DIFFERENT BANKING TERMS

1.Bank
A bank is a financial institution that accepts deposits from the public and creates credit. Lending
activities can be performed either directly or indirectly through capital markets. Due to their
importance in the financial stability of a country, banks are highly regulated in most countries.
Most nations have institutionalized a system known as fractional reserve banking under which
banks hold liquid assets equal to only a portion of their current liabilities. In addition to other
regulations intended to ensure liquidity, banks are generally subject to minimum capital
requirements based on an international set of capital standards.
Eg. 1.city bank, Bangladesh krishi bank, Sonali bank etc.

2.Double entry system

The double entry system of accounting or bookkeeping means that every business transaction
will involve two accounts (or more). For example, when a company borrows money from its
bank, the company's Cash account will increase and its liability account Loans Payable will
increase. If a company pays $200 for an advertisement, its Cash account will decrease and its
account Advertising Expense will increase.

3.Monetary Policy
Monetary policy consists of the process of drafting, announcing and implementing the plan of
actions taken by the central bank, currency board or other competent regulatory authority of a
country that determines the scope and impact of the key drivers of the economic activity in that
country. Activities which are integral to monetary policy consists of management of money
supply and interest rates which are aimed at achieving macroeconomic objectives like
controlling inflation, consumption, growth and liquidity. These are achieved by actions such as
modifying the interest rate, buying or selling government bonds, regulating foreign exchange
rates, and changing the amount of money banks are required to maintain as reserves.

4.Fiscal Policy
Fiscal policy refers to the use of government spending and tax policies to influence
macroeconomic conditions, including aggregate demand, employment, inflation and economic
growth. When the government of a country employs its tax revenue and expenditure policies to influence the
overall demand and supply for commodities and services in the nation’s economy is known as Fiscal Policy. It is a
strategy used by the government to maintain the equilibrium between government receipts through various sources
and spending over different projects. The fiscal policy of a country is announced by the finance minister
through budget every year.

5.Repo and Repo rate

Repo (Repurchase) rate is the rate at which the central bank lends short-term money to the banks
against securities. A reduction in the repo rate will help banks to get money at a cheaper rate.
When the repo rate increases, borrowing from the central bank becomes more expensive. The
current Repo rate is 6%.

6.Reverse repo and rate

The central bank of a country borrows money from commercial banks within the country. It is a
monetary policy instrument which can be used to control the money supply in the country. The
current Reserve Repo rate is 6.75%.

7.Deposit Mix
Deposit Mix is a combination of term deposits and investment in mutual funds so that sensitivity
to interest rate will minimize.

8.Cost of Funds
Cost of funds is the interest rate paid by financial institutions for the funds that they deploy in
their business. The cost of funds is one of the most important input costs for a financial
institution, since a lower cost will generate better returns when the funds are used for short-term
and long-term loans to borrowers. The spread between the cost of funds and the interest rate
charged to borrowers represents one of the main sources of profit for most financial institutions.

9.Loan pricing
Loan pricing provisions in bank loans link the interest rate to a measure of the company's credit
risk. Provisions may be either tied to the group's credit rating (rating triggers) or to an accounting
measure of risk, such as the leverage or the debt-to-EBITDA ratio.

10.Financial technology 
Financial technology (FinTech or fintech) is the new technology and innovation that aims to
compete with traditional financial methods in the delivery
offinancial services. FinTech is a new industry that uses technology to improve activities
in finance.

11.Nonperforming Loan - NPL

A nonperforming loan is a sum of borrowed money upon which the debtor has not made the
scheduled payments for a period of usually at least 90 days for commercial banking loans and
180 days for consumer loans. Nonpayment means there have been zero interest or principal
payments made on the loan within a specified period — generally, 90 to 180 days depending on
industry and loan type. Any definition of a nonperforming loan will depend on the loan's terms
and agreement as there is no definitive definition of a nonperforming loan - NPL. 

12.Deferred credit 
A deferred credit could mean money received in advance of it being earned, such
as deferred revenue, unearned revenue, or customer advances. A deferred creditcould also result
from complicated transactions where a credit amount arises, but the amount is not revenue.
13.Types of financial market
A financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial
markets are typically defined by having transparent pricing, basic regulations on trading, costs
and fees, and market forces determining the prices of securities that trade.

A.Capital market

A capital market is one in which individuals and institutions trade financial securities.
Organizations and institutions in the public and private sectors also often sell securities on the
capital markets in order to raise funds. Thus, this type of market is composed of both the primary
and secondary markets. 

B.Money Market

The money market is a segment of the financial market in which financial instruments with high
liquidity and very short maturities are traded. The money market is used by participants as a
means for borrowing and lending in the short term, from several days to just under a year.

C.Cash or Spot Market

Investing in the cash or "spot" market is highly sophisticated, with opportunities for both big
losses and big gains. In the cash market, goods are sold for cash and are delivered immediately.
By the same token, contracts bought and sold on the spot market are immediately effective.
Prices are settled in cash "on the spot" at current market prices. This is notably different from
other markets, in which trades are determined at forward prices.

D.Derivatives Markets

The derivative is named so for a reason: its value is derived from its underlying asset or assets. A
derivative is a contract, but in this case the contract price is determined by the market price of the
core asset. If that sounds complicated, it's because it is. The derivatives market adds yet another
layer of complexity and is therefore not ideal for inexperienced traders looking to speculate.

E.Interbank Market

The interbank market is the financial system and trading of currencies among banks and financial
institutions, excluding retail investors and smaller trading parties. While some interbank trading
is performed by banks on behalf of large customers, most interbank trading takes place from the
banks' own accounts.
14.Share vs Bond

Bond Share
Kind of Debt Equity
Instrument
Meaning In finance, a bond is a debt security, in In financial markets, stock capital raised
which the authorized issuer owes the by a corporation or joint-stock company
holders a debt and is obliged to repay through the issuance and distribution of
the principal and interest shares

Centralization Bonds markets, unlike stock or share
markets, often do not have a
centralized exchange or trading
system
Holders Bond holders are in essence lenders to
the issuer
Stock or share markets, have a centralized
exchange or trading system
The stock holders own a part of the issuing
company (have an equity stake)

Kind Securities Securities

Yield Analysis Nominal yield, Current yield, Yield to Gordon model, Dividend yield, Income
maturity, Yield curve, Bond duration, per share, Book value, Earnings yield,
Bond convexity Beta coefficient
Participants Investors, Speculators, Institutional Market maker, Floor trader, Floor broker
Investors
Issued By Bonds are issued by public sector Stocks are issued by corporations or joint-
authorities, credit institutions, stock companies
companies and supranational
institutions
Owners Bondholders Stockholders or Shareholders
15.Loans Vs Advances

BASIS FOR LOANS ADVANCES

COMPARISON

Meaning Funds borrowed by an entity from Funds provided by the bank to an

another entity, repayable after a entity for a specific purpose, to be
specific period carrying interest repayable after a short duration is
rate is known as Loans. known as Advances.

What is it? Debt Credit Facility

Term Long Term Short Term

Legal formalities More Less

Security May or may not be secured Primary security, collateral security

and guarantees

16.Depreciation
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life
and is used to account for declines in value. Businesses depreciate long-term assets for both tax
and accounting purposes.

17.Amortized Loan
An amortized loan is a loan with scheduled periodic payments that consist of both principal and
interest. An amortized loan payment pays the relevant interest expense for the period before any
principal is paid and reduced. This is opposed to loans with interest-only payment
features, balloon payment features and even negatively amortizing payment features.
18.Pledge Vs Hypothecation

BASIS FOR PLEDGE HYPOTHECATION

COMPARISON

Meaning Bailment of goods as security Hypothecation is the pledging of

against the debt for the goods, against the debt without
performance of the obligation or delivering them to the lender.
the payment thereon, is known
as the pledge.

Defined in Section172 of Indian Contract Section 2 of Securitisation and

Act, 1872 Reconstruction of Financial Assets
and Enforcement of Security Interest
Act, 2002

Legal Document Deed of Pledge Hypothecation Agreement

Possession of Remains with the creditor Remains with the debtor

property

Parties Pawnor and Pawnee Hypothecator and Hypothecatee

Rights of lender in To sale out the goods in his To take to possession of the asset
exceptional possession to adjust the debt. first, then it out to recover the debt.
circumstances

19.Classification of Loans
All loans and advances will be grouped into four(4) categories for the purpose of classification,
namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan & (d) Short-term
Agricultural &Micro Credit.

(a) Continuous Loan: - The loan Accounts in which transactions may be made within certain
limit and have an expiry date for full adjustment will be treated as Continuous Loans. Examples
are: CC,OD etc.

(b) Demand Loan: The loans that become repayable on demand by the bank will be treated as
Demand Loans. If any contingent or any other liabilities are turned to forced loans (i.e. without
any priorapproval as regular loan) those too will be treated as Demand Loans. Such as: Forced
LIM, PAD, FBP,and IBP etc.

(c) Fixed Term Loan: The loans, which are repayable within a specific time period under a
specific repayment schedule will be treated as Fixed Term Loans.

(d) Short-term Micro-Credit will include any micro-credits not exceeding Tk.25,000/=
(twenty five thousand) and repayable within 12(twelve) months, be those termed in any names
such as Non-agricultural credit, Self-reliant Credit, Weaver's Credit or Bank's individual project
credit.

20.Lease vs. Rent

Lease
Meaning It is a contract renting land, buildings,
etc., to another; a contract or
instrument conveying property to
another for a specified period
Length of Often 6-12 months, but can be set for
Agreement any length of time that two or more
parties agree to in the lease.
Managed By Property owner
Definition A lease is a contractual arrangement
calling for the lessee to pay the lessor
(owner) for use of an asset.
Rent
The periodic payment made to the owner
of a property for the use of said property,
as determined by a lease (rental)
agreement.
Payment is made for at least as long as the
lease requires it.
Tenant who pays rent to use the property
Renting, also known as hiring or letting, is
an agreement where a payment is made for
the temporary use of a good, service or
property owned by another.

21.Goodwill and goodwill amortization

Goodwill and Intangible Assets, goodwill is no longer permitted to be amortized. In accounting,
goodwill is accrued when an entity pays more for an asset than its fair value based on the
company’s brand, client base or other factors. Corporations use the purchase method of
accounting, which does not allow for automatic amortization of goodwill. Goodwill is carried as
an asset and evaluated for impairment at least once a year.Goodwill was an amortization expense
for a period of up to 40 years. Many companies used the 40-year maximum to neutralize the
periodic earnings effect and report supplementary cash earnings that they then added to net
income.

22. a) Opportunity Cost

Opportunity costs represent the benefits an individual, investor or business misses out on when
choosing one alternative over another. While financial reports do not show opportunity cost,
business owners can use it to make educated decisions when they have multiple options before
them. Because they are unseen by definition, opportunity costs can be overlooked if one is not
careful. By understanding the potential missed opportunities one forgoes by choosing one
investment over another, better decisions can be made.
22. b) Sunk Cost
A sunk cost is a cost that has already been incurred and cannot be recovered. A sunk cost differs
from future costs that a business may face, such as decisions about inventory purchase costs or
product pricing. Sunk costs (past costs) are excluded from future business decisions because the
cost will be the same regardless of the outcome of a decision.

22. c) Shadow Pricing

Shadow pricing is used to refer to either one of two things: the actual market value of a money market fund share,
or, more commonly, the assignment of a dollar value to an abstract commodity that is not ordinarily quantifiable as
having a market price, but needs to be assigned a valuation to conduct a cost-benefit analysis. In the latter instance, a
shadow price is assigned to goods that are not generally bought and sold as separate assets in a marketplace, such as
production costs or intangible assets.

23.Letter Of Credit
A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be
received on time and for the correct amount. In the event that the buyer is unable to make
payment on the purchase, the bank will be required to cover the full or remaining amount of the
purchase. Due to the nature of international dealings, including factors such as distance, differing
laws in each country, and difficulty in knowing each party personally, the use of letters of credit
has become a very important aspect of international trade.

24.Advance To Deposit Ratio (ADR)

The loan-to-deposit ratio is used to assess a bank's liquidity by comparing a bank's total
loans to its total deposits for the same period. This number is expressed as a percentage.
If the ratio is too high, it means that the bank may not have enough liquidity to cover any
unforeseen fund requirements. Conversely, if the ratio is too low, the bank may not be
earning as much as it could be.
25.Debt to Equity Ratio
Debt/Equity (D/E) Ratio, calculated by dividing a company’s total liabilities by its stockholders'
equity, is a debt ratio used to measure a company's financial leverage. The D/E ratio indicates
how much debt a company is using to finance its assets relative to the value of shareholders’
equity. The formula for calculating D/E ratios is: Debt/Equity Ratio = Total Liabilities /
Shareholders' EquityThe result can be expressed either as a number or as a percentage.

26.Project
a project is a series of tasks that need to be completed in order to reach a specific outcome.
A project can also be defined as a set of inputs and outputs required to achieve a particular goal.

27.BMRE
BMRE stands for Balancing, Modernization, Rehabilitation and Expansion.

28.Provision
provision is an account which records a present liability of an entity. The recording of the
liability in the entity's balance sheet is matched to an appropriate expense account in the
entity's income statement. The preceding is correct in IFRS. In U.S. GAAP, a provision is an
expense. Thus, "Provision for Income Taxes" is an expense in U.S. GAAP, but a liability in
IFRS.Sometimes in IFRS, but not in GAAP, the term reserve is used instead of provision. Such a
use is, however, inconsistent with the terminology suggested by International Accounting
Standards Board. The term "reserve" can be a confusing accounting term. In accounting, a
reserve is always an account with a credit balance in the entity's Equity on the Balance Sheet,
while to non-professionals it has the connotation of a pool of cash set aside to meet a future
liability (a debit balance).

29.Treasury Bill - T-Bill

A Treasury Bill (T-Bill) is a short-term debt obligation backed by the Treasury
Department of the U.S. government with a maturity of less than one year, sold
in denominations of $1,000 up to a maximum purchase of $5 million on noncompetitive
bids. T-bills have various maturities and are issued at a discount from par.

When an investor purchases a T-Bill, the U.S. government effectively writes investors
an IOU. They do not receive regular interest payments as with a coupon bond, but a T-
Bill does include interest, reflected in the amount it pays when it matures.

30.Commercial Paper
Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically
for the financing of accounts payable and inventories, and meeting short-term liabilities.
Maturities on commercial paper rarely range longer than 270 days. Commercial paper is usually
issued at a discount from face value and reflects prevailing market interest rates.
31.Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) is a system of transferring money from one bank account
directly to another without any paper money changing hands. One of the most widely-used EFT
programs is Direct Deposit, in which payroll is deposited straight into an employee's bank
account, although EFT refers to any transfer of funds initiated through an electronic terminal,
including credit card, ATM, Fedwire and point-of-sale (POS) transactions. It is used for both
credit transfers, such as payroll payments, and for debit transfers, such as mortgage payments.

32. a) CTR (Cash Transaction Report)

CTR means Cash Transaction Report. It is a monthly statement form introduced by Bangladesh
Bank if Tk. Ten lac & above credited or debited by one or more vouchers in an account in a day,
to submit the same to them by the branches through the Head Office of their Banks. This
statement contains the date, Account no, name of the account, number of debit/credit vouchers of
the day, amount credited/debited etc. This statement could generate by our computer. Anti
Money Laundering unit of branches should observe the CTR statements whether any doubtful
transactions are happened or not and they should put their comments upon the statement.

32. b) STR(Suspicious Transaction Report)

STR  means Suspicious Transaction Report. As per Bangladesh Bank Anti Money Laundering
circular no.2 a quarterly statement designed by Bangladesh Bank to detect Money Laundering
crimes. Branches of all Banks in Bangladesh prepare the statement at the end of the quarter
which contains the full particulars of suspicious transacted account detected at the branch during
the quarter. Head Office collect the statement from branches and submit a consolidated statement
to Bangladesh Bank with their comments duly scrutinized/verified/inspected.

33. a) CRR (Cash Reserve Ratio) 

Cash Reserve Ratio abbreviated as CRR is the percentage of total deposits, which a commercial
bank has to keep as reserves in the form of cash with the Central Bank. The banks are not
allowed to use that money, kept with the central, for economic and commercial purposes. It is a
tool used by the Central Bank to regulate the liquidity in the economy and control the flow of
money in the country.
According to Article 36 of the Bangladesh Bank Order 1972, every scheduled bank has to
maintain Cash Reserve Ratio (CRR) (often called Cash Reserve Requirement) in the form of
cash with BB the amount of which shall not be less than such portion of its total demand and
time liabilities as prescribed by BB from time to time. Presently, the required CRR is 5.50% on
bi-weekly average basis and minimum 5.00% on daily basis.

33. b) SLR(Statutory Liquidity Ratio )

Statutory Liquidity Ratio abbreviated as an SLR, is a percentage of Net Time and Demand
Liabilities kept by the bank in the form of liquid assets.  It is used to maintain the stability of
banks through limiting the credit facility offered to its customers. The banks hold more than the
required SLR and the purpose of maintaining the SLR is to hold a certain amount of money in
the form of liquid assets, so as to fulfill the demand of the depositors when arises.
According to Section 33 of the Bank Company Act 1991, every scheduled bank has to maintain
Statutory Liquidity Ratio (SLR) in the form of cash or gold or un-encumbered approved
securities the market value of which shall not be less than such portion of its total demand and
time liabilities as prescribed by BB from time to time. The required SLR is 13% daily for
conventional banks and 5.5% daily for Islamic Shari'ah based banks and Islamic Shari'ah based
banking of conventional banks.

34.Inflation
To put it simply, inflation is the long term rise in the prices of goods and services caused by the
devaluation of currency. While there are advantages to inflation which I will discuss later in this
article, I want to first focus on some of the negative aspects of inflation.
Inflationary problems arise when we experience unexpected inflation which is not adequately
matched by a rise in people’s incomes. If incomes do not increase along with the prices of goods,
everyone’s purchasing power has been effectively reduced, which can in turn lead to a slowing
or stagnant economy. Moreover, excessive inflation can also wreak havoc on retirement
savings as it reduces the purchasing power of the money that savers and investors have
squirreled away.

35.Call Money
Call money is money loaned by a bank that must be repaid on demand. Unlike a term loan,
which has a set maturity and payment schedule, call money does not have to follow a fixed
schedule, nor does the lender have to provide any notice of repayment. Brokerages use call
money as a short-term source of funding to maintain margin accounts for the benefit of their
customers who wish to leverage their investments. The funds can move quickly between lenders
and brokerage firms.