Banking and Finance

Islamic Banking Preference

December 2, 2011 | Author: ekotj

Surabaya is the capital city of East Java Province, which is also the second largest city in Indonesia after the capital of Indonesia is Jakarta. Surabaya city experienced very rapid economic growth. Surabaya’s GDP has increased from year to year, as follows:2005 = 6,33%, 2006 = 6,35%, 2007 = 6,31%, 2008 = 6,23%, 2009 = 5,53.(source:http://surabayakota.bps.go.id). Increase in GDP of Surabaya is the result of increased activity and economic transactions. The development of economic transactions is certainly supported by the smoothness of the payment traffic. Banking institutions as an intermediary institution has a very important role in speeding up the payment traffic. Banking business today can be categorized in two types of business that banks using conventional system and the bank / units that use the sharia system.
In Indonesia, from year to year the number of Islamic banking offices increased by leaps and bounds, including open Islamic branches in Surabaya. The existence of sharia bank offices and units of service sharia is certainly appreciated by the public because it proved the bank continued to improve in the field of Islamic expansion in Indonesia, including in Surabaya. Appreciation or public preferences towards the existence of Islamic banks who have special reasons due to the products and services of Islamic banks differ in concept and system that is applied with a conventional bank. “The image held by customers of Islamic banks and conventional banks to learn whether this affects image Their preference for the type of bank They do business with” (Al-Tamimi, Lafi, and Uddin, 2009). Based on research conducted in the United Arab Emirates can be seen that there is a relationship between image bank with community preferences in choosing a bank that will be used to business transaction. “Would be useful for the banking sector in understanding the customer’s perception and preferences Concerning IRB (Islamic Retail Banking), and to promotes it Strategically, and for the relevant authorities, in promoting specific Regulations and Policies That nhance the market share of the IRB” (Eze, Santhapparaj, and Arumugam, 2011). It is said that the customer perception and customer preferences is very important to be observed by Islamic banks. Another factor that may affect the brand image and customer perceive of sharia banks is awareness factor. Public awareness of the existence of Islamic banking products and services will also influence the perception, perceive, and in the end may also reflect the brand image of Islamic banks itself

Credit Analysis Approach

October 30, 2010 | Author: ekotj

Character Approach

In character approach, here focuses on the assessment on the properties or habits – habits of borrowers / debtors, such as honesty, love to lie, not patience, faith does not good enough, and underestimated the problems / oversimplify the problem. All of these properties should be expressed in qualitative and quantitative, which can be described by sentence or words with numbers-number of scoring. What become emphasis mainly on commitment and ability to make credit payments to banks, although in difficult circumstances / business does not work.

Capacity Approach

In capacity approach, bank trying to know management capabilities of the prospective borrower / debtor in managing a business until realization planning efforts so as to get a payment to bank regularly, and at maturity, in any situation. To analysis this approach, emphasis on management skills such as: education of a manager, experience of managing a business, leadership style, and age of business owners. To measure this, bank often ask for a resume of the prospective borrower / debtor.

Capital Approach

Capital approach, bank analyzes own capital business of debtor / debtor derived from the initial investment or capital, retained earnings and reserves. Capital is very important to remember that loans are only a small percentage of additional capital, this emphasis on the prospective borrower / debtor on the responsibility of running the business. In addition, its own capital structure that more than 60%, will reduce the bank risk. When viewed from the risk scoring, if the business capital of borrower > 60% than bank loans that its into lower risk. Vice versa, the smaller of the capital than from bank loans about < 30%, the risks are high. This shows, the higher of the borrower capital is increasing a capital position of borrowers, and decreasing risks of banks.

Economic Condition Approach

Approach with overall economic conditions can not be ignored, either locally, national, and international and, especially relating to economic conditions of business of borrowers / debtors. The success of a business may be affected by economic conditions that exist, such as field:
• product marketing effort is strongly influenced by economic conditions related to buying power, diminishing demand of consumer, a similar competition, the type of goods and quality requirements, etc..
• Capital may be affected by economic conditions, namely bank do not lend the credit, high interest rates, and exchange rates do not move the real sector, etc..
• Production of goods affected by the economic object, where decreases and increases in demand, surplus / deficit of raw material inventory, added / reduced production capacity, forward / stagnant growth of technology, good / low quality standard, etc..
• laws and regulations, will affect the business of borrowers / debtors, especially regarding business permits, quotas, import and export policies, etc..

Guarantee / Collateral Approach

Collateral approach focuses on assessing the collateral of borrowers submitted loan / debtor at bank, like the owner status, where the collateral is strategic or not, marketable or not, assessment of collateral legality, if the collateral is in liquidation / taxation so as to close the amount of credit has been received. The goal secures the risk of loss / compensation even though the mortgage loan is a second way out in resolving problem loans. Presence or absence of collateral and close the least value of the collateral is part of the assessment of credit risk scoring.

Cash Flow Approach

Cash Flow Approach is an approach by calculating the ratio of cash inflows to cash outflows, so that will be seen the difference more or less. If the excess cash flow, there is the ability to save or pay the installment credit, and vice versa if the residual cash flow or minus zero means no ability to save or pay the loan installments. But in everyday reality is not uncommon difference of cash flow calculations only on paper, because the excess was used for other needs. If the assumption that happens, then the ability to save money and pay the loan installment is not available, a high level of risk, credit applications for business development can be rejected

Purposes and Benefit of Credit Analysis

October 29, 2010 | Author: ekotj

Credit analysis is an assessment, observation, research, verification, and calculations carried out bank to know the business of borrowers / debtors, understand profit / risk scoring approach to 6 C and its relationship with juridical aspects, management aspects, economic aspects, marketing aspects , aspects of production, aspects of security, and financial aspects, to control credit risk and determine the structure of credit facilities and means of making a credit committee’s decision.

The purpose of Credit Analysis

1. Loans or credits have been received of borrowers / debtors, must return to the bank in time according to the agreement and based on the scheduling of payments.
2. Loans are directional, meaning that the debtor received credit actually used for its original purpose.
3. Loans are useful, meaning that the debtor received credit to increase business activities, not for any other purpose.
4. Loans are produced, meaning that the debtor received credit to increase revenue / profits, business expansion, and create new jobs.

The Benefits of Credit Analysis
1. To ensure that the provision of credit has been implemented cautiously (prudential banking) and in accordance with the principles of sound lending.
2. To ensure that loans are timely, correct amount, effective, and efficient.

Asset and Liability Management (ALMA)

October 28, 2010 | Author: ekotj

Asset and Liability Management is one of financial risk management function within a bank. This includes estimates of risk from all dimensions: new product pricing and maturity of certain components of assets and liabilities, bank policy, capital projections, and profitability. ALMA also includes analysis of the impact of changes in business environment that is not expected to change interest rates, economic growth, natural disasters, and development level of competition. ALMA is a wealth management activities acquired from the source of funds that have been collected, and the activity of allocating funds in the form of lending and placement, productively, selectively and safely. In a general, ALMA is a combination of interest rate risk management with liquidity management.

ALMA = VC + RC
VC = Value Creation
RC = Risk Control

Liquidity is the ability of a financial institution to meet all the commitments of cash payment that was due. This commitment can be met either through the disbursement of cash reserves, by utilizing the cash flow come in, borrow money or cash by converting illiquid assets into cash.
Liquidity risk is the possibility of negative impact on financial institutions, which resulted from the inability to meet payment obligations when due precisely and cost-effective.
Cash Assets (Cash or simply enough) include:
1. cash and coins held by financial institutions (cash in safes)
2. money in savings accounts and time deposits that are at other financial institutions, and cash in the process of withdrawal / current account (which is produced from sending a check or money transfer)

Liquid assets consist of cash assets plus other liquid assets that are ready
liquidated to raise cash.

Cases of Banks Fraud (3)

July 31, 2010 | Author: ekotj

1. Loans from other banks (interbank funds) are booked in the account of owner / management while the obligation to pay back and the interest charged to banks.
2. Funds from depositors was not remitted to the banks but are used by the owner / management / bank clerk and had not recorded in the books of banks (fictitious deposits). Advice specially marked deposits of banks, signed by the owner / management.
3. Higher interest rate of deposit and savings accounts belongs to the owner / management and / or family, which effect in banks unable to compete because of high interest cost for personal gain.
4. Giving credit to the owner / management of banks and or family, then returned to deposited the funds in bank with a higher interest rate from the counter.
5. Mortgage interest payments and penalties by the debtor, which was recorded on the owner / bank clerk saving account
6. Fictitious expenditures and the money taken by the owners / managers / employees of banks made higher / mark up.
7. Expenditures for the benefit of the owners / managers / employees privately which not include an operational bank.
8. The practice of banks in the bank, the owner / managers / employees engaged in lending and borrowing funds for their own / personal use bank facilities using an escrow account.
9. Window dressing practices, engineering reports that are inconsistent with the actual fact, cover the existing flaws and violations.
10. Practice of tax avoidance, evasion of tax payments.

Cases of Banks Fraud (2)

July 30, 2010 | Author: ekotj

1. Giving credit to the owner / management and or related companies and / or family with no warranty, violate the Legal Lending Limit, was never paid, paying by bank.
2. Collecting loan repayment from debtors by the owner / management / employee ‘s Bank for its own sake and not deposited to the bank. Debtor account remains unpaid / paid.
3. Giving credit to the debtor and partly to the bank officer. Credit fund be shared between the debtor and the bank officer.
4. Installment Loans from grant to related party programs that actually appropriate provisions are not entitled.
5. Liquidation of debtors collateral as loan repayment, but the money from the liquidation are taken by owners / managers / employees of the Bank.
6. Ordered to the director to send funds to the account of shareholder without the support of DSS or other evidence sufficient for it. Is clearly the embezzlement of Bank funds for shareholder interests and engineering books in order not to appear in the books of the Bank.
7. Credit transactions / underlying transaction (which is not included in the postal bank accounts) and even do double bookkeeping through an escrow account / creditor accounts (savings) as well as a general creditors. Credit funds obtained from the owners / shareholders or from the activities of fictitious savings or deposits.
8. Loan losses in not accordance with the criteria for the purpose of funds collection will not be included in bank accounts or even if included only small numbers.
9. Allocation of bank funds to the owner / management to private interests.
10. Sale of property (assets) of banks with a price below the reasonable price or the existence of a bank’s assets with a certain price and none book value after depreciation

Cases of Banks Fraud (1)

July 29, 2010 | Author: ekotj

1. A loan officer creating fictitious 90 loans in a branch office is expanding rapidly. He paid back the old loans using the new loans. Collusion with the supervisor and internal examiner.
2. A loan officer pays a small businessman to use his name and address to create a loan for his personal needs. Repayment has not been done.
3. An administrative officer is receive unofficial returns when he bought the computer and office furniture at a price above the market price. He went to look for another job.
4. A loan officer in rural areas and attract disburse loans in cash. He took a portion of the payment. Said to have lost proof of payment of the loan. Most borrowers do not ask for proof of payment.
5. A credit manager approve 13 large loans to small entrepreneurs, he took back some of the loans for private purposes. He has the power to approve loans.
6. A fund manager send some money to his bank account personality, intends to pay it immediately. He later transferred to other management positions.
7. A branch manager approved the loan on their family who do not pay back. When arrears increased, he withdrew the new loan to reduce the level of arrears. When arrears increased again, he stole money from the cash to pay back the loan.
8. A loan officer took the cost of borrowing which not an official petition for their own interests.
9. Additional credit limit to certain borrowers since the beginning credits, when the bad loans (on rescheduling / restructuring) without known / approved by the borrower, so that what is stated in the offering letter does not the same with start credit limit.
10. Fictitious credit by using ID cards and the identity of debtors who had paid off, its credit fund used for the benefit of bank management / employee or for other purposes where the fact that the debitor in question does not exist at all in the bank loan

Needs of Profesional Education in Islamic Banking

July 28, 2010 | Author: ekotj

Since early 20th century the core concepts of Islamic Banking to profit sharing is still an academic study by Muslim scientists, in this case, more of the economist or bankers who doubted the Islamic banking system can be applied in the economic system. Meanwhile, conventional banking as we know it today having a process of evolution and testing that has been running with a well-established for centuries in the community. With the passage of time long enough, then it is not surprising that most of the public perceptions of the embedded notion that there is only one of the world banking system, namely the bank operating system with interest. Understanding that the bank with interest are definitive understanding of the business world, and the principle of academic literature on the various economic experts of banking.
There are still many people who have not an exactly perception about the activities of Islamic bank. Many people interpret Islamic bank as a conventional bank using the results in calculating the credit and funds deposit. Such perception can be understood because information and publicity about the activities of Islamic banks was minimal. Entering the gates of the understanding of Islamic bank will be faced with a new paradigm, a notion or a completely new outlook and mindset for a moment to forget the conventional banks.
One of the operational needs of Islamic banks is a human resources (HR) with a quality and qualified human resources. Islamic banks human resources must be able to translate the vision and mission statements contained in Islamic banks concept correctly, especially relating to lawful and illicit products. Therefore, Islamic banks are required qualified HR to run the Islamic Banking operations. Many problems of Islamic Bank caused by among practitioners of Islamic Banking is not fully understood.
Manpower skilled at the operational level, such as bank tellers, cashiers, customer service, or the salesman is likely met through non-formal education in the form of professional education. Educational advantages of this model is the freedom to design curriculum and teaching materials according to Islamic bank practice requirements, study time is relatively short, applicative in learning methodologies, have on the job training in Islamic bank, and Islamic bank practitioner teachers.

Prospect of Education Rural Bank

July 27, 2010 | Author: ekotj

In line with the mission of the national banking system to improve social welfare and as an agent of development, the presence of rural bank would be enormous benefits for economic development, especially the local economy that encourages the real sector.
Rural bank is one of the local banking financial institutions which could accommodate the needs of urban communities in the region / district to service savings, deposits and credit, especially segments of the market is mostly informal micro-entrepreneurs in the areas of Rural bank markets.
Rural bank existence until now has been tested and effective in providing financial services micro and small scale, this can be seen from the ability of rural banks in disbursing funds in the form of credit. Develop a rural bank is one of the main strategies of the Indonesian economy in creating a better and stronger. The success of rural bank through periods of economic crisis can not be separated from the support of micro-scale businesses that are resistant to extreme changes in the economy.
But the success and sustainability of micro enterprises must also be supported by the quality of its human resources are therefore considered very important for governments and economic actors to have an intelligent human resources and resilient.
To improve the quality of human resources needs to be provided quality education and it is certainly also require financing that is not small. Hence the need for financial institutions that have special attention for providing funding assistance for the development of education whether it be the provision of facilities and infrastructure as well as for improving academic quality in educational institutions.
Financial institutions which conformed to the above requirement is the Rural Bank specializing in financing educational development.
On the other hand social demand for higher education is increasing, therefore the existence of institutions both formal and non formal education also will be growing. To accelerate development in the field of education course required of financial institutions that have a core business concern in education.
To evaluate the feasibility of Education Rural bank in qualitative and quantitative research must be done more focus on resources such as rural banks and the location of the target market.

Business Scope Education Rural bank:

I. Funding
Rural bank can accept deposits in savings and time deposits with a target market:
A. Public
B. Foundations and educational institutions from kindergarten to university
C. Parents and students
D. Foundation and courses institutions

Apart from third-party deposits, Education Rural Bank may also raise funds from other banks or from other non-bank financial institutions.

II. Lending
The number of third party deposits and funds from both parties that have been collected plus the owners of the paid-up capital, Education Rural Bank can lend funds to the general public and particularly civitas academic and their institutions. The types of credit that can be offered based on its use, among others:
A. Credit for Teacher / Lecturer
B. Credit for Education Foundation
C. Credit for Management Education
D. Credit for students
Credit can be given in the form of working capital or investment and consumption.

III. Capital
Capital stock paid in the form from:
A. Foundation / educational institutions
B. Individual
C. Government agencies
D. Local governments
E. Companies
F. Parent / Student

Bank Budgeting Control

June 26, 2010 | Author: ekotj

Budgeting is a blueprint of the bank exposed in a standard format that makes sense business:
• Contains strategic vision of bank
• It can be used as a means of internal and external communications
• Useful as a means of assessing capital requirements
• A tool to plan, measure and improve performance
• Can be used as basis for a decision

A good bank budgeting can function as:
• Tool to check reality
Budgeting bank compiled in an objective, critical, and realistic

• A working tool
Bank budgeting could be used to make the aims and objectives as a means of evaluating and controlling performance in future

• Sending messages
Bank budgeting can communicate bank thoughts and messages to employees, directors, owners, and investors from outside bank

• A motivational tool
Bank budgeting can be used as direction / purpose to employees about what they accomplished

• A management development tool
Bank budgeting can help management to analyze internal and external conditions are favorable and endangering the bank continuity

• A roadmap
Bank budgeting can help guide bank operations in both good times and bad times.

One important function of management is monitoring, both monitoring and supervision in the narrow sense in a broader sense as a control. Properties rose supervision can also be distinguished in the form of supervision in the form of qualitative and quantitative.
The aim of control is:
1. For preservation and security of the bank’s property
2. To encourage the achievement of better working efficiency
3. To encourage compliance with established policies
4. To encourage the existence of financial administration in a timely, efficient and thorough.

In relation to control of the bank budgeting can be used as a tool to anticipate potential problems will arise in the future to be prevented as early as possible by solving the problem rigorously. So bank budgeting is an Early Warning System (EWS) in controlling the course of the bank.
In its role as an Early Warning System so there are various techniques that can be used for evaluation banks budgeting for information / feedback in order to improve work plans and budgets will come or for other purposes. Evaluation realization of bank budgeting can be done periodically depending on the needs bank whether monthly, quarterly, semi annual or annual. However, advisable to evaluate the realization of bank quarterly budgeting in order to identify if there distortions so that adjustments can be made as necessary. The simple analysis techniques can be used is variance analysis and financial ratio analysis.

A. Variance Analysis

Analysis of variance is an analysis to know the difference between one thing with another thing to be compared. Conceptual and systematic comparison between bank budgeting and realization suggests a wide range of differences that will have meaning if it held an evaluation of observation (examination), the deeper and produce conclusions that will be useful as a means of improvement and future planning.
Variance analysis can be done through two approaches, analysis of variance in qualitative and quantitative analysis of variance.

1. Qualitative analysis of variance

After a bank budgeting completed, and then implemented by each level of management in budgeting then it will be useful as guidance about what to do and goals to be achieved, and the legality of the actions to be performed. After the period of bank budgeting is completed traveled so every level of management will soon know whether what is done during this period as planned. Difference between planned with that has been realized is called variance . Variance itself can be favorable or unfavorable . Identify whether these variances are favorable or unfavorable depending on the type of activities of bank concerned.

2. Quantitative analysis of variance

To sharpen the qualitative analysis of variance, analysis of variance of the quantitative magnitude of variance was split into two elements, namely elements of the transaction volume and price of the element size used in the transaction. It may well be an activity is seen from the volume is considered favorable but the unfavorable views of the designated price.