsibility for the system of internal controls, effectiveness and suitable monitoring procedures, proper accounting policies, compliance with the regulations, computerization system, management information system, different risk management of the bank, etc. The committee also ensures the implementation of International Accounting Standards (IAS) and other applicable laws at the time of preparation of the annual financial statements. The committee meets with the external auditor and top management of the bank at the time of reviewing the annual financial statements. The committee also reports to the Board of Directors on the findings detected by the Internal Audit Division, External Auditors and Bangladesh Bank Inspection Team on a regular basis.





2.23   AUDIT NOTE :


            Audit Approach :


We conducted our audit in accordance with the related International Standard on Auditing (ISA) as adopted and issued by the Institute of Chartered Accountants of Bangladesh. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.



Staffing and extent of examination :


i)          Our audit team comprised of 2 (Two) qualified persons and 8 (eight) audit staff who have worked for a period 45 (forty-five) days for completing the audit task. Our examination includes checking on a test basis of evidence supporting the accounts and disclosures in the financial statements.




2.24     Name of the Directors and the entities in which they have interest as on 30 June, 2007 :






Status with the Bank

Name of the firms/companies in which interest as proprietor, partner, director, managing agent, guarantor, employee, etc.


Mr. Md. Aminul Islam Bhuiyan




Mr. Md. Amanullah

Managing Director

Investment Corporation of Bangladesh (Director as Govt. Representative).


Dr. Mohammad Ayub Mia




Mr. Elias Ahmed




Mr. Md. Wazed Ali Khan




Mr. Mahbub Ahmed




Mr. Amalendu Mukherjee




Syed Monjurul Islam




Begum Dilruba





2.25     Risk Management:


The bank is primarily subject to interest rate, credit and currency risks. The policies and procedures for managing these risks are outlined in the notes below. The bank has designed and implemented a framework of controls to identify, monitor and manage these risks, which are as follows:


            Credit Risk Management:


Credit risk is the risk that one party to a financial instrument will fail to discharge and obligation and cause the other party to incur a financial loss. Concentration of credit risk arises when a number of counter parties are engaged in similar business activities or activities in the same geographical region or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.


            Concentration of Credit Risk:


Out of the total financial assets of Tk. 8,164 million, the financial assets that were subject to credit risk associated to total credit. The bank's major credit risk is concentrated in textile sector. To manage credit risk, the bank applies credit limits to its customers and obtains adequate collaterals.


Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk in the Bangladesh Shilpa Bank's Portfolio is monitored, reviewed and analyzed by the Credit Risk Management (CRM).


CRM determines the quality of the credit portfolio and assists in minimizing potential losses. To achieve this objective, CRM formulates appropriate credit policies and procedures for the bank to ensure building and maintaining quality credits and an efficient credit process.


Bangladesh Shilpa Bank has formed Asset Liabilities Committee (ALCO) to screen out the banks/financial institutions and determine the maximum risk exposure on each of them. ALCO also assesses, recommends and controls cross border/country risk.




To manage the Non-Performing Loans (NPLs), Bangladesh Shilpa Bank has in place comprehensive remedial management policy, which includes a framework of controls to identify weak credits and monitoring of these accounts.



            Interest Rate Risk Management :


Interest risk is the risk that the value of a financial instrument will fluctuate due to change in the market interest rates. The risks are inherent on deposits, liabilities, loans / advances and investments of the Bank.


The Assets and Liabilities Committee of Bangladesh Shilpa Bank regularly reviews the total portfolio of the bank to ensure that risks are minimized and remain within acceptable limits.







Liquidity Risk Management :


Liquidity risk is defined as the potential loss arising from the Bank's inability to meet its contractual obligations when due. Liquidity risk arises in the general funding of the Bank's activities and in the management of its assets. Bank maintains sufficient liquidity to fund its day to day operations, meet customer deposit withdrawals either on demand or at contractual maturity meet customers demand for new loans participate in new investments when opportunities arise and repay borrowing they mature. Hence liquidity is maintained to meet known as well as unanticipated cash funding needs.


Important factors in assuring liquidity are funded on the Bank's good reputation, the strength of its earning and its strong financial position and credit rating. Liquidity risk is managed in accordance with a framework of liquidity policies, contracts and limits approved by ALCO. These policies controls and limits to ensure that Bank maintains well diversified sources of funding as well sufficient liquidity to meet all its contractual obligations when due.


The bank can meet the liquidity crisis by taking call loan, short term deposit from other Bank and Financial Institutions.



2.26     General :


Figures have been rounded off to the nearest taka.


Prior years' figures which are shown for comparison purpose, have been rearranged, wherever necessary, to conform to the presentation of current year.