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  • Notes to the Financial Statements Print
    Hoda Vasi Chowdhury & Co.
    Chartered Accountants
    Chartered Accountants
    Notes to the Financial Statements
    As at and for the year ended 31 December 2013
    1.00   BACKGROUND
    1.01   Legal form of the entity
        Grameen Bank (the “Bank”) was established as a body corporate under the Grameen Bank Ordinance 1983. Subsequently, on 10 November 2013, the Government has enacted the Grameen Bank Act, 2013 repealing the previous Grameen Bank Ordinance, 1983. Initially the authorized capital of the Bank was Tk 100 million and paid-up capital was Tk. 30 million. At present the Bank’s authorized capital is Tk. 10,000 million (increased in current year from Tk. 3,500 million) and paid-up capital is Tk. 734.05 million. Members who are also borrowers hold 79.57 percent of Grameen Bank shares. The remaining 20.43 percent is held by the Government of Bangladesh, Sonali Bank Ltd. and Bangladesh Krishi Bank. The board of the Bank consists of 13 members: the Managing Director, three members including the Chairman nominated by the government and nine members elected from the borrower shareholders.
    1.02   Nature of business
        The principal activity of the Bank is to provide credit without collateral to landless persons (any person who or whose family owns less than fifty decimals of cultivable land or who or whose family owns property, both movable and immovable, the value of which does not exceed the value of one acre of cultivable land according to the prevailing market price in the union in which the person normally resides) for all types of economic activities. The Bank also accepts deposits but excluding business in foreign exchange transactions, carries out survey and research, issue publications and maintaining statistics with a view to improving the economic condition of the landless persons. The Bank undertakes income-generating projects for landless persons, invests its funds in Government Securities and provides professional counseling to landless persons regarding investments in small business and cottage industries. Grameen Bank now operates 40 Zonal offices, 40 Zonal audit offices, 266 Area offices and 2,555 Branch Offices. The Bank offers five types of loans such as basic loan, housing loan, higher education loan, young entrepreneur loan and struggling members’ loan. Loans & advances and Deposits as at December 31, 2013 were Tk. 87,707,167,495 and 148,545,954,117 respectively. As on December 31, 2013, out of 2,567 branches, 1,644 branches registered profits, 911 branches were not profitable and the remaining 12 branches were not in operation. During the year the Bank did not open any new branches.
        In the ordinary course of business, the Bank is exposed to a variety of risks the most important of which are credit risk, liquidity risk and operational risk. These risks are being identified, measured and monitored through various control mechanisms across the Bank in order to assess the quality of products offered.
    2.01   Credit Risk
        Credit risk arises mainly from micro-credit loan provided to the members of Grameen Bank. This can be described as potential loss arising from the failure of a counter party to perform as contractual agreement with the Bank. The failure may result unwillingness of a counter party or decline in his/her financial condition in adverse environment. Therefore, the Bank’s credit risk management activities have been designed to address all these issues.

    The officers/executive involved in credit related activities including credit approval, administration, monitoring and recovery facilities are approved by the different level of the management. An effective assessment is done before sanction of credit facilities to the members is done by borrower financial condition, historical performance etc. The process starts at the branch manager and approved by the competent authority. Credit approval authority has been delegated to individual executives by the approval of the Board of Directors.

    Internal audit is conducted in yearly intervals to ensure compliance with the policies of the Bank and regulatory bodies. Loans are classified as per Grameen Bank Loan Policy and Guidelines.
    2.02   Liquidity Risk
        The objective of liquidity risk management is to ensure that all foreseeable funding commitments and deposit withdrawals can be met when due. To this end, the Bank is maintaining a diversified and stable funding base. The liquidity management is monitored by the Fund unit on a regular basis.
    2.03   Operational Risk
        Operational risk may arise from error and fraud due to lack of internal control and compliance. Management through different department controls operational procedures of the Bank. Audit department undertake yearly basis and special audit of branches and departments of the Head Office for review of the operation and compliance of the statutory requirements. The Managing Director subsequently reviews the report of the audit department and gives necessary directions to the relevant departments.
    2.04   Internal audit
        Internal audit is a part of the internal control system, which is introduced in large business entities to detect any error or fraud at an early stage. At present, the Internal Audit Division of Grameen Bank is characterized by two-tier structure namely central audit and zonal audit. Central audit conducts the audit of different divisions at the head office. Moreover, Central audit office supervises, advises, directs and provides necessary guidance to zonal audit offices. The zonal audit office audits zonal offices and their area offices and all branches within the zone. Central and zonal audit offices execute complete audits and brief audits to monitor operations and review compliance of statutory requirements. Besides, Central audit conducts the pre-audit of almost all transactions of Head Office. The Internal Audit Division works under the direct supervision of the Managing Director; however, internal audit is completely independent in its work.
    3.01   Basis of preparation and presentation of Financial Statements
        The accompanying Financial Statements comprising the Balance Sheet, Profit and Loss Account, Cash Flow Statement, Statement of Changes in Equity and Notes thereto have been prepared in accordance with Bangladesh Financial Reporting Standards (BFRS) on a going concern basis under the historical cost convention.
    3.02   Statement of compliance
        The financial statements of the Bank are prepared in accordance with Bangladesh Financial Reporting Standards (BFRS) and the requirements of the Grameen Bank Act, 2013.
    3.03   Basis of consolidation
        A separate set of records for consolidation of the statement of affairs and income & expenditure account of the branches are maintained at the head office of the Bank based on which these Financial Statements have been prepared.
    3.04   Tax exemption
        Grameen Bank enjoyed unconditional exemption of income tax up to 31 December 2010 vide SRO No. 315-Law/2008 dated 20 November 2008. Previously Grameen Bank enjoyed income tax exemption from 1997 to 2005 subject to the condition that the Bank will transfer its entire profits to Rehabilitation Fund that the Bank did earlier. The National Board of Revenue (NBR), in the meantime, has exempted the Grameen Bank from payment of taxes from 01.07.2011 to 31.12.2015 vide SRO No. 202-Law/2012 dated 18 June 2012. In the new Grameen Bank Act, 2013 tax exempt status has been retained. The Bank believes that for the intervening period of 01 January to 30 June 2011, Grameen Bank shall continue to enjoy tax exempt status and hence it challenged an income tax claim of Tk. 706,012,105 from NBR on this ground.
    3.05   Rehabilitation fund
        Rehabilitation Fund consists of transfer of funds from general reserve and tax provision made for the years 1997 and 1998 and transfers the entire revenue profit from 1999 to 2005 in order to comply with the requirement for tax exemption allowed by the Ministry of Finance, Government of the Peoples’ Republic of Bangladesh. The Rehabilitation Fund can be utilized for the purpose of rehabilitation of members affected due to natural disasters.
    3.06   Net profit
        During the year 2013, Grameen Bank has earned net profit amounting to Tk. 1,332.90 million while profit for the year 2012 was Tk. 1,454.86 million. The profit declined mainly for implementation of Dearness Allowance from 1st of July 2013 in time with the decision of Government of the Peoples’ Republic of Bangladesh.
    3.07   Profit Appropriation
        During 2013, the Bank has made a net profit of Tk. 1,332,898,748 as per Profit and Loss Account. The Bank has decided to appropriate its profit in the following manner:
    Particulars   Amount (Tk.)
    Proposed Dividend   220,214,730
    Dividend Equalization Fund   250,000,000
    General Reserve   700,000,000
    Employees Welfare Fund   17,684,018
    Retained Surplus   145,000,000
    Total:   1,332,898,748
    3.08   Foreign fund
        Foreign funds were received from the foreign donor agencies (IFAD 161 BA, IFAD 239 BA, NORAD, SIDA, Dutch Grant and JICA former JBIC) under the subsidiary loan agreement with the Government of the Peoples Republic of Bangladesh. The terms for repayments, rates of interest, grace periods etc. have been set out in those agreements. The funds were disbursed to Grameen Bank in equivalent taka currencies and were accounted for at cost as and when those funds were received. Consequently, no accounting treatment is required in respect of exchange differences on foreign currencies, Grameen Bank need not to account for exchange gain/loss on such differences as well.
    3.09   Accruals & deferrals
        Deferrals and accruals have been made as per the Bangladesh Accounting Standard (BAS) 1(Presentation of Financial Statements). In order to meet their objectives, Financial Statements except cash flow statement and related information are prepared on accrual basis of accounting. Under the basis, the effects of transactions and other events are recognized when they occur (and not when cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the Financial Statements of the year to which they relate.
    3.10   Reconciliation of inter branch transactions
        Books of accounts with regard to inter branches are reconciled. Unreconciled entries are caused by mismatching of original figures with corresponding ones, lack of original advice and incomplete advice from branches.
    3.11   Cash Flow Statement
        Bangladesh Accounting Standard (BAS) 1: Presentation of Financial Statements requires that a cash flow statement is to be prepared as it provides information about cash flows of the enterprise that is useful in providing users of Financial Statements with a basis to asses the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilize those cash flows.

    Cash flow statement has been prepared under the direct method for the year, classified by operating, investing and financing activities as prescribed in paragraph 10 and 18(a) of BAS 7: Cash flow statement.
    3.12   Liquidity Statement

    The liquidity statement of assets and liabilities as on reporting date has been prepared on residual maturity term as per following bases:

    1. Balance with other banks and financial institutions, money at call notice of short notice, etc. are on their maturity term;
    2. Investments are on the basis of their respective maturity;
    3. Loans and advances/investments are on the basis of their repayment schedule;
    4. Fixed assets are on the base of their useful lives;
    5. Other assets are on the basis of their realization/amortization;
    6. Borrowing from other banks, financial institutions, agents, etc. are as per as their maturity/repayment terms;
    7. Provisions and other liabilities are on the basis of their payment/adjustment schedule;
    8. Deposits and other accounts are on the basis of their maturity term and past trend of withdrawal by the depositors.
    3.13   Provision for loan impairment

    Specific provisions are made against non-performing and problem loans on the basis of best estimate up to such amount as it is expected to cover for the loss from non-performing and impaired loans and advances.

    The Bank writes-off its non-performing and problem loans after one year on overdue loan. Subsequent recoveries of such loans are credited directly to the Profit and Loss Account.

    Provisions for loans & advances are made on the basis of year-end review by the management and instructions given in board resolution by the Board of Directors (BOD). The relevant calculation rate is given below:

    1. Basic loans
      Basic loan provision has been made @ 100% on overdue loan;
      Basic loan provision has been made @ 1% on regular loan.
    2. Flexible loans
      Provision has been made on flexible loans at the following rates:
      Principal outstanding from the signing of first contract year below 2 years @ 50%;
      Principal outstanding for 2 years and beyond from the signing of first contract year@100%;
      Overdue flexible loans @100%.
    3. Housing loans (Members)
      Housing loan provision has been made @ 100% on overdue loan;
      Housing loan provision has been made @ 1% on regular loan.
    4. Educational loan
      No provision has been made on educational loan.
    5. Young entrepreneur loan
      Young entrepreneur loan provision has been made @ 100% on overdue loan;
      Young entrepreneur loan has been made @ 1% on regular loan.

    As per BAS 39, an entity should start the impairment assessment by considering whether objective evidence of impairment exists for financial assets that are individually significant. For financial assets that are not individually significant, the assessment can be performed on an individual or collective (portfolio) basis. The above calculation rate has been determined by Management on the basis of historical loan loss data and covers portfolio that are impaired and identified as well as those that impaired but yet to be individually identified.

    3.14   Overdue Policies
        If a borrower fails to repay ten consecutive installments, the entire outstanding loan is treated as an overdue loan; In case of young entrepreneur loan the installment schedule may be weekly, fortnightly and monthly. For the case of fortnightly and monthly installment schedule; if a borrower fails to repay five & three consecutive installments respectively, the entire outstanding loan is treated as an overdue loan;

    In case of one year, if a borrower fails to repay half of the loan amount along with interest, within 26 weeks, entire un-paid amount is overdue;

    In case of loan with longer duration, if the borrower fails to repay the total principal amount and interest scheduled to be repaid within each segment of 26 weeks, entire un-paid amount is overdue.
    3.15   Provision for interest receivable
    1. Interest receivable on basic loans:
      Provision has been made on interest receivable on basic loan @ 100% on overdue interest of basic loans;
      Provision has been made on interest receivable on basic loan @ 1% on regular interest of basic loans.
    2. Interest receivable on flexible loans:
      Provision has been made on interest receivable on flexible loans at the following rates:
      Interest receivable outstanding from the signing of first contract year below 2 years at the rate of 50%;
      Interest receivable outstanding for 2 years and beyond from the signing of first contract year at the rate of 100%;>
      Interest receivable outstanding of overdue loan is 100%.
    3. Interest receivable on Housing loans (Members)
      Provision has been made on interest receivable on housing loans (Members) at the following rates:
      Interest receivable on housing loan provision has been made @ 100% on overdue interest receivable;
      Interest receivable on housing loan provision has been made @ 1% on regular interest receivable.
    4. Interest receivable on young entrepreneur loans:
      Interest receivable on young entrepreneur loan provision has been made @ 100% on overdue interest of young entrepreneur loans;
      Interest receivable on young entrepreneur loan provision has been made @ 1% on regular interest of young entrepreneur loans.
    3.16   Bad debt recovery
        Full amount of Bad debt recovery has been shown in other income.
    3.17   Fixed assets:

    Recognition and measurement

    The major categories of Fixed assets held by the Bank are land, buildings & other structures, equipment, furniture and fixtures, vehicles, capital work in progress etc.

    As per BAS:16 Property, Plant and Equipment, all property and equipment except land are stated at historical cost less accumulated depreciation. No depreciation has been charged on land and the carrying amounts are the same as those were initially recognized. The cost of acquisition of an asset comprises its purchase price and any direct cost attributable to bringing the assets to its working condition for its intended use.

    Subsequent costs

    The cost of replacing part of an item of property and equipments is recognised in the carrying amount of an item if it is probable that the future economic benefits embodied within the part will flow to the entity and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in the profit and loss account when incurred.

    Disposal of asset

    Gains and losses on disposal or retirement of assets are credited or charged to profit and loss accounts respectively.

    Capital work-in-progress

    Building & other structure under construction/acquisition have been accounted for as capital work-in-progress until construction/acquisition is completed and measured at cost.

    3.18   Depreciation

    As required by BAS 16 Property, plant & equipment, depreciation has been charged on property and equipment at the following rates using straight-line method.

    Property & Equipment   Depreciation Rate
    Building and other structures   1.7%
    Office House (Semi-Paka and Tin shed)   7.5%
    Development of leasehold property   10%
    Vehicles   20%
    Computer equipment   30%
    Office equipment   15%
    Electrical equipment   10%
    Furniture & fixtures   10%
    Library books   10%
    Mobile handset   33.33%

    Depreciation at the applicable rates is charged proportionately on additions made during the year from the date of their acquisition on straight-line method. Disposal of assets during the year, depreciation charged is required on actual date.

    3.19   Investment Property (Building and other structure):
        As per BAS 40 Investment Property is recognized for let out portion of Head office building and old administrative building held to earn income through rental. Investment Property is measured at cost less accumulated depreciation. The cost of Investment Property is measured proportionately based on per square fit cost of each building.

    Subsequent cost related to let out portion is recognized as addition of Investment property.

    Subsequent change in use of that property is accounted for as per BAS 40.
    Depreciation has been charged on Investment Property (Building) @ 1.7% same as own occupied property.
    3.20   Investments

    Value of investment is presented below:

    Nature of Investments   Applicable Accounting Method
    FDR   Face Value
    Shares in CDBL   At cost
    Grameen Mutual Fund   At cost

    As the Bank is Sponsor Shareholder of Grameen Mutual Fund, as per the local regulation these sponsor shares cannot be freely traded and hence these are stated at cost price instead of fair value, determination of which would be quite subjective. Similarly, CDBL shares also not traded in market and hence measured at cost price.

    3.21   Revenue recognition

    As per BAS 18, Revenue is recognized when it was probable that the economic benefits associated with the transaction will flow to the Bank and the amount of revenue and the cost incurred or to be incurred in respect of the transaction can be measured reliably.

    Revenue is recognized on an accrual basis which complies with the conditions of revenue recognition as provided in BAS 18: Revenue.

    1. Interest on loans and advances (including bad and doubtful loans and advances) is accounted for on an accrual basis.
    2. Income on investments is accounted for consistently on accrual basis. Dividend received in form of Bonus share is not recognized as revenue at the time of receiving.
    3.22   Interest paid and other expenses
        In accordance with the provision of BAS: 1 Presentation of Financial Statements, the interest paid and other expenses are recognized on accrual basis.
    3.23   Retirement benefits to the employees
        a) Grameen Bank Superannuation fund

    The Bank operates a superannuation fund scheme, provision in respect of which is made annually @ 60% of annual basic salary. It is operated by a separate Board of Trustees consisting ten members.

    b) Non-contributory provident fund

    Provident fund benefits are given to the employees of the Bank in accordance with non-contributory provident fund rules. The fund is operated by a Board of Trustees. All confirmed employees of the Bank are contributing 10% of their basic salary as subscription of the fund. Interest earned from the investments is credited to the members account on accrual basis.

    3.24   Comparative Information
        As required by BAS 1 “Presentation of Financial Statements” comparative information in respect of the previous year have been presented in all numerical information in the Financial Statements and the narrative and descriptive information where it is relevant for understanding of the current year's Financial Statements.
    3.25   Dividend
        Dividend payable to the Bank’s shareholders is recognized as liability and deducted from the shareholders’ equity in the year in which the shareholder’s right to receive payment is established. Finally dividend payable is recognized when it is approved by the Board of Directors.
    3.26   Reporting year
        These Financial Statements cover one calendar year from 01 January 2013 to 31 December 2013.
    3.27   Events after the Reporting Period
        Grameen Bank has decided to recommend payment of 30% (thirty percent) cash dividend for the year 2013. The Total amount of proposed dividend is Tk. 220,214,730.
    3.28   General
    1. Previous year’s figures have been rearranged, wherever considered necessary, for the purpose of comparison.
    2. Figures appearing in these accounts have been rounded off to the nearest Taka.
        Notes to the Financial Statements 4 -29
    Hoda Vasi Chowdhury & Co.
    Chartered Accountants
    Chartered Accountants
    Dated, Dhaka
  Banker to the Poor Banker to the Poor GF USA