SEBL Final BK NW

Southeast Banks Credit Approval & Monitoring Process
Chapter One ORGANIZATION PART
1.Introduction
The Banking Industry in Bangladesh is characterized y strict regulations and !onitoring "ro! the central governing ody# the Bangladesh Bank$ The !ain concern is that currently there are !any anks "or the !arket to sustain$ As a result# the !arket %ill only acco!!odate those anks that can transpire the !ost co!petitive and pro"ita le in the "uture$ Currently the !a&or "inancial institutions under the anking syste! include' Bangladesh Bank Private Co!!ercial Banks State (%ned co!!ercials Bank Isla!ic anks )on* ank "inancial Institutions# etc$
(" these# there are "our state o%ned co!!ercial anks +)CB,# - specialized anks# 11 "oreign anks# and ./ do!estic private anks# 0 Isla!ic anks currently operating in Bangladesh$
Scheduled Banks in Bangladesh
FCB 20% NCB 8% PCB 54% Islamic 8% Specialized 10%
FCB NCB Islamic Specialized PCB
1igure1$1' Scheduled Banks in Bangladesh
2enerally# the co!!ercial
anks and "inance co!panies provide a !yriad o"
anking
products3services to cater to the needs o" their custo!ers$ 4o%ever# the Bangladesh anking industry is characterized y the tight anking rules and regulations set y the Bangladesh

Bank# All anks and "inancial institutions are highly governed and controlled under the Banking Co!panies Act*1556$ The range o" anking products and "inancial services is also li!ited in scope7 all local anks !ust !aintain a 08 Cash 9eserve 9e:uire!ent +C99,# %hich is non*interest earing and a 1/8 Secondary ;i:uidity 9e:uire!ent +S;9,$ <ith the li eralization o" !arkets# co!petition a!ong the anking products and "inancial services see!s to e gro%ing !ore intense each day$ In addition# the anking products o""ered in Bangladesh are "airly ho!ogeneous in nature due to the tight regulations i!posed y the central ank$ Co!peting through di""erentiation is increasingly di""icult and other anks :uickly i!itate any innovative anking service$
1.1 O !ecti"e o# the Stud$

Pri!ary goal o" the study is to have kno%ledge a out the loan and advance !anage!ent o" credit in Southeast Bank ;i!ited +S=B;,$ Speci"ic goals o" the study are as "ollo%s'
To kno% the lending products o" the S=B;$ To kno% the interest rates and "ees o" loans To kno% the credit policy and credit operation !odel To kno% the credit appraisal and analysis process To kno% the process o" selecting orro%ers To kno% the credit risk grading !odel To kno% a out the loan classi"ication To kno% a out the loan recovery Syste! To identi"y and suggest scopes o" i!prove!ent o" e>isting !ethods o" loan approval# !aintenance and !onitoring in the credit division o" S=B;$
1.% &ethodolog$
The present study is ased on e!pirical as %ell as theoretical analysis$ 4ere the research is :ualitative in nature$ Collected data and in"or!ation %ere ta ulated# processed and analyzed critically in order to !ake the report !ore in"or!ative# "ruit"ul and purpose"ul$ In preparing this report I have collected data and in"or!ation "ro! the "ollo%ing sources' 1.%.1 Pri'ar$ data Pri!ary ?ata have een collected y intervie%ing so!e o" the o""icers o" the ank and practical desk%ork$
1.%.% Secondar$ data The secondary data have een collected "ro! the training !anual o" Southeast Bank ;td$ %hich is %ritten y so!e o" the depart!ent head o" Southeast Bank ;td and "aculties o" BIBM# various credit !anual o" Southeast Bank ;td# various circular o" Bangladesh Bank regarding ;oans and Advances# "iles o" loans issued etc$ So!e data collected "ro! ooks# Annual reports# %e site etc$ The !a&or portion o" data sources has related te>t and research paper$ een collected "ro! secondary data sources$
In"or!ation re:uired "or!ulating suggestions and reco!!endations have een availed "ro!
1.( Scope o# the Stud$
Scope !eans the area on %hich the study has to e done$ The study is only related in Southeast Bank ;i!ited# @u ilee 9oad Branch# and Chittagong$ This report "ocuses on the (vervie% o" the Southeast Bank ;i!ited and !ainly related %ith ;ending Policy and recovery syste!$
1.) *i'itations o# Stud$
Credit !anage!ent is a ig su &ect to cover %holly in this li!ited space$ It So# I %ill cover only so!e i!portant topics o" credit !anage!ent$ I have to prepare this report %ithin a period less than three !onths %hich is not enough to prepare such a report$ It is not possi le to get all sorts o" in"or!ation due to o""icial con"identiality$ ?ue to lack o" practical kno%ledge# so!e short co!ings !ay e availa le in the report$ Because in so!e cases I could not practically involved ecause o" anks policy li!itations and operational indings$
%. ABO+T SO+T,-AST BAN. *I&IT-/

Southeast Bank ;td$ is one o" the "ast gro%ing# leading and pro!inent ank in the private anking sector %hich is run y highly skilled pro"essionals$ The ank has een sponsored y a group o" reno%ned personalities "ro! "ield o" trade# co!!erce and industries including so!e e!inent entrepreneur$ 4ighly skilled pro"essionals %ith %ide e>perience in do!estic and international anking are !anaging the ank$ The Southeast Bank ;i!ited has already occupied a challenging position a!ong its co!petitors a"ter achieving success in all areas o" usiness operation$ This ank is catering oth the Conventional and Isla!ic !ode o" interests$ It o""ers all kind o" co!!ercial and personal anking service covering al!ost all seg!ents o" the society$ To serve the custo!ers through capacity uilding across !ulti delivery channel is one o" the !ain strategies o" the Southeast Bank ltd$
%.1 ,istor$ o# the Bank
Southeast Bank ;i!ited has a long and relishing heritage$ It is a second generation private co!!ercial ank that %as esta lished in 155- %ith the vision to stand out as a pioneer anking institution in Bangladesh and contri ute signi"icantly to the national econo!y$ It %as incorporated on March 1.# 155- as a Pu lic ;i!ited Co!pany$ Certi"icate o" co!!ence!ent o" usiness o" the ank issued y the 9egistrar o" @oint Stock Co!panies & 1ir!s %as also dated March 1.# 155-$ The Banking license "or the Bank %as issued y Bangladesh Bank on March .6# 155-$ The Bank and its "irst ranch at the usiest co!!ercial hu o" the country at 1# ?ilkusha Co!!ercial Area# ?haka %as opened on May .-# 155y Mr$ M$ Sai"ur 9ah!an# =>*4onora le 1inance Minister# 2overn!ent o" the Peoples 9epu lic o" Bangladesh as the chie" guest$ The Authorized Capital o" the Bank is Tk$ .-AA !illion$ Its paid up Capital and reserve reached at present Tk$1A-/$6/ !illion$ The sponsors o" the Bank are the leading usiness personalities and e!inent industrialists o" the country having stakes in various seg!ents o" the national econo!y$

Sound and e""ective corporate governance is the !ost pre"erred priority "or the Bank$ Its operations are carried out in a !anner suited to pro!ote long ter! creation o" co!pany value$ Custo!er co!es "irst and gets the highest priority in the operations o" the Bank$ The Bank is !anned and !anaged y a tea! o" e""icient pro"essionals$
%.% 0ision
To stand out as a pioneer anking institution in Bangladesh and contri ute signi#icantl$ to the national econo'$.
%.( &ission
4igh :uality "inancial services %ith the help o" the latest technology$ 1ast and accurate custo!er service$ Balanced gro%th strategy$ 4igh standard usiness ethics$ Steady return on shareholders e:uity$ Innovative anking at a co!petitive price$ Attract and retain :uality hu!an resource$ 1ir! co!!it!ent to the society and the gro%th o" national econo!y$
%.) Slogan o# S-B*
1A Bank 2ith 0ision3
%.4 Southeast Bank 5 At Present
4aving started its operations as a co!!ercial ank in 155-# Southeast Bank is today a synony! o" :uality anking products$ It has a diverse array o" care"ully tailored products and services to cater the needs o" all custo!er seg!ents$ They have structured their operational strategies to address the special and o"ten co!ple> needs o" the custo!ers$ In the gro%th graph# it has generated pro"it o" Tk$.ACA$/C !illion in the year .AAC$ The curve keeps soaring up%ard %ith da%n o" everyday$ Today Southeast Bank is one o" the leading and one o" the !ost success"ul anking institutions in Bangladesh %ith a total asset ase o" Tk$0-C0-$B6 !illion as on 61$1.$.AAC$ Southeast Bank has no% e!erged as a !a&or player in the "inancial sector$ ;isted in oth the ?haka and Chittagong stock e>change since late 1555 %ith an IP( that raised the paid*up capital o" the ank to Tk$1A-/$6/ !illion# the current price levels o" its shares and turnover in trading is evidence o" its high rating a!ong investors$ Banks are the pillars o" the "inancial syste!$ Specially# in Bangladesh# the health o" the anking syste! is very vital ecause the capital !arket is little developed here$ As the anks are still the !a&or sources o" credit and e>ercise great in"luence on the "inancial syste!# it is e>tre!ely i!portant that the countrys anking syste! should e in good health in the interest o" invest!ent activities# !eeting the needs o" all kinds o" "inance and related !atters$
(ver the years# S=B; has uilt itsel" as one o" the pillars o" Bangladeshs "inancial sector and is playing a pivotal role in e>tending the role o" the private sector o" the econo!y$ The ank has a strong ranch net%ork nation%ide %ith 0C ranches to e""ectively address the needs o" its cross* seg!ent custo!er ase$
%.6 Co''it'ents to Clients o# S-B*
S=B; is a custo!er "ocused !odern Banking institution in Bangladesh$ <e deliver unparallel "inancial services to 9etail# S!all and Mediu! Scale =nterprises +SM=s,# Corporate# institutional# 2overn!ental and Individual Clients through Branch outlets across the country$ Their Business initiatives center on the e!erging needs o" the !arket$ S=B; co!!it!ents to the clients are the "ollo%ing'
Provide services %ith high degree o" pro"essionalis! and use o" !odern technology$ Create long ter! relationship ased on !utual trust$ 9espond to custo!er needs %ith speed and accuracy$ Share their values and elie"s$ 2ro% as their Custo!ers gro%$ Provide products and services at co!petitive pricing$ =nsure Sa"ety and Security o" custo!ers valua les in trust %ith the!$
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%.7 S-B* Core 0alues
Integrity 9espect 1airness 4ar!ony Tea! Spirit Courtesy
Co!!it!ent Service =>cellence Insight and Spirit =nthusias! "or %ork Business =thics
%.8 S-B* Core Strengths
Transparent and Duick ?ecision Making =""icient Tea! o" Per"or!ers Satis"ied Custo!ers Internal Control Skilled 9isk Manage!ent ?iversi"ication
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%.9 Organi:ational ,ierarch$

Managing Director Deputy Managing Director Senior Executive Vice President Executive Vice President Senior Vice President Vice President First Vice President Senior Assistant Vice President Assistant Vice President Senior Principal Officer Principal Officer Executive Officer GradeSenior Officer Officer !unior Officer ;igure %.1< ;lo2 o# Authorit$
A ove is the !anage!ent structure o" the total corporate Southeast
ank$ The
"unctional structure hierarchy in individual ranch o""ices is sa!e in all o""ices$ I have done !y internship in the @u ilee 9oad ranch o" the ank$ Its total operation !ay not
1.
Southeast Banks Credit Approval & Monitoring Process e ig co!pared to the other ranches# ut it can give us an idea o" ho% all ranch o""ices operate$ Belo% %e have the organizational structure o" the ranch$
%.1= ;unctional Structure o# S-B*

HEAD OF BRANCH IT DEPARTMENT
OPERATIONS MANAGER
GENERAL BANKING
CREDIT DEPARTMENT
FOREIGN EXCHANGE
CLEARIN G
CASH
ACCOUNTS
EXPORT
IMPORT
1igure .$.' 1unctional Structure o" S=B;
Head of Branch: The ranch !anager or 4ead o" Branch +4(B, is the !ain person o" any ranch o""ice$ 4e is like the president o" a country %ho overlooks all the activities o" a ranch and !akes sure everything is %orking in accordance to the rules set y the head o""ice$ Operations Manager: I" 4(B is like a president o" a country# then (perations Manger +M(, is like the pri!e !inister$ This person !anages the overall operation o" a ranch o""ice$ 4e !akes sure everything is running s!oothly and i" any pro le! arises he takes the decision o" ho% to solve it %ith the co!pliance o" 4(B$
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General Banking Department: A!ong the three !a&or depart!ents in the ank 2eneral Banking +2B, is pro a ly the !ost popular a!ong the consu!ers$ That is ecause any custo!er %ho co!es in a ank %ill "irst have to deal %ith this depart!ent no !atter %hat his or her purpose is$ This depart!ent is responsi le "or the day*to*day anking that occurs in a ranch o""ice starting "ro! account opening# to pay order issue# 1?9 issue etc$ Ender this depart!ent are three i!portant sections that per"or! very specialized tasks$ They are Clearing: Any che:ue that arrives in this ank has to e cleared or else the recipient o" the !oney %ill not get the !oney$ This is done through so"t%are provided y the central ank# Bangladesh Bank# called )IFAS4$ (nce all the che:ues and deposits are entered in the so"t%are# a !essenger "ro! the ranch takes the in"or!ation in a "loppy disk to the head o""ice %here they collect such in"or!ation "ro! all ranches daily to su !it to the Bangladesh Banks clearinghouse$ (nce su !itted to the clearinghouse# the central ank clears the che:ue and the !oney gets trans"erred to the individual account$ This is ho% the clearing operations %ork$ Cash: All the cash transactions are conducted in this section$ Custo!ers co!e here to either %ithdra% cash "ro! their accounts or deposit cash "or !ultiple purposes$ The cash !ay pay!ent o" ills or tuition "ees$ Accounts: All the daily transactions "or oth the custo!ers and the anks internal are conducted %ith the consent o" this depart!ent$ Any ne% supplies ought "or the ank or the e!ployees salary co!es "ro! this depart!ent$ They !ake sure all these transactions are recorded properly and sa"ely$ They conduct auditing o" the previous days transactions to !ake sure all transactions %ere recorded correctly$ Credit Department: Consu!ers %ishing to take loan "or any purpose co!e to this depart!ent$ But in order "or anyone to take a loan any client has to "irst open an account through the 2B depart!ent so that the a!ount o" his or her loan is trans"erred there$ The credit procedure is :uite lengthy and needs an approval o" the head o""ice e"ore the ranch can provide the !oney to the consu!er$ Foreign Exchange: This depart!ent deals %ith international trade$ Any co!pany %ho either e>ports to or i!ports "ro! "oreign country can do so through this depart!ent o" the ank$ They can open a "oreign currency account and issue a ;ine o" Credit +;C, %ith the ank$ The e>ports to "oreign countries are dealt y the export section %hile the i!port o" ra% !aterials or other supplies "ro! "oreign countries are dealt y the import section. e deposited "or personal accounts# or
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IT Department: The In"or!ation Technology ?epart!ent does not "all in the regular hierarchy o" "unctional structure$ It is related to every other depart!ent$ Any transaction that occurs is recorded through the PC Bank so"t%are# %hich is then stored in the !ain server o" the ranch$ This server is !aintained and !onitored y the IT depart!ent$ Also any online transaction# i$e$ che:ues or deposit slips o" other ranches %hen rought in this ranch# is conducted through the IT depart!ent$
%.11 /i"isions o# S-B*

All policy "or!ulation and su se:uent e>ecutions are done in the 4ead (""ice$ It co!prises nine !a&or divisions$ They are descri ed elo%'
1. Credit ?ivision %. Credit Ad!inistration ?ivision (. Treasury and International ?ivision ). Internal Control and Co!pliance ?ivision 4. 4u!an 9esources & ;ogistics ?ivision 6. Marketing ?ivision 7. Merchant Banking ?ivision 8. Share ?ivision 9. In"or!ation Technology ?ivision
1-
(. BASIC CONC-PTS O; CR-/IT

(.1 Credit &anage'ent Credit !anage!ent is the part o" Bank Manage!ent %hich decides %hat type o" lending product %ill e o""ered# to %ho! it %ill e o""ered# ho% !uch it %ill e o""ered and analyze and !easure the credit risk on loans and !anage all the activities regarding the loans$ The ai! o" the credit !anage!ent is to have a secured loan port"olio so that the ank can earn pro"it y keeping the depositors savings secured$ The entire &o regarding that consist the credit !anage!ent$ (.% *oan ;oan !eans lending a "i>ed a!ount o" !oney to orro%er "or a certain period o" ti!e$ The orro%er !ust repay the loan %ithin the given ti!e period$ In case o" loan# the dis urse!ent %ill take place only "or one ti!e$ The orro%er can repay the loan "ully at a ti!e or y install!ent$ (.( Ad"ance Advance is a little it di""erent "ro! ;oan$ In Advance# the orro%er is allo%ed a credit li!it "or a given period o" ti!e$ In that given period# the orro%er can %ithdra% !oney as !any ti!es as he %ant ut he cannot e>ceed the credit li!it$ Again he can repay several ti!es %henever he %ants$ In Advance# dis urse!ent and repay!ent occurs several ti!es$ But at the end o" the period# %hole credit a!ount !ust e repaid to the anks$ This type o" credit is allo%ed to usiness "or their %orking capital re:uire!ent$ (.) Credit Risk Grading &odel This is !odel to grade the credit risk$ Esing that !odel# anks rank the credit risk and decide %hether they %ould lend or not$ 4ere# a orro%er is &udged "ro! di""erent point o" vie%$ A"ter &udging# i" the orro%er has a satis"actory grade or !ark then he3she can have the loan$
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(.4 O !ecti"es o# *ending Progra' The !ain o &ectives o" lending progra! in Bangladesh are'
To provide "inancial assistance "or purchasing necessary goods and services$ To "oster !icro and !acro level econo!ic gro%th o" the country$ To !itigate the short ter! and long ter! capital re:uire!ents o" usiness organizations$ To i!prove the living standard o" people$ To provide loan that can e repaid in so!e easy install!ent$ To "acilitate loan %ith :uick accessi ility$ To contri ute in the socio econo!ic develop!ent o" the country$ (.6 -ligi ilit$ #or *oan 1or the dis urse!ent o" loan# di""erent Banks have di""erent criteria$ So!e Bank o""ers loan to each level o" inco!e group %ith every pro"ession %here others have so!e li!ited area "or dis urse!ent o" loan$ Esually in Southeast Bank the loan is given to "ollo%ing groups'
;arge corporate houses +)ational and !ultinational,$ =sta lished usiness concerns$ )e%ly esta lished usiness concerns$ Pu lic and private li!ited co!panies$ Proprietorship concerns$ Partnership concerns$ Individual persons$ =!ployees o" di""erent pu lic# private# and "oreign co!panies accepta le to the ank$ Per!anent e!ployees o" Se!i*2overn!ent Bodies and Autono!ous Pro"essionals such as doctors# =ngineers# ;a%yers# Architects# Chartered Accountants# @ournalists# and sel" e!ployed person etc$ (.7 /ocu'ents 1or e>ecution o" loan# Bank usually uses t%o types o" docu!ents$ (ne is application "or! and other one is charge docu!ent$ ?etails o" these docu!ents are given elo%$
1B

(.7.1 Application ;or' The contents o" application "or! "or loan o" di""erent anks are al!ost the sa!e and these are as "ollo%s$ ersonal Details of !pplicant "s>< The applicants personal in"or!ation is %ritten do%n here$ B#siness Details: In this section# applicant has to speci"y the details a out his3her usiness +)a!e# capital# !anage!ent# outlook# operation# etc o" the usiness,$ #rpose: Purpose o" the loan have to e descri ed in depth here$ Security and (ther charges are to e !entioned$ Financial Details: Total assets# Total lia ilities# Monthly inco!e# Monthly e>penses and all other "inancial details o" the applicant have to e !entioned$ artic#lars of G#arantors: ?etails o" 2uarantors %ith their @o details are to e stated here$ $etter of !ss#rance: This is the assurance o" the %orking organization o" the client to pay the install!ent on ehal" o" the client in case o" the client "ails to repay$ Declaration: This the declaration o" the orro%er that all the in"or!ation regarding the :uotation o" goods is correct and s3he agrees %ith all ter!s and conditions o" the Bank$ $egal Doc#ments: As per the lo% o" the state and related act a orro%er have to su !it re:uired docu!ents to "ul"ill legal inding$ Others: A orro%er !ay have to su !it other docu!ents as per the re:uire!ents o" the anker ti!e to ti!e3 central ank circular to etter securitize the loan$
$oan Details: A!ount o" ;oan# Period# Interest# =:uity# Mode o" 9epay!ent#
(.7.% Charge /ocu'ents Charge docu!ents are set "or docu!ents that contain di""erent rules# ter!s and conditions$ I" the orro%er o" loan agrees %ith all these ter!s and conditions regarding the loan she3he needs to sign all the docu!ents$ I" any disagree!ents or irregularity occurs in "uture# these docu!ents %ill e e>ercised to suit against the orro%er$ Be"ore the dis urse!ent o" loan# the "ollo%ing docu!ents !ust e signed y clients$ The sta!ps needed "or these docu!ents are paid y the clients$ $etter of G#arantee: This letter o" guarantee is t%o sided$ (ne is orro%er side guarantee and another one is guarantor side guarantee$ Borro%er side guarantee
1C

consists o" agree!ent o" all ter!s and conditions o" Bank as %ell as assurance o" proper repay!ent o" install!ent$ 2uarantor side guarantee is the undertaking y the guarantor to pay the install!ents in case o" "ailure o" the client$ $etter of H%pothecation: It signi"ies that the goods3 ite!s are hypothecated to the Bank$ Demand romissor% &ote: It is the pro!ise o" orro%er to pay on de!and to the Bank the overdue or total outstanding i" necessary$ $etter of Installment: In this docu!ent orro%er pro!ise to pay all regular and irregular install!ents in due ti!e$ $etter of Dis'#rsement: This is the declaration o" dis urse!ent o" ;oan to the orro%er$ $etter of agreement: This is the agree!ent that the orro%er is ound to pay all dues together %ith all other charges and the orro%er gives the ank the authority to discharge the agree!ents any ti!e due to the "ault in orro%er side$ $etter of !#thorit%: This is the letter the orro%er gives the Bank the authority to de it the account i" necessary$ (.8 *oan -?ecution Process ;oan progra! o" di""erent Banks is e>ecuted ased on the policy o" their o%n$ Though the policy !ay di""er "ro! ank to ank# the !ain "ra!e%ork o" this progra! is al!ost sa!e in every ank$ The overall process is eing descri ed here %ith$ ()*)+ !pplication At the very eginning clients co!e to the ank and pursue "or the loan to purchase desired goods and services$ Bank then inspects and veri"ies a out the applicant$ I" the ank considers the clients suita le and co!petent "or the loan# ank sells an application to the clients at a certain price$ A"ter the su !ission o" the application "or!# the proper "illing up process o" the loan starts$ ()*), !mo#nt of $oan and D#ration The a!ount o" loan varies "ro! co!!odity to co!!odity$ ?i""erent ank o""er di""erent a!ount o" loan "or di""erent goods and services$ Esually the ceiling o" CCS loan is higher "or vehicle$ The ;oan is dis ursed "or the period o" 1 to - years duration$ The ti!e period o" install!ent depends on the a!ount o" loan$
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()*)( -ec#rit% 1or loan# Bank de!ands security or !ortgage$ The only security o" loan is guarantor+s, o" the orro%er$ The guarantor+s, !ay e one person or t%o as the Bank de!ands$ The duty o" this guarantor+s, is to give assurance to the ank that they %ill pay on ehal" o" the clients in case orro%er "ails to repay$ The guarantors+s, !ust e accepta le to the Bank$
()*). Do/n a%ment ?o%n pay!ent or the orro%ers e:uity in the loan di""er "ro! ank to ank$ This do%n pay!ent !eans that orro%er has paid a certain percentage o" the total price o" the co!!odity e"ore dis urse!ent o" the loan$ This percentage is usually et%een 1A8 and 0A8 "or di""erent co!!odities$ The orro%er has to open an account in the ank %here the do%n pay!ent a!ount and install!ent are deposited$ ()*)0 Interest 1 Other Charges Interest on loan also di""ers "ro! Bank to Bank$ The a!ount o" interest on ;oan is ranged "ro! 1.8 to 1/8$ =very Bank deter!ines the install!ent a!ount o" the orro%er considering this interest rate along %ith repay!ent o" loan$ 1e% Banks charge penalty charges "or de"aulters$ (ther charges include service charge and risk "und# %hich are not re"unda le and di""er "ro! Bank to Bank$ ()*)2 3epa%ment rocess The loan is to pay through !onthly install!ent %ith interest# as the ank deter!ines$ The "irst install!ent egins "ro! the "ollo%ing !onth o" dis urse!ent o" loan$ =very install!ent is to pay %ithin the "irst %eek o" the !onth7 other%ise !any anks take advance che:ues "or install!ent to the Bank$
.A
). *-N/ING PROC-SS O; S-B*

).1 Process o# ,andling *oans<
.1

Getting Loan P oposal ! om t"e Client Collecting In!o mation #$al%ating P o&ect and P oposal
)'o%t Client
)'o%t P o&ect
#$al%ating '( )gent
Legal )ssessment
#$al%ating Collate al
S%pe $ision o! t"e Loan
*is'% sing Loan
Sanctioning and *oc%mentation o! Loan
*ecision
B anc" Le$el #$al%ation
,eco$e ( o! t"e Loan
+ead o!!ice Le$el
B anc" Le$el
-s%al ,eco$e (
Legal ,eco$e (
;igure ).1< Process o# ,andling *oan
).% Securit$ o# *oan
Three securities o" loan' i, !ost pre"erred is usinesss inco!e cash "lo% "ro! %hich the custo!ers %ill repay loan# ii, second security consists o" custo!ers alance sheet 3 his assets
..

that can e li:uidated or ad&ust!ent o" loan and iii, 2uarantees "ro! o%ners "ro! a third party$
).%.1 Collateral securit$ Collateral security serves t%o purposes "or a lender "irst# i" the orro%er can not pay# the collateral gives the lender the right to seize or sell those properties to cover the a!ount o" loan de"ault$ Secondly# collateral security gives the lender a Psychological advantage over the orro%er$ Borro%ers in this situation "eel !ore o ligated to %ork hard to repay the loan to avoid loosing valua le assets$ Collateral security !ust have the "ollo%ing characteristics7 Tangi le$ Trans"era le3 )egotia le$ =asy !arketa ility Ade:uacy o" !argin$ Price sta ility$ ?ura ility$ 2enuineness o" title +"ree "ro! encu! rance, ).%.% Pri'ar$ securit$ Pri!ary security !eans the security o""ered y the orro%er hi!sel" as cover "or the loan$ It re"ers to the asset# %hich has een ought %ith the help o" the ank the !achinery and goods constitute the pri!ary security$
).( Credit Anal$sis

Credit analysis is the analysis o" "inancial state!ent o" usiness3custo!ers "or the purpose o" lending$ Credit analysis are conducted to deter!ine %hether the custo!er is credit%orthy and %hether the custo!er has su""icient cash "lo%s and ack up assets to repay the loan$ The !ain purpose o" credit analysis is to ascertain %hether the loan can e serviced y the custo!er and %hether the ank is ade:uately protected to realize the loan in the event o" de"ault y the orro%er to repay loan$ ).(.1 &a!or issues e?a'ined in credit anal$sis Is the orro%er credit%orthyG
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<hether purpose o" the loan is consistent %ith anks credit policies and 2ovt$ 9egulationsG <hether custo!er3or his usiness have the a ility to generate enough cash to repay the loanG <hether su""icient security has een o""ered# so that in the event o" de"ault anks "und can e recovered$ <hether anks clai! on that security can e esta lished %ithout risk3 %ith lo% riskG 1i>ing o" a!ount o" loan# loan ter!s and conditions# docu!entations# etc$ !eet the needs o" the orro%er and to protect the interest o" the ankG ).(.1.1 Borro2er@s Credit2orthiness a. Character To deter!ine "or the ank %hether the orro%er has responsi le attitude to%ards orro%ed "unds and %hether he %ill have every e""ort to repay %hat is o%ed$ 9esponsi ility# truth"ulness# serious purpose and serious intention to repay loans !ake up the characters o" the orro%er$
. Capacit$ %hether custo!er has the capacity to re:uest a loan and have the legal standing to sign loan agree!ent and docu!ents +!inor 3 resolution o" the Board o" ?irectors in case o" li!ited co!pany# partnership deed in case o" partnership "ir!s# etc, c. Condition Analysis o" recent trends in the orro%ers usiness3 industry and %hether changing econo!ic condition !ight a""ect usiness or loan$ +=""ects or recession or in"lation etc$, d. Control <hether there are chances o" changes in 2ovt$ policy or la% %hich could adversely a""ect orro%ers usiness$ e. -cono'ic ConditionAAssets %hether orro%er has su""icient assets to repay the loan +cash usiness assets plus other i!!ova le and !ova le properties, other loans and lia ilities o" the orro%er #. Credit histor$Acredit ha it
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<hether loans orro%ed y the custo!ers previously and ho% those earlier loans %ere handled$ %hether there is any loan de"ault earlier <hether legal action has ever een taken against hi! "or recovery o" de"ault loan$ g. Credit rating Credit rating o" the orro%er y Credit 9ating Agencies$
).(.1.% Purpose o# loan Custo!er !ust have an %ell*de"ined purpose "or re:uesting the loans The purpose o" the loan !ust e consistent %ith the anks e>isting credit policy$ The purpose o" the loan also should have consistent %ith 2ovt$ regulations$ ).(.1.( Business Position There are three sources to repay loan' i, cash "lo%s generated "ro! sales inco!e# ii, the sale or li:uidation o" assets# or iii, "unds raised y issuing de t or e:uity securities$ Banks pre"er cash "lo% as the Principle source o" loan repay!ent orro%ing custo!ers and !ake the secured$ Cash "lo% H )et pro"its +revenues less e>penses, I )on cash e>penses +?epreciation,$ 4istory o" earning and sales* %hether there is history o" steady gro%th in earnings or sales and %hether there is high pro a ility that such gro%th %ill continue$ ecause assets sales can %eaken anks position as creditor less
).(.1.) *oan a'ount A *oan ter's and conditions A *oan docu'ents
.-

;oan a!ount should e "i>ed such a %ay that it %ill re:uire the needs o" the custo!er or his usiness$ Proper acco!!odation o" a custo!er !ay involve lending !ore or less !oney than asked "or over a longer or shorter period than re:uested$ May custo!er do not kno% their o%n "inancial needs$ ;oan ter!s and conditions should e "ra!ed in such a %ay that they %ill protect anks interest as %ell as custo!ers purpose$ The loan agree!ent !ust e structured in such a %ay that the orro%er !ay e a le to service the loan and e a le to co!"orta ly repay the loan as per schedule$ ;oan docu!ents !ust e e>ecuted properly# so that ank can esta lish its clai! against the assets or earnings o" the custo!er to recover the anks "unds rapidly at lo% cost and %ith lo% risk# in the event o" de"ault y the orro%er$ I" necessary# certain restriction +covenants, !ay e i!posed on the
orro%er in loan agree!ent so that the orro%er !ay not indulge to such activities %hich could threaten the use and recovery o" anks "und$ The process o" recovering anks "unds * %hen and %here can taking action to get its "und retuned also !ust e care"ully spelled out in loan agree!ent$
).) Borro2er Selection Process

).).1 Character
./

The character o" a orro%er !eans the a ility o" the orro%er to earn !oney y using the orro%ed "und and repay the loan ti!ely %ith interest$ The character o" a orro%er can e !easured y analyzing t%o things J ).).1.1 Integrit$ To !easure analyze the Integrit$ "ollo%ing things should e considered' Past acti"ities o# the Borro2er< It can e done only "or those %ho had taken loan "ro! the earlier$ <hether the loan taken earlier %as repaid ti!ely# descri ed collateral !atched %ith the actual# the transactions %ere done y !aintaining the rules o" the ank# the "inancial state!ents provided %ere correct * y analyzing those things a anker can have a idea a out the past activities o" the orro%er$
B$ collecting and anal$:ing "arious in#or'ation< 2enerally y visiting the area %here the orro%er resides or his usiness organization e>ists# y talking %ith local people# y taking personal intervie% o" the orro%er# collecting in"or!ation "ro! ne%spaper and local authority various in"or!ation a out the collected$ Anal$:ing collected docu'ents< A orro%er has to su !it a lot o" docu!ents$ By e>a!ine the docu!ents %here they sho% the actual in"or!ation# a anker can have a idea a out the integrity o" the orro%er$ Transaction anal$sis< 2enerally a orro%er is an account holder o" the ank$ By analyzing the transaction o" his account# a anker can have idea a out the orro%ers integrity$ <hether he deposit !oney regularly# %rite check y considering his alance# collect "unds "ro! others "or a short a period to sho% a good alance to ank etc$ J y analyzing those things the integrity o" a orro%er can e kno%n$ Anal$:ing the period o# relation 2ith the ank< I" the Borro%er carries out transaction %ith the ank %ith good reputation# the anker can have an idea a out his3her integrity than the orro%er %ho is doing transaction %ith the ank recently$ orro%er can e
).).1.% Relia ilit$ 9elia ility is the inclination to do any %ork %ith any person or organization y elieving on the activities or ehavior o" that person or organization$ Borro%er should e a person or
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organization# %hose activities or ehavior %ould create trust in ankers !ind that they %ould have their loan ack$ Analyzing the "ollo%ing things# relia ility on a orro%er is created' 1ul"ill!ent o" pro!ise or repay!ent o" earlier loans properly Proper usage o" earlier loans Social Status 9ealistic Business plan ).).1.( Capacit$ Business Capacit$< The !ain source o" earning !oney is usiness$ I" the orro%er cannot earn !oney "ro! usiness# he3she %ould not e a le to repay the loan$ In this circu!stance# to select the orro%er# the !ost i!portant thing is Borro%ers usiness$ 1ro! the "ollo%ings# one can have idea a out the usiness capacity' Business@s pre"ious gro2th< By analyzing the previous years production# sales# pro"it gro%th# the idea a out the usinesss gro%th can e generated$
Co'petiti"e ad"antage< Analyzing the price o" the product# :uality# production# gro%th rate o" sales & pro"it# per unit cost and !arket share the co!petitive advantage o" any usiness can e kno%n$ Adopted 'ethod and capacit$ to i'ple'ent< In co!petitive !arket the success o" a usiness depends on adopted !ethod and a ility to i!ple!ent that$ There should e si!ilarity o" taking and i!ple!entation o" !ethod in every stage o" the usiness$ The ank should have con"idence on the !ethods taken in the usiness$ A ilit$ to use the strength and re'o"e the 2eakness< A usiness !ay have several strength and %eakness on %hich the success o" a usiness depends$ The usiness should have the capacity to use the strength and re!ove the %eakness$ Cash #lo2< By analyzing the cash "lo%# the source o" cash and use o" cash can e kno%n$ The a ility to use the cash and earn cash is the key to "uture success$
&anage'ent Capacit$< The capacity o" the o%ner# director# !anagers depends on the "ollo%ing things' Physical A ility
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=ducational :uali"ication Training =>perience <illing to %ork Perseverance Sel"*con"idence Sel"*relia ility Presence o" !ind etc$
The a ility o" %ork %ith sta""3 %orkers depends o" the "ollo%ing' (rganogra! Change in Manage!ent The relation o" sta""3 %orkers %ith !anage!ent Ti!e to take decision A ility to take right decision
Analyzing the a ove things# one can have the idea a out the o%ner# director# !anagers$ ).).1.) Capital Capital is the ack one o" a usiness$ Ade:uate capital helps to run the usiness %ith
e""iciency$ In case o" any accident# i" the a!ount o" capital is high# then the accident can e recovered y the capital$ That is %hy capital o" a usiness is co!pulsory ite! to run the usiness$ To kno% the condition o" capital the "ollo%ing things are analyzed' Asset and lia ilit$ Position< Analyzing the current and "i>ed assets the utilization o" capital and loans can e kno%n i" all the capital is invested in "i>ed assets then %orking capital %ould e collected y loans$ In this case# the success o" usiness depends heavily on the !entality o" the lender$ Si'ilarit$ et2een assets B lia ilit$< Again there should e si!ilarity et%een the e:uity and lia ilities o" the usiness$ I" the lia ility is higher than e:uity there %ould e hassle o" getting the loan# increase o" interest e>pense %hich %ill lead the usiness to loss$ =:uity should e higher than lia ilities ecause i" the lia ility is higher than
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e:uity than there %ould higher pro a ility o" de"ault$ These things should considered$ The pro a ilit$ o# o2ner to pro"ide additional capital< In "uture the usiness !ay re:uire !oney "or any reason$ Then i" the o%ner can not provide additional capital# the usiness organization %ould not e a le to !aintain its regular activity$ As a result# the usiness !ay "ail$ So# it is re:uired to kno% %hether the o%ner has desire or a ility to provide additional capital "or usiness e>pansion or i" necessary$ Ratio Anal$sis< By doing ratio analysis# one can have idea a out the capital condition o" the usiness$ 1ro! various ratios one can kno% %hether the usiness have ade:uate capital or the capital is eing used properly etc$ e
).).1.4 Condition In selection o" orro%er# one o" the !ost i!portant thing is analyzing the condition o" the associated usiness!an and the usiness$ Because i" in a condition %hen the usiness "ace serious co!petition and as a result its usiness goes do%n# in this situation the orro%er !ay not e a le to repay the loan$ Thats %hy analyzing the related condition o" the usiness and o%ner is so i!portant$ The "ollo%ing things should e considered to have an idea a out the related condition o" the usiness'
Gro2th o# the Industr$< <hether the industry o" the particular usiness has any gro%th potentiality that has to e considered$ Because i" the industry does not have any gro%th potentiality# the usiness %ill not e a le to !ake pro"it in long run$ So analyzing the gro%th o" an industry is very necessary$ Co'petiti"e condition< <hat is the co!petitive advantage# %ho are the co!petitors# %hat is the gro%th o" the usiness co!pare to co!petitors# %hat is the co!petitive price# :uality# and production a!ount# process etc$ J these are things necessary to analyze e"ore sanctioning o" a loan$ Threat o# ne2 entr$< I" any ne% "ir! enters in an e>isting industry the co!petition increase$ Because o" increased co!petition the orro%er !ay "ail and the loan %ould not e repaid$ Thats %hy e"ore !aking any loan to any usiness the entry and e>it arrier should e considered o" that industry to have an idea a out the threat o" ne% entry$ Go"ern'ent assistance< So!eti!es the success o" a usiness depends on %hether the govern!ent %ants to encourage or discourage the usiness$ By i!posing 3
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%aiving ta> or tari"" govern!ent encourage or discourage any particular usiness$ <hether the orro%er3 related usiness have any govern!ent assistance or not that has to e considered$ /e'and o# the product< The de!and o" any product !ay e li!ited to any particular area$ In this case# the usiness o" the product depends on the particular area or particular group$ Again the product distri uted through "e% dealers$ In this case# the distri ution 3 usiness depend on those particular distri utor groups$ These things have to consider e"ore !aking any loan$
).).1.6 Collateral <hich assets are accepta le as collateral can e kno%n y analyzing the "ollo%ing things' <hether there %ould e "avora le &udg!ent i" case is "iled to sale the associated assets' To have a "avora le &udg!ent the "ollo%ing things should e considered' <hether the o%nership o" property and docu!ents o" o%nership are correctG <hether the connected assets can e !ortgagedG <hether the orro%er can in"luence the legal authorityG
<hether the assets can e taken over a"ter having &udg!ent' To take over the assets the "ollo%ing things should e considered' The assets should have real e>istence$ The size# type# and location should e such that it can e taken over$ <hether any other person or organization has taken over the assets y "orceG <hether the o%ner is so po%er"ul that to take over the assets the help o" la% !aking authority %ill not e availa leG <hether the assets can e sold' <hether the assets is salea le can e kno%n y analyzing the "ollo%ing things' The asset %ill have e>istence during sale$ The assets have to have such :uality# :uantity so that it can e sold$ The assets have to have de!and in the !arket$ There should e custo!er "or the assets and the custo!er %ill not "ace any pro le! during purchase o" asset$ <hether the sale proceed o" assets ade:uate enough to ad&ust the loan' 1or that the analyzing o" "ollo%ings is necessary'
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4o% !uch ti!e %ill e re:uired to sale the assets y taking legal stepsG <hat %ould e the appro>i!ate sale price during saleG 4o% !uch %ould e the e>penditure to sale the assetG <hat is the present value o" the !oney %hich %ould e received at the ti!e o" saleG By analyzing the a ove things# one should decide %hether any particular assets can e taken as collateral
6.
4. PO*ICC ON *OAN C*ASSI;ICATION B PRO0ISIONING

4.1 *oan Classi#ication
;oan classi"ication !eans giving each and every loan case a status like Enclassi"ied +Standard & Special Mention Account,# Su standard# dou t"ul and ad3loss through veri"ication o" orro%ers repay!ent per"or!ance on a particular date %hile provisioning !eans setting aside "und "ro! the pro"it against possi le loan loss$ This is done "or sa"eguarding the depositors o%ners e:uity and ensuring proper recycling o" "unds so as to accelerate the econo!ic gro%th o" a country$ Besides# a proper loan classi"ication and provisioning syste! ensures credi ility o" the "inancial syste! that in turn restores trust and con"idence in the !inds o" the depositors$ 4.1.1 Categories o# *oans #or Classi#ication All loans and advances %ill e grouped into "our categories "or the purpose o" classi"ication# na!ely Continuous loan ?e!and loan 1i>ed Ter! loan Short Ter! Agricultural and Micro Credit
Continuous *oan< The loan accounts in %hich transactions !ay e !ade %ithin certain li!it and have an e>piry date "or "ull ad&ust!ent %ill e treated as continuous loans$ /e'and *oan< The loans that eco!e repaya le on de!and y the ank %ill e treated as ?e!and ;oan$ I" any contingent or any other lia ilities are turned to "orced loans +i$e$ %ithout any prior approval as regular loan, those too %ill e treated as ?e!and ;oan$ ;i?ed Ter' *oan< The loans# %hich are repaya le %ithin a speci"ic ti!e period under a speci"ic repay!ent schedule# %ill e treated as 1i>ed Ter! ;oans$ Short Ter' Agricultural Credit< Short Ter! Agricultural Credit %ill include the short ter! credits as listed under the Annual Credit Progra! issued y the Agricultural Credit ?epart!ent o" Bangladesh Bank$ Credits in the agricultural sector repaya le %ithin less than
66

1. !onths %ill also e included herein$ Short ter! Micro Credits %ill include any !icro* credits "or less than Tk$1AAAA 3H and repaya le %ithin less than 1. !onths# e those ter!ed in any na!es such as )on*agricultural credit# sel"*reliant credit# <eavers credit o" anks individual pro&ect credit$
4.% Basis #or loan Classi#ication
4.%.1 O !ecti"e Criteria ( &ective criteria "or loan classi"ication are given ello%
Ta le -$1' ( &ective criteria "or loan classi"ication

Sl. No. 1$ Enclassi"ied +EC, .$ Su *Standard +SS, ?e!and Continuous All Current loans under validity %ith 9e:uired3 ade:uate eligi le securities# repay!ent regular$ (verdue is !ore than 6 !onths ut less than / !onths (verdue is !ore than 6 !onths ut less than / !onths "ro! the date o" serving notice3 creation o" "orced loans$ Ter!+less than years, I" the de"aulted a!ount o" install!ent is e:ual to install!ent3 install!ents paya le in / !onths$ Ter!+More than years, I" the de"aulted a!ount o" install!ent is e:ual to install!ent3 install!ents paya le in 1. !onths Short ter! Agricultural3 Micro 6 ?ou t"ul Continuous (verdue is !ore than 1. !onths ut less than 6/ !onths (verdue is !ore than / !onths ut less than 1. !onths is Status T$pe o# *oans /e#inition
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?e!and (verdue is !ore than / !onths ut less than 1. !onths "ro! the date o" serving notice3 creation o" "orced loans$ Ter!+up to - years, I" the de"aulted a!ount o" install!ent is e:ual to install!ent3 install!ents paya le in 1. !onths$ Ter!+More than years, I" the de"aulted a!ount o" install!ent is e:ual to install!ent3 install!ents paya le in 1C !onths$ Short ter! 3 Micro (verdue is !ore than 6/ !onths ut less than /A !onths 0 Bad3 ;oss Continuous ?e!and (verdue is !ore than 1. !onths (verdue is !ore than 1. !onths ut less than 1. !onths "ro! the date o" serving notice3 creation o" "orced loans$ Ter!+up to - years, I" the de"aulted a!ount o" install!ent is e:ual to install!ent3 install!ents paya le in 1C !onths$ Ter!+More than years, Short ter! Agricultural3 Micro I" the de"aulted a!ount o" install!ent paya le in .0 !onths$ (verdue is !ore than /A !onths
I" a loan a!ount is overdue "or a certain ti!e period +this ti!e period depends on type o" the loan, than it is considered su standard# dou t"ul# or ad3loss$ Ta le -$1 gives us an idea a out Southeast Banks loan classi"ication$ It sho%s us the overdue ti!e period "or each type o" loan to e considered as unclassi"ied# su standard# dou t"ul# or ad3loss$
4.%.% Dualitati"e Eudg'ent Dualitative &udg!ent "or loan classi"ication is given ello% Ta le -$.' Dualitative @udg!ent "or loan classi"ication
6-

Sl. No. Status Su *Standard +SS, T$pe o# *oans All /e#inition A loan is considered KSu *Standard %hen the degree o" risk o" non*paya le is so high and there is reasona le prospect that the loan condition can e i!proved$ ?ou t"ul Bad3 ;oss All Chance o" recovery is uncertain$ )o security held$ Borro%er not tracea le$ Ti!e arred loan cases$ )o hope o" recovery$
Dualitative &udg!ent "or loan classi"ication +Ta le-$., does not give us any speci"ic ti!e period a"ter an overdue loan is considered su standard# dou t"ul# or ad3loss rather it gives us an idea a out in %hich situation a loan can e classi"ied$
4.( Accounting Procedure #or classi#ied loans<
(" any loan pr advances is classi"ied as SMA# KSu * standard# and K?ou t"ul# interest can e charged in the loan account7 ut the interest thus charged cannot e trans"erred to inco!e account$ The total interest charged in the SMA# Su *standard# and ?ou t"ul loan account %ill have to e preserved in the KInterest Suspense Account$ I" any loan or advances is classi"ied as KBad ?e t# charging o" interest in the sa!e account %ill e suspended in case o" "iling a la%*suit "or recovery o" such loan# interest "or the period till "iling o" the suit can e charged in the loan account loan in order to "ile the sa!e "or the a!ount o" the principle plus interest$ But interest thus charged in the loan account has to e preserved in the KInterest Suspense Account$ I" any interest is charged in any KBad ?e t account "or any other special reason# the sa!e %ill e preserved in the KInterest Suspense account$ I" classi"ied loan or part o" it is recovered i$e$ real deposit is e""ected in the loan account# "irst the interest charged and not charged is to e recovered "ro! the said deposit and the principal to e ad&usted a"ter%ards$ A Continuous credit# ?e!and loan or a Ter! loan %hich %ill re!ain overdue "or a period o" 5A days or !ore# %ill e put into the LSpecial MentionM account and interest accrued on such loan %ill e credited to KInterest Suspense account # instead o" crediting the sa!e to Inco!e Account$
6/
4.) &aintenance o# Pro"ision<
A$ Banks %ill !aintain provision at the "ollo%ing rates in respect o" Classi"ied# Continuous# ?e!and loan# and 1i>ed Ter! ;oans7 As per B9P? circular letter no$AC dated' 1/$A5$.AA- & B9P? circular dated A/$1.$.AA-' Ta le -$6' Provision "or classi"ied loans
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O"erdue Procedure Status o# C* S'all and &icro Credit 9ate o" Provision on ase "or provision ;ess than 6 !onths Standard -8 9ate o" provision on ase "or provision 2eneral provision' N18 +=>cept S!all =nterprise 1inancing, N.- S!all =nterprise 1inancing N-8Consu!er 1inancing 6 !onths & a ove Special Mention +SMA, 6 !onths or !ore ut less than / !onths More than / !onths ut less than 1. !onths 1. !onths or !ore Bad3;oss 1AA8 1AA8 ?ou t"ul -8 -A8 Su *Standard -8 .A8 -8 -8 All other Credit
B$ Provision %ill e !ade !aintained at the a ove rate on the alance to e ascertained y deducting the a!ount o" KInterest Suspense and the value o" eligi le securities "ro! the outstanding alance o" classi"ied loan$ 2eneral provision N18 against unclassi"ied loans is also to e !entioned$ C$ In the de"inition o" =ligi le Securities !entioned in the a ove paragraph the "ollo%ing securities %ill e included' 4ere is a list o" eligi le securities %ith their percentage o" value' as per B9P? circular letter )o* A- dated .B$A0$.AA-' Ta le -$0' =ligi le securities "or provision =ligi le Securities 8 to e considered
6C
Market value o" gold3orna!ents kept in the ank custody
1AA8
?uly discharged "inancial instru!ents like 1?9#+PSP 2overn!ent onds,
1AA8
2uarantee !ade y the govern!ent3Bangladesh Bank
1AA8
=asily !arketa le goods pledged under anks custody
-A8
Market value o" !ortgaged land and uilding
-A8
?uly discharged share certi"icates considering the "ace value or last si> !onths average !arket value %hichever is lo%er
-A8
6. CR-/IT &ONITORING B R-CO0-RC

The credit under this sche!e is "ully supervised and as such# the success o" the sche!e depends on proper and persistent supervision# "ollo% up# persuasion and !onitoring o" the credits y the Branches$ Branches shall !aintain proper records o" the applications received# loan sanctioned# dis urse!ent and recovery !ade$ It is %orth%hile to !ention here that opti!u! recovery can e ensured y developing relationship %ith the custo!ers and the ene"iciaries and !aintaining supervision thereon %ithout "iling any suit3case$ The !echanis! o" supervision and !onitoring are as "ollo%s'
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9egular checking o" the alance o" the clients account$ Banks recover the continuous and de!and loan y daily recover asis and recover the ter! loan y install!ent asis +!onthly,$
9egular co!!unication %ith the de"aulting custo!er and guarantors physically3 over telephone$
Issuance o" letter to custo!ers i!!ediately a"ter dishonor o" che:ue$
Issuance o" letter to de"aulting custo!ers and respective guarantors$
Contacting the e!ployers o" the de"aulting custo!ers + a"ter there overdue install!ents,
Issuance o" legal notice to the custo!ers and guarantors prior classi"ication o" loans$
Issuance o" application3 greeting letter to the regular custo!ers$
Periodical visit to the custo!er to !aintain relationship and supervision o" supplied goods3 ite!s$
;egal actions to e taken a"ter all possi le e""orts to recover the Banks dues have in vain$
6.1 Reco"er$ Steps<
6.1.1 General Steps I$ )or!al procedure'
0A

a, Preparation o" list o" Borro%ers Categorically$ , Maintenance o" diary c, 1ollo% up to **Personal Approach$ **Through ;etters$ ** )otices etc$ II$ So!e Special Techni:ues' a, Moral Persuasion$ , Social Persuasion$ c, Political Persuasion$ d, Persuasion through 2uarantors$ e, 9ecovery Ca!p etc$ 6.1.% Steps #ro' ,ead O##ice I$ ;etters "ro! 4$( II$ 1or!ation o" 9ecovery tea! i$e$ Supervisory3 recovery III$ 9ecovery Ca!p IO$ Issuance o" Circulars# )otices allo%ing so!e incentives# O$ )egotiation %ith the 9ecovery$ 6.1.( Alternati"e &easure #or Reco"er$ I$ 9escheduling3 9estructuring' II$ 9escheduling %ith Block A3C$ III$ 9escheduling %ith Block A3C and Interest %aiving$ IO$ 9escheduling Interest %aiving and period e>tending$ O$ Technical# Manage!ent# !arketing 9estructuring orro%ers "or arrange!ent o" selling securities "or
6.1.) Go"ern'ent and Bangladesh ank@s Role #or Reco"er$ I$ Issuance o" Circulars# )otices etc$ II$ Preparation o" list "or ?e"aulting Borro%ers "or pu lication through papers and T$O etc$ III$ I!posing 9estrictions "or participation in so!e activities like election# other social activities etc$ "or ?e"aulting Borro%ers and even "or guarantors i" any$ IO$ Support "or legal actions i" necessary
01
6.1.4
&iscellaneous steps
I$ Identi"ication o" ?e"aulting Borro%ers present capacity$ II$ Identi"ication o" Bank %ith %ho! he is presently anking$ III$ Identi"ication o" other !eans*i" any$ IO$ So!e practical techni:ues !ay e applied on the asis o" present situation$ 6.1.6 *egal Steps I$ Serving )otices$ II$ Serving ;egal )otices III$ Serving )otices to the 2uarantors$ IO$ Assess!ent and Identi"ications o" securities in respect o" nature# :uality and valuation etc$ O$ Attach!ent o" the other properties etc$ +i" necessary, along %ith the properties o" 2uarantor$ 6.1.7 So'e Pro le's o# Reco"er$ I$ =>e!ption o" interest y the Bank3 2overn!ent$ II$ =>e!ption o" loan including Interest y the 2ovt$ III$ Political Pressure and !isunderstanding etc$ IO$ Interest %aiving and rescheduling culture
7. R-CO&&-N/ATIONS B CONC*+SION
7.1 Reco''endations
The e>isting credit policy is good enough to run the
ank$ But as the co!petition is
increasing day y day the ank should take so!e !easures so that they can distinguish it "ro! the others$ The credit !anage!ent o" Southeast Bank ;td$ can "ollo% the "ollo%ing suggestion to i!prove their per"or!ance and distinguish "ro! others'
0.

2iving authority to the Branch o""icials to take decisions to sanction a loan$ 9ight no%# "or every loan decision is !ade y 4ead o""ice$ But to "aster the speed o" loan sanction the ranch should e authorized to take decision$ 9e ate charge on loan should e increased so that !ore custo!ers are attracted to !ake loan$ The period o" loan should e e>tended$ The The ank !anage!ent can give per!ission to its ranches to design or change ank should recruit so!e young and energetic e>ecutives to ensure ti!ely lending products on the asis o" local de!and$ recovery o" dis ursed consu!er credit loan$ The clients o" loan should e "acilitated %ith online Banks and other ene"its$ S=B; should upgrade its %e site regularly and provide details in"or!ation o" loan Sche!e$ S=B; Bank !ay also pro!ote its loan progra! through di""erent advertising tools i$e$ TO adds# )e%s paper advertise!ents etc$ The Bank !anage!ent can reduce the interest rate$ Because o" high interest rate# so!e good loans turn to ad loans$ But i" the interest rate decreases than the de"ault loan %ill also decrease$ To risk grade the credit# the ank can "ollo% other !odels esides the credit risk grading !odel$ Because the credit risk grading !odel is not hundred percent up to the !ark$ The ank !anage!ent should al%ays e concerned a out the change in industry so that they can notice the change and take proper actions to adopt the situation$
The credit !anage!ent o" Southeast Bank ;td$ can "ollo% the a ove!entioned suggestion to i!prove their per"or!ance so that they can e co!petitive in the !arket and can gain so!e co!petitive advantage$
7.% Conclusion
The core part o" Bank !anage!ent is Credit !anage!ent$ The e>istence o" a ank depends on the credit !anage!ent$ Because i" credit !anage!ent "ails to have a %ell diversi"ied loan port"olio than the ank !ay lose all its invest!ents %hich are the savings o" the depositors
06

and o%ners e:uity$ The Credit !anage!ent does all sorts o" the activities regarding the loans and advances$ To have a %ell diversi"ied loan port"olio# the ank !ust screen out the good orro%ers "ro! the loan applicants$ Because i" the orro%er is good there is very "e% chance o" de"ault other than ecause o" syste!atic or uncontrolla le risk$ The Southeast Bank ;i!ited is doing its usiness success"ully "or !ore than 11+=leven, years %hich indicates their %ell per"or!ance in credit !anage!ent$ Because o" their %ell per"or!ing credit !anage!ent the ank %ere a le to reduce its ad de t every year$ 1ro! the credit !anage!ent o" Southeast ank ;i!ited I have gained practical kno%ledge a out the real %orld credit !anage!ent %hich %ould help !e to relate !y theoretical kno%ledge %ith the real %orld$ 1or that I a! really grate"ul to )SE and the Southeast Bank ;td$
00
Chapter T2o ANA*CSIS PART
8.INTRO/+CTION
Southeast Bank ;i!ited +S=B;, has started co!!ercial anking operations e""ectively "ro! May .-# 155-$ 1ro! the eginning Southeast Bank ;i!ited has success"ully positioned itsel" as a progressive and dyna!ic "inancial institution in the country$ The Bank has een %idely acclai!ed y the usiness co!!unity# "ro! s!all entrepreneur to large traders and industrial conglo!erates# including the top rated corporate orro%ers "or "or%ard*looking usiness outlook and innovative "inancing 0-
Southeast Banks Credit Approval & Monitoring Process solutions$ Thus it has een a le to create an i!age "or itsel" and has earned signi"icant reputation in the countrys anking sector as a Bank %ith vision$ A ank has several depart!ents# credit is one o" the!$ Perhaps it is the !ost i!portant depart!ent o" any ank as loan is the iggest source o" pro"it "or any ank$ 2iving loan is one o" the riskiest services o" the ank$ So ankers should analyze the orro%ers credit%orthiness very care"ully$ So I have chosen Southeast Banks e>isting credit risk grading procedure "or the analysis$ Credit risk grading procedure is really i!portant "or any ank ecause anks selection o" orro%ers depends !uch on this$ By using statistical tools I have analyzed all the steps in credit risk grading$
8.1 O !ecti"e< The o &ective o" the analysis is to analyze the e""ectiveness o" credit risk grading procedure o" Southeast Bank ;td$ 8.% ,$pothesis< Credit Risk Grading procedure of Southeast Bank Limited is effective.
0/
Southeast Banks Credit Approval & Monitoring Process 8.( &ethodolog$< 1.(.1 T$pe o# data< The data used "or analysis in this study is secondary data$ The ank already did the custo!ers credit risk grading and this data %as used "or the study$ Also the custo!ers loan recovery rate %as calculated "ro! the clients loan account state!ents$ So these %ere all secondary and %ere enough to conduct the analysis$ 8.(.% The "aria les< There are t%o types o" varia les "or the study# the dependent varia le and the independent varia le' /ependent 0aria le< ;oan 9ecovery 9ate$ Independent 0aria les< ;everage +de t e:uity ratio, ;i:uidity +current ratio, Pro"ita ility +operating pro"it !argin, Coverage +interest coverage ratio, Size o" usiness +!ost recent sales "igure, Age o" usiness +no$ o" years in usiness, Business (utlook +critical assess!ent o" prospect o" industry# !arket share# econo!ic "actors, Industry gro%th +&udg!ental decision ased on gro%th strength, Market Co!petition +position o" co!petition in !arket, =ntry3=>it Barriers + ased on di""iculty level, =>perience +no$ o" years o" e>perience o" top !anage!ent, Second line Succession + ased on readiness o" succession, Tea! %ork +&udg!ental analysis, Security Coverage +pri!ary# ased on type o" hypothecation, Collateral Coverage + ased on property !ortgage issues, Support +2uarantee, 0B
Southeast Banks Credit Approval & Monitoring Process Account conduct +accuracy o" !aintenance o" accounts, Etilization o" li!it +ho% !uch o" loan li!it used in the pro&ect, Co!pliance o" covenants +%illingness to "ollo% rules, Personal ?eposits +personal relationship %ith the ank,
8.(.( T$pe o# research< In this study e>ploratory research %ill e conducted to "ind out and gain insights a out the credit risk grading process o" Southeast ank and to understand ho% e""ectively it is %orking$ 8.(.) Sa'pling &ethod< Since I did !y internship in the @u ilee 9oad ranch o" Southeast ank# thus !y sa!ple %as all the clients o" that particular ranch only$ Thus !y !ethod o" sa!pling can e considered a strati"ied sa!pling !ethod$ 8.(.4 Sa'ple Si:e< 1or conducting the research I %as a le to collect data "ro! 6A clients o" Southeast Bank @u ilee 9oad Branch# %hich is !y sa!ple size$ 8.(.6 /ata Anal$sis TechniFues< 2raphical presentation# "re:uency distri ution# percentages# cross ta ulations A)(OA# regression etc$
8.) *i'itations<
The study conducted in this research report is not "ull proo"$ There %ere a "e% li!itations %hich# i" overca!e# could eli!inate the "e% crack and leaks o" the study$ The li!itations %ere'
0C
Southeast Banks Credit Approval & Monitoring Process Ti!e' A very ig li!itation %as ti!e$ The internship progra! in the ank did not right a%ay post !e in the re:uired credit depart!ent to conduct this study$ And so once I got in the credit depart!ent# it gave !e very less ti!e to collect data and conduct the study$ Sa!ple size' I had to use only the clients o" the @u ilee 9oad ranch as !y sa!ple# %hich %as very li!ited in size$ And ased on those clients only I had to conclude a out the overall anks credit risk grading procedure$ Con"identiality o" in"or!ation' Custo!ers trust the ank %ith con"identiality o" their personal in"or!ation and thus the ank authority %as reluctant to help !e in data collection$ That is %hy I had to %ork eside !y nor!al %orking hours on !y o%n to gather the data and this %as also a ig li!itation$ 9egression analysis' In the regression analysis only nu!eric varia les have een taken$ It %ill e etter i" regression can e done using non nu!eric varia le also
9. R-S+*TS AN/ INT-RPR-TATION

9.1 *e"erage< ;reFuenc$ /istri ution<
05
Southeast Banks Credit Approval & Monitoring Process Ta le 5$1' 1re:uency ?istri ution +;everage,
*e"erage 1re:uency Oalid .$A1P to .$-A > 1$./P to .$AA > A$B/P to 1$.- > A$-1P to A$B- > A$6/P to A$-A > A$./P to A$6- > ;ess than A$.-P Total 1 0 / C 0 1 / 6A Percent 6$6 16$6 .A$A ./$B 16$6 6$6 .A$A 1AA$A Oalid Percent 6$6 16$6 .A$A ./$B 16$6 6$6 .A$A 1AA$A Cu!ulative Percent 6$6 1/$B 6/$B /6$6 B/$B CA$A 1AA$A
Graphical Presentation<
1igure.$1' Pie Chart +;everage, Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$.' Cross Ta ulation +;oan recovery rate Q ;everage,
-A
*oan Reco"er$ Rate G *e"erage Crossta ulation
;everage ;ess than A$.-P 1 A A A A A 1 A A A 1 A A A A . 1 A A A A /
.$A1P to 1$./P to A$B/P to A$-1P to A$6/P to A$./P to .$-A > .$AA > 1$.- > A$B- > A$-A > A$6- > ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A A A A A A A A A A 1 A A A A A A A 1 A 1 1 A 1 A A A A A A A A A A A A 1 A A A 0 A A A 1 A . A 1 1 1 A A A A A A A A A A A / A A A A A A A 1 A A A 1 A A 1 . A A 1 . A C A A A A A 1 A A A A A A 1 A A A A 1 A A 1 0 A A A A A A A A A A A A A A A A A A A A 1 1
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation<
-1
Southeast Banks Credit Approval & Monitoring Process ;everage is de t to e:uity ratio$ <hen de t to e:uity ratio is lo% than it !eans the organization is using o%n capital !ore than orro%ed capital$ So the less leverage is the !ore anks are %illing to give loans$ I" %e look at the "re:uency distri ution +Ta le 5$1, it can e seen that !ost o" the clients o" Southeast Bank ;tds @u ilee 9oad Branch are !aintaining a leverage ratio et%een A$-1 and A$B- %hich is accepta le$ I" %e look at loan recovery rate in this range than %e can see that it is !ore than 5A8$ 1ro! the "re:uency distri ution %e can also see that / clients have leverage ratio less than A$.- %hich is good$ But "ro! the cross ta ulation +Ta le 5$., the loan recovery rate is lo%er than CA 8 %hich is not that good$ So it is :uite clear that leverage cannot e used as a single "actor "or giving loans$
9.% *iFuidit$<
-.
Southeast Banks Credit Approval & Monitoring Process ;reFuenc$ /istri ution< Ta le 5$6' 1re:uency ?istri ution +;i:uidity,
*iFuidit$ 1re:uency Oalid ;ess than A$BAP A$CAP to A$C5 > A$5AP to 1$A5 > 1$1AP to 1$05 > 1$-AP to 1$55 > .$AAP to .$05 > .$-AP to .$B0 > 2reater than .$B0P Total . 1 1 5 . . C 6A Percent /$B 6$6 6$6 1/$B 6A$A /$B /$B ./$B 1AA$A Oalid Percent /$B 6$6 6$6 1/$B 6A$A /$B /$B ./$B 1AA$A Cu!ulative Percent /$B 1A$A 16$6 6A$A /A$A //$B B6$6 1AA$A
1igure 5$.' Pie Chart +;i:uidity,
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given ello%
-6
Southeast Banks Credit Approval & Monitoring Process Ta le 5$0' Cross Ta ulation +;oan recovery rate Q ;i:uidity,
*oan Reco"er$ Rate G *iFuidit$ Crossta ulation ;i:uidity
;ess 2reater than A$CAP to A$5AP to 1$1AP to 1$-AP to .$AAP to .$-AP to than A$BAP A$C5 > 1$A5 > 1$05 > 1$55 > .$05 > .$B0 > .$B0P ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total 1 A A A A A A 1 A A A A A A A A A A A A A . A A A A A A A A A A A A 1 A A A A A A A A 1 A A A A A 1 A A A A A A A A A A A A A A A 1 A 1 A 1 1 A A A A A A A A A 1 A A 1 A A A A A 1 A A 1 A 1 A 1 A A A 1 A A A 1 1 . A 5 A A A A A A A A A A 1 A A A A 1 A A A A A . A A A A A A A A 1 A A A A A A 1 A A A A A . A A A A A 1 1 A A A A 1 A A A . 1 A A A . C
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
-0
Southeast Banks Credit Approval & Monitoring Process Interpretation< To !easure li:uidity S=B; is using current ratio$ 1ro! the "re:uency distri ution +Ta le 5$6, %e can see that !ost o" the clients are !aintaining a current ratio et%een 1$-A and 1$55 %hich is accepta le$ <e can also see that ./$/B percent o" S=B; @u ilee 9oad Branch has a current ratio !ore than .$B0 %hich is really a good sign "or the ank$ 1ro! the cross ta ulation +Ta le 5$0, %e can see that clients %ith current ratio et%een 1$-A and 1$55 has a loan recovery rate greater than C/ percent %hich is good$ And clients %ith current ratio !ore than .$B0 has lone recovery rate o" greater than 5A percent %hich is very good$
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9.( Pro#ita ilit$<

;reFuenc$ /istri ution< Ta le 5$-' 1re:uency ?istri ution +Pro"ita ility,
Pro#ita ilit$ 1re:uency Oalid ;ess than 18 18 to 68 08 to /8 B8 to 58 1A8 to 108 1-8 to 158 .A8 to .08 2reater than .-8 Total 6 1 1 0 B / . / 6A Percent 1A$A 6$6 6$6 16$6 .6$6 .A$A /$B .A$A 1AA$A Oalid Percent 1A$A 6$6 6$6 16$6 .6$6 .A$A /$B .A$A 1AA$A Cu!ulative Percent 1A$A 16$6 1/$B 6A$A -6$6 B6$6 CA$A 1AA$A
1igure 5$6' Pie Chart +Pro"ita ility, Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page -/
Southeast Banks Credit Approval & Monitoring Process Ta le 5$/' Cross Ta ulation +;oan 9ecovery 9ate Q Pro"ita ility,
*oan Reco"er$ Rate G Pro#ita ilit$ Crossta ulation Pro"ita ility 2reater than .-8 A A A A A 1 1 1 1 A A 1 A A A 1 A A A A A /
;ess than 18 ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total 1 1 A A A A A A A A A A A A A 1 A A A A A 6
18 to 68 A A 1 A A A A A A A A A A A A A A A A A A 1
08 to /8 A A A A A A A A A 1 A A A A A A A A A A A 1
B8 to 58 A A A 1 1 A A A A A A A A A A 1 A A A A 1 0
1A8 to 108 A A A A A . A A A A 1 A A A A A 1 1 A 1 1 B
1-8 to 158 A A A A A A A A A A A A 1 1 A 1 A 1 1 1 A /
.A8 to .08 A A A A A A A 1 A A A A A A 1 A A A A A A .
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
-B
Southeast Banks Credit Approval & Monitoring Process Interpretation< Making pro"it is a key "or running any organization success"ully$ 1ro! the "re:uency distri ution +Ta le 5$-, %e can see that !ost o" clients have a pro"ita ility o" 1A8 to 108$ I" look at cross ta ulation +Ta le 5$/, %e can see that %ithin this range loan recovery rate is !ore than C-8 %hich is good$ 1ro! the "re:uency distri ution %e can also see that .A8 clients has pro"ita ility !ore than .-8 ut "ro! the cross ta ulation their loan recovery rate is less than CA8$ So the pro"ita ility is not that i!portant "or credit risk grading$
9.) Co"erage<
;reFuenc$ /istri ution< Ta le 5$B' 1re:uency ?istri ution +Coverage,
Co"erage 1re:uency Oalid ;ess than 1$AAP More than 1$-1P ;ess than .$AAP More than .$AAP Total 6 1 ./ 6A Percent 1A$A 6$6 C/$B 1AA$A Oalid Percent 1A$A 6$6 C/$B 1AA$A Cu!ulative Percent 1A$A 16$6 1AA$A
1igure 5$0' Pie Chart +Coverage,
-C
Southeast Banks Credit Approval & Monitoring Process Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$C' Cross Ta ulation +;oan 9ecovery 9ate Q Coverage,
*oan Reco"er$ Rate G Co"erage Crossta ulation Coverage ;ess than 1$AAP ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total 1 1 A A A A A 1 A A A A A A A A A A A A A 6 More than 1$-1P ;ess than .$AAP A A 1 A A A A A A A A A A A A A A A A A A 1 More than .$AAP A A A 1 1 6 1 1 1 1 1 1 1 1 1 0 1 . 1 . . ./ Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< The "re:uency distri ution +Ta le 5$B, sho%s that al!ost all the clients +C/$/B8, have an interest coverage ratio o" !ore than .$This is a very good sign$ It sho%s that !ost o" the clients have a strong operating pro"it and so it is !ore than dou le the a!ount interest they have to pay$ It could also !ean that the clients do not have to pay !uch interest at all# since they had not orro%ed any !oney e"ore$ But assu!ing the "irst opinion it gives strong points to the co!panies "or taking the credit services o" Southeast ank$ But i" %e look at the cross ta ulation +Ta le 5$C, %e can see that clients %ith coverage ratio !ore than . has loan recovery rate o" less than CA percent %hich is not good$ So interest coverage is not that i!portant "or credit risk grading$
-5
9.4 Business Si:e<

;reFuenc$ /istri ution< Ta le 5$5' 1re:uency ?istri ution +Business Size,
Business Si:e 1re:uency Oalid R .$-A crore .$-A crore * 0$55 crore -$AA crore * 5$55 crore 1A$AA crore J .5$55 crore 6A$AA crore J -5$55 crore S /A$AA crore Total . C 1. . 1 6A Percent /$B 1/$B ./$B 0A$A /$B 6$6 1AA$A Oalid Percent /$B 1/$B ./$B 0A$A /$B 6$6 1AA$A Cu!ulative Percent /$B .6$6 -A$A 5A$A 5/$B 1AA$A
1igure 5$-' Pie Chart +Business Size,
/A
Southeast Banks Credit Approval & Monitoring Process Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$1A' Cross Ta ulation +;oan 9ecovery 9ate Q Business Size,
*oan Reco"er$ Rate G Business Si:e Crossta ulation Business Size R .$-A crore ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A 1 A A 1 A A A A A A A A A A A A A A A . .$-A crore -$AA crore 1A$AA crore 6A$AA crore * 0$55 * 5$55 J .5$55 J -5$55 crore crore crore crore 1 A A A A 1 A A A A A A A A A 1 A 1 A 1 A A 1 A 1 1 A A A A 1 A A 1 A 1 1 A 1 A A A C A A A A A 1 1 . 1 A 1 1 A 1 A 1 1 A A 1 1 1. A A A A A A A A A A A A A A A 1 A A 1 A A . S /A$AA crore A A A A A A A A A A A A A A A A A A A A 1 1
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< Business size is !easured ased on sales a!ount$ I" %e take a look at the "re:uency
distri ution +Ta le 5$5, a out 0A8 o" the clients had a recent sales o" 1A crore to .5$55 crore and a out ./$/B8 o" the! had a sales o" - crore to 5$55 crore %hich is good$ 1ro! the cross ta ulation +Ta le 5$1A, %e can see that !a&ority o" the clients have !ore than CA8 loan recovery rate %hich is a positive sign$ <e can also see that clients %ith !ore than /A crore sales has a loan recovery rate o" 1AA percent and clients %ith 6A crore to -5$55 crore has a loan recovery rate to a out 568$ So usiness size is an i!portant "actor in credit risk grading$
/1
9.6 Age o# Business<

;reFuenc$ /istri ution< Ta le 5$11' 1re:uency ?istri ution +Age o" Business,
Age o# usiness 1re:uency Oalid R . Tears . * - Tears S - * 1A Tears S 1A Tears Total B / / 11 6A Percent .6$6 .A$A .A$A 6/$B 1AA$A Oalid Percent .6$6 .A$A .A$A 6/$B 1AA$A Cu!ulative Percent .6$6 06$6 /6$6 1AA$A
1igure 5$/' Pie Chart +Age o" Business,
/.
Southeast Banks Credit Approval & Monitoring Process Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$1.' Cross Ta ulation +;oan 9ecovery 9ate Q Age o" usiness,
*oan Reco"er$ Rate G Age o# usiness Crossta ulation Age o" usiness R . Tears ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A 1 A 1 A 1 A 1 A A A A 1 A A A A . B . * - Tears A 1 A A A . A A A A A 1 1 A A 1 A A A A A / S - * 1A Tears A A A A A 1 A 1 A 1 A A A 1 A A A 1 A 1 A / S 1A Tears 1 A 1 1 A A A 1 A A A A A A 1 . 1 1 1 1 A 11 Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< In ter!s o" the nu! er o" years the co!pany %as in usiness# the "re:uency is !ore or less e:ually distri uted +Ta le 5$11,$ But !a&orities +6/$/B8, o" the! are very e>perienced co!pany %ith !ore than 1A years in that industry$ 1ro! the cross ta ulation +Ta le 5$1., %e can see that clients %ith !ore than 1A years e>perience have loan recovery rate o" !ore than CA8 %hich is accepta le$ But clients %ith less than . years e>perience also have a loan recovery rate o" !ore than CA8$ So age o" usiness is not that i!portant "or credit risk grading$
/6
9.7 Business Outlook<

;reFuenc$ /istri ution< Ta le 5$16' 1re:uency ?istri ution +Business (utlook,
Business Outlook 1re:uency Oalid Slightly Encertain Sta le 1avora le Total 0 111 6A Percent 16$6 -A$A 6/$B 1AA$A Oalid Percent 16$6 -A$A 6/$B 1AA$A Cu!ulative Percent 16$6 /6$6 1AA$A
1igure 5$B' Pie Chart +Business (utlook,
/0
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$10' Cross Ta ulation +;oan 9ecovery 9ate Q Business (utlook,
*oan Reco"er$ Rate G Business Outlook Crossta ulation Business (utlook Slightly Encertain ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total 1 A A A A 1 A A A A 1 A A A A A 1 A A A A 0 Sta le A 1 A 1 1 1 1 1 1 1 A 1 1 A 1 6 A 1 A A A 11avora le A A 1 A A 1 A 1 A A A A A 1 A 1 A 1 1 . . 11 Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< 1ro! the "re:uency distri ution +Ta le 5$16, it is :uite o vious that a large !a&ority o" the clients +-A8, have a good outlook$ This is a &udg!ental score given ased on econo!ic "actors# industry outlook and !arket share$ The cross ta ulation +Ta le 5$10, sho%s that !ost o" the clients %ith a "avora le usiness outlook have a loan recovery rate o" !ore than C/8$ So %e can clai! that even though the assess!ent is purely &udg!ental# ut usiness outlook does have a positive i!pact on the loan recovery rate$
/-
9.8 Industr$ gro2th<

;reFuenc$ /istri ution< Ta le 5$1-' 1re:uency ?istri ution +Industry 2ro%th,
Industr$ Gro2th 1re:uency Oalid Moderate +18*-8, 2ood +S-8 * 1A8, Strong +1A8I, Total 0 .A / 6A Percent 16$6 //$B .A$A 1AA$A Oalid Percent 16$6 //$B .A$A 1AA$A Cu!ulative Percent 16$6 CA$A 1AA$A
1igure 5$C' Pie Chart +Industry gro%th,
//
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$1/' Cross Ta ulation +;oan 9ecovery 9ate Q Industry 2ro%th,
*oan Reco"er$ Rate G Industr$ Gro2th Crossta ulation Industry 2ro%th Moderate +18*-8, ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total 1 1 A A A 1 A A A A A A A A A A A A A A 1 0 2ood +S-8 * 1A8, A A 1 1 1 1 1 . 1 1 1 1 1 A 1 6 A . A 1 1 .A Strong +1A8I, A A A A A 1 A A A A A A A 1 A 1 1 A 1 1 A / Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< 1ro! the "re:uency distri ution +Ta le 5$1-, %e can see that !ost o" clients operate in an industry %ith a good gro%th rate %hich is -8 to 1A8$ Cross ta ulation +Ta le 5$1/, sho%s that hal" o" the clients in an industry %ith a good gro%th rate have !ore than CA8 loan recovery rate and clients operate in an industry %ith !ore than 1A percent gro%th rate have a
/B

loan recovery rate o" !ore than C/8$ So it can e said that industry gro%th rate is signi"icant in deter!ining credit risk o" a client
9.9 &arket Co'petition<

;reFuenc$ /istri ution< Ta le 5$1B' 1re:uency ?istri ution +Market Co!petition,
&arket Co'petition 1re:uency Oalid 4ighly Co!petitive Moderately Co!petitive ?o!inant Player Total 0 .A / 6A Percent 16$6 //$B .A$A 1AA$A Oalid Percent 16$6 //$B .A$A 1AA$A Cu!ulative Percent 16$6 CA$A 1AA$A
1igure 5$5' Pie Chart +Market Co!petition,
/C
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page
Ta le 5$1C' Cross Ta ulation +;oan 9ecovery 9ate Q Market Co!petition,

*oan Reco"er$ Rate G &arket Co'petition Crossta ulation Market Co!petition 4ighly Co!petitive ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A 1 1 A A A A 1 A A A A A A A A A 1 0 Moderately Co!petitive 1 1 1 A A . 1 . 1 1 A 1 1 A 1 6 1 1 1 1 A .A ?o!inant Player A A A 1 A A A A A A A A A 1 A 1 A 1 A 1 1 / Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< A large !a&ority +//$/B8, o" the client are only !oderately co!petitive in the !arket ased on the "re:uency distri ution +Ta le 5$1B,$ This is not a very good sign "or the ank$ They should provide credit to !ostly the do!inant players o" the !arket in order to reduce the risk and ensure the security$ Also i" %e look at the cross*ta ulation +Ta le 5$1C, %e can see that there is no consistent pattern in those !oderately co!petitive clients loan recovery rate$ They recovery rates are very rando! and this is not a good i!age# or even a conclusive one$ =ven i" %e look at the do!inant players o" the !arket# their loan recovery rates are also not
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very high$ This can !ean that !arket co!petitiveness does not a""ect the loan recovery rate o" clients and so cannot e a very i!portant "actor in credit risk grading$
9.1= -ntr$A -?it Barriers< ;reFuenc$ /istri ution< Ta le 5$15' 1re:uency ?istri ution +=ntry3=>it arriers,
-ntr$A-?it Barriers 1re:uency Oalid Average ?i""icult Total 1B 16 6A Percent -/$B 06$6 1AA$A Oalid Percent -/$B 06$6 1AA$A Cu!ulative Percent -/$B 1AA$A
1igure 5$1A' Pie Chart +=ntry3 =>it Barriers, BA
Ta le 5$.A' Cross Ta ulation +;oan 9ecovery 9ate Q =ntry3=>it Barriers,

*oan Reco"er$ Rate G -ntr$A-?it Barriers Crossta ulation =ntry3=>it Barriers Average ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total 1 A 1 A 1 . 1 1 1 1 1 A 1 A A 6 1 1 A A 1 1B ?i""icult A 1 A 1 A 1 A 1 A A A 1 A 1 1 1 A 1 1 . 1 16 Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< The !ore di""icult it is "or a co!pany to enter or e>it an industry the !ore ene"icial it is "or the e>isting industry players$ According to the "re:uency distri ution +Ta le 5$15, %e can see that all the clients o" Southeast Bank are al!ost e:ually divided in industries %ith average or di""icult arriers to enter or e>it$ )one o" their clients are in industries %ith easy arriers$ This !ay see! a very good thing "or the ank ut the clients did not respond as such in case o"
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loan repay!ent$ I" %e look at the cross ta ulation +Ta le 5$.A, %e see that the loan recovery rate o" the clients are rando! and evenly distri uted in lo%er and higher ranges$ So# "ro! this %e can state that entry3e>it arriers o" the industry in %hich the clients are does not have !uch e""ect on their loan repay!ent attitude and thus cannot e i!portant "actor o" credit risk grading$ 9.11 Senior &anage'ent -?perience<
;reFuenc$ /istri ution< Ta le 5$.1' 1re:uency ?istri ution +Senior Manage!ent =>perience,
Snr &gt -?perience 1re:uency Oalid 1J- years in the related line o" usiness -J1A years in the related line o" usiness More than 1A years in the related line o" usiness Total 1 1 .C 6A Percent 6$6 6$6 56$6 1AA$A Oalid Percent 6$6 6$6 56$6 1AA$A Cu!ulative Percent 6$6 /$B 1AA$A
B.
Southeast Banks Credit Approval & Monitoring Process 1igure 5$11' Pie Chart +Senior Manage!ent =>perience,
Ta le 5$..' Cross Ta ulation +;oan 9ecovery 9ate Q Senior Mgt =>perience,

*oan Reco"er$ Rate G Snr &gt -?perience Crossta ulation Snr Mgt =>perience 1J- years in the related line o" usiness ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A A A A A A A A 1 A A A A A A A A A 1 -J1A years in the related line o" usiness A A A A A 1 A A A A A A A A A A A A A A A 1 More than 1A years in the related line o" usiness 1 1 1 1 1 . 1 . 1 1 1 A 1 1 1 0 1 . 1 . . .C
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< Al!ost all +5-8, o" the clients have very highly e>perienced +!ore than 1Ayears in the line o" usiness, top !anage!ent +Ta le 5$.1,$ This sho%s that Southeast ank gives a lot i!portance to top !anage!ent e>perience %hile calculating risk$ <hen %e look at the cross
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ta ulation +Ta le 5$..,# the e>perienced clients have :uite varied loan recovery rates# ranging "ro! the lo%est -/8 to the highest 1AA8$ But it !ust e noted that al!ost hal" o" the e>perienced clients have a recovery rate greater than C/8# %hich is :uite good$ So# even though !easuring risk ased on top !anage!ents e>perience is :uite risky ut it also giving ene"its %ith higher loan recovery rates$
9.1% Second lineASuccession<

;reFuenc$ /istri ution< Ta le 5$.6' 1re:uency ?istri ution +Succession,
Second lineASuccession 1re:uency Oalid Succession in :uestion 9eady Succession Total 16 1B 6A Percent 06$6 -/$B 1AA$A Oalid Percent 06$6 -/$B 1AA$A Cu!ulative Percent 06$6 1AA$A
1igure 5$1.' Pie Chart +Second line3Succession, B0
Ta le 5$.0' Cross Ta ulation +;oan 9ecovery 9ate Q Second line3Succession,

*oan Reco"er$ Rate G Second lineASuccession Crossta ulation Second line3Succession Succession in :uestion ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A 1 6 1 A 1 A 1 1 A A A . 1 A A A . 16 9eady Succession 1 1 1 1 A A A . A 1 A A 1 1 1 . A . 1 . A 1B Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< The planning or procedure to !ake sure that each position in an organization has got &unior personnel properly trained to succeed or take over that position# in "uture %hen the position is e!pty# is called the succession planning$ This is a very i!portant aspect o" any organization "or its long li"e$ The "re:uency distri ution +Ta le 5$.6, sho%s :uite a risky scenario$ The clients are e:ually distri uted %ithin the est position %ith a ready succession and the %orst position %ith no succession plan$ )o co!pany is even in the !id position %here the planning
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is under%ay and %ill e co!pleted %ithin 1 to 6 years$ The situation gets !ore co!plicated %ith the cross ta ulation +Ta le 5$.0,$ 4al" o" the clients %ith ready succession have loan recovery rate greater than C/8# ut a!ong the other hal" the rate goes to as lo% as -/8 U
9.1( Tea' Hork

;reFuenc$ /istri ution< Ta le 5$.-' 1re:uency ?istri ution +Tea! <ork,
Tea' Hork 1re:uency Oalid Moderate Oery 2ood Total / .0 6A Percent .A$A CA$A 1AA$A Oalid Percent .A$A CA$A 1AA$A Cu!ulative Percent .A$A 1AA$A
1igure 5$16' Pie Chart +Tea! <ork, B/
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$./' Cross Ta ulation +;oan 9ecovery 9ate Q Tea! <ork,
*oan Reco"er$ Rate G Tea' Hork Crossta ulation Tea! <ork Moderate ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A 1 A A A 1 1 A A A A 1 A A A 1 1 A A A A / Oery 2ood 1 A 1 1 1 . A . 1 1 1 A 1 1 1 6 A . 1 . . .0 Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< Tea! %ork is really i!portant "or any organization$ 2ood tea! %ork can increase any organizations per"or!ance$ 1ro! the "re:uency distri ution +Ta le 5$.-, %e can see that a large !a&ority +CA8, o" the clients have good tea! %ork# in the organization$ This is a good sign in ter!s o" Southeast Banks client ase$ 1ro! the cross ta ulation +Ta le 5$./, !ore than hal" o" the clients %ith good tea!%ork has a loan recovery rate greater than C/8# %hich is good$
BB
9.1) Securit$ Co"erage<

;reFuenc$ /istri ution< Ta le 5$.B' 1re:uency ?istri ution +Security Coverage,
Securit$ Co"erage IPri'ar$> 1re:uency Oalid Si!ple hypothecation3)egative lien on assets 9egistered 4ypothecation +1st Charge31st Pari passu Charge, 1ully Pledged "acilities3su stantially cash covered 3 9eg$ M Total 0 .1 6A Percent 16$6 C6$6 6$6 1AA$A Oalid Percent 16$6 C6$6 6$6 1AA$A Cu!ulative Percent 16$6 5/$B 1AA$A
1igure 5$10' Pie Chart +Security Coverage,
BC
Southeast Banks Credit Approval & Monitoring Process Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page
Ta le 5$.C' Cross Ta ulation +;oan 9ecovery 9ate Q Security Coverage,

*oan Reco"er$ Rate G Securit$ Co"erage IPri'ar$> Crossta ulation Security Coverage +Pri!ary, 9egistered 1ully Pledged Si!ple 4ypothecation +1st "acilities3su stantiall hypothecation3)egati Charge31st Pari y cash covered 3 9eg$ ve lien on assets passu Charge, M ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A A 1 A A A A A A A A A . A 1 A A A 0 1 1 1 1 1 1 1 . 1 1 1 1 1 1 1 . 1 1 1 . . .A A A A A 1 A A A A A A A A A A A A A A A 1
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< Clients usually pledge their assets as security in case o" taking loan "ro! a ank$ It is i!portant "or anks to evaluate the value# condition o" the security and ho% !uch coverage it is "or the principle a!ount o" the loan$ That is the purpose o" the security coverage varia le$ The "re:uency distri ution +Ta le 5$.B, sho%s us that very "e% clients +68, "ully pledged their assets as security$ (n the other hand a large !a&ority +C68, has a registered hypothecation that is :uite good$ <ithin this large !a&ority 6/8 o" the! have a loan recovery rate higher than 5A8 +Ta le 5$.C,# %hich is very high$ Thus it can e said that security coverage does in"luence the loan repay!ent o" clients a lot and can e a hand"ul tool in credit risk grading$
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9.14 Collateral Co"erage<

;reFuenc$ /istri ution< Ta le 5$.5' 1re:uency ?istri ution +Collateral Coverage,
Collateral Co"erage IPropert$> 1re:uency Oalid )o collateral 9egistered Mortgage on Pourashava3Se!i*Er an area property 9egistered Mortgage on Municipal corporation3Pri!e Area prop Total 5 1A 11 6A Percent 6A$A 66$6 6/$B 1AA$A Oalid Percent 6A$A 66$6 6/$B 1AA$A Cu!ulative Percent 6A$A /6$6 1AA$A
1igure 5$1-' Pie Chart +Collateral Coverage,
CA
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$6A' Cross Ta ulation +;oan 9ecovery 9ate Q Collateral Coverage,
*oan Reco"er$ Rate G Collateral Co"erage IPropert$> Crossta ulation Collateral Coverage +Property, 9egistered Mortgage on Pourashava3Se!i* Er an area property 1 1 1 A A 6 A 1 A A 1 1 A A A A A A A A A 5 A A A A A A A A 1 1 A A 1 1 A 1 A 1 1 . 1 1A 9egistered Mortgage on Municipal corporation3Pri!e Area prop A A A 1 1 A 1 1 A A A A A A 1 6 1 1 A A 1 11
)o collateral ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< 1ro! the "re:uency distri ution +Ta le 5$.5, %e can see that the percentages o" clients are al!ost e:ually divided$ The !a&ority o" clients +6/$/B8, did pledge their property in a pri!e area o" the city as !ortgage$ )ot "ar ehind is the group o" clients +66$668, %ho also pledged their property as !ortgage ut the property is not located in the pri!e area o" the city %hich devalues it slightly$ (ther clients +6A8, did not pledge any property or !achinery as !ortgage and thus do not have any collateral at all against the loan$ 4al" the pri!e*area property holders have a loan recovery rate o" CB8 or a ove# %hich is a pro!ising sign$ The
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clients %ith properties in su ur an areas have hal" !a&ority %ith a 5A8 or a ove loan recovery rate %hich is even !ore re!arka le +Ta le 5$6A,$ So it can e concluded "ro! these "acts that keeping properties as !ortgage to take loans is an i!portant "actor in in"luencing clients to repay ack their loans in ti!e and thus reduce their credit risk$
9.16 Support<
;reFuenc$ /istri ution< Ta le 5$61' 1re:uency ?istri ution +Support,
SupportAGuarantee 1re:uency Oalid Personal 2uarantees or Corporate 2uarantee %ith average "ina Personal 2uarantee %ith high net %orth or Strong Corporate 2 Total 0 ./ 6A Percent 16$6 C/$B 1AA$A Oalid Percent 16$6 C/$B 1AA$A Cu!ulative Percent 16$6 1AA$A
1igure 5$1/' Pie Chart +Support,
C.
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$6.' Cross Ta ulation +;oan 9ecovery 9ate Q Support32uarantee,
*oan Reco"er$ Rate G SupportAGuarantee Crossta ulation Support32uarantee Personal 2uarantees Personal 2uarantee or Corporate %ith high net %orth 2uarantee %ith or Strong Corporate average "ina 2 ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A 1 A A A A A A A A 1 A A A A 1 A A A A 1 0 1 A 1 1 1 6 1 . 1 1 A 1 1 1 1 6 1 . 1 . 1 ./
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< )one o" the clients o" Southeast Bank @u ilee 9oad Branch takes loan %ithout having a guarantor supporting the loan$ The "inancial strength o" the guarantee is seen %ith this "actor$ According to the "re:uency distri ution +Ta le 5$61,# a large !a&ority o" the clients +C/$/B8, have either a personal guarantee %ith high net %orth or a strong corporate guarantee$ This is a very good aspect "or their credit risk$ The rest o" the clients have guarantees %ith average "inancial strength$ But in the cross ta ulation +Ta le 5$6., %ith loan recovery rate# the clients o" strong guarantors have %idely varied rates going as lo% as -/8 and as high as "ull ti!ely
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recovery o" 1AA8$ This !ight !ake the varia le o" guarantee slightly risky# ut it !ust e noted that a out 6A8 o" the clients %ith strong guarantee have a recovery rate o" 5A8 or a ove$ This last "act &ust !ight !ake this varia le an in"luential one to%ards credit risk grading$
9.17 Account Conduct<

;reFuenc$ /istri ution< Ta le 5$66' 1re:uency ?istri ution +Account Conduct,
Account Conduct 1re:uency Oalid 1re:uent Past dues & Irregular dealings in account Accounts having satis"actory dealings %ith so!e late pay!ent ;ess than 6 years Accounts %ith "aultless record More than 6 years Accounts %ith "aultless record Total 6 .A . 6A Percent 1A$A 1/$B //$B /$B 1AA$A Oalid Percent 1A$A 1/$B //$B /$B 1AA$A Cu!ulative Percent 1A$A ./$B 56$6 1AA$A
1igure 5$1B' Pie Chart +Account Conduct, C0
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$60' Cross Ta ulation +;oan 9ecovery 9ate Q Account Conduct,
*oan Reco"er$ Rate G Account Conduct Crossta ulation Account Conduct 1re:uent Past dues & Irregular dealings in account ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A 1 1 A A 1 A A A A A A A A A A A A 6 Accounts having satis"actory dealings %ith ;ess than 6 years so!e late Accounts %ith pay!ent "aultless record A A A A A A A 1 A A A A 1 A 1 1 A 1 A A A 1 1 1 1 A . 1 1 A A 1 1 A 1 A . 1 1 1 . . .A More than 6 years Accounts %ith "aultless record A A A A A A A A A 1 A A A A A 1 A A A A A .
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< This "actor &udges ho% !uch "la%lessly the client !aintains its accounts$ Sadly very "e% clients +/$/B8, have an account %ith "aultless record "or !ore than 6 years$ But !a&ority o" the! +//$/B8, have "aultless records "or less than 6 years$ 1/$/B8 clients have only satis"actory accounts dealing %ith a "e% late pay!ents +Ta le 5$66,$ This is not a good sign in ter!s o" selection o" clients "or Southeast Bank$ 4o%ever# a close look at the cross ta ulation actually de!eans the i!portance o" the accounts conduct$ A!ong the clients %ho have less than only 6 years o" "aultless records actually have hal" !a&ority %ith C/8 or a ove loan
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recovery rate +Ta le 5$60,$ But clients %ith only satis"actory accounts have &udge the i!portance o" this varia le$ etter
per"or!ance than clients %ith "aultless accounts less than 6 years$ So it !akes it di""icult to
9.18 +tili:ation o# *i'it<

;reFuenc$ /istri ution< Ta le 5$6-' 1re:uency ?istri ution +Etilization o" ;i!it,
+tili:ation o# *i'it 1re:uency Oalid ;ess than 0A8 0A8 * /A8 More than /A8 Total 1 1 .C 6A Percent 6$6 6$6 56$6 1AA$A Oalid Percent 6$6 6$6 56$6 1AA$A Cu!ulative Percent 6$6 /$B 1AA$A
1igure 5$1C' Pie Chart +Etilization o" ;i!it,
C/
Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$6/' Cross Ta ulation +;oan 9ecovery 9ate Q Etilization o" ;i!it,
*oan Reco"er$ Rate G +tili:ation o# *i'it Crossta ulation Etilization o" ;i!it ;ess than 0A8 ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A A A A A A A A A A A A 1 A A A A A 1 0A8 * /A8 1 A A A A A A A A A A A A A A A A A A A A 1 More than /A8 A 1 1 1 1 6 1 . 1 1 1 1 1 1 1 6 1 . 1 . . .C Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< <henever any client takes loan "ro! the ank# the a!ount that is paid to the! is not the e>act a!ount they %ill use$ The a!ount the clients are going to use is according to their o%n desire %ithin the li!it o" principal a!ount$ This varia le asically pro&ects ho% !uch o" that li!it %ill e utilized y the client$ According the "re:uency distri ution +Ta le 5$6-, al!ost all the clients +56$668, utilize !ore than /A8 o" the li!it# %hich is ene"icial "or the ank$ The cross ta ulation +Ta le 5$6/, ho%ever gives a !i>ed picture$ =ven though 0A8 o" the !a&ority has a loan recovery rate e:ual to or a ove 5A8# %hich is very good$ But 6-8 clients %ithin the sa!e group also have a recovery rate lo%er than B08# %hich is not good at all$ So it is really hard to tell ho% utilization plays role in case o" credit risk grading$
CB
9.19 Co'pliance o# Co"enantsAConditions<

;reFuenc$ /istri ution< Ta le 5$6B' 1re:uency ?istri ution +Co!pliance o" Covenants3Conditions,
Co'pliance o# Co"enantsAConditions 1re:uency Oalid )o Co!pliance So!e )on*Co!pliance 1ull Co!pliance Total 1 1A 15 6A Percent 6$6 66$6 /6$6 1AA$A Oalid Percent 6$6 66$6 /6$6 1AA$A Cu!ulative Percent 6$6 6/$B 1AA$A
1igure 5$15' Pie Chart +Co!pliance o" Covenants3Conditions,
CC
Southeast Banks Credit Approval & Monitoring Process Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$6C' Cross Ta ulation +;oan 9ecovery 9ate Q Co!pliance o" Covenants3Conditions,
*oan Reco"er$ Rate G Co'pliance o# Co"enantsAConditions Crossta ulation Co!pliance o" Covenants3Conditions )o Co!pliance ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total A A A A A A 1 A A A A A A A A A A A A A A 1 So!e )on* Co!pliance 1 1 1 A A 1 A 1 A A A 1 1 A 1 1 1 A A A A 1A 1ull Co!pliance A A A 1 1 . A 1 1 1 1 A A 1 A 6 A . 1 . . 15 Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< This is a &udg!ental analysis o" ho% !uch the client %ill co!ply %ith the covenants or rules o" the credit "acility$ Ma&ority o" the clients +/6$668, %ill give "ull co!pliance +Ta le 5$6B,$ This is :uite good "or the ank$ But theres also a signi"icant portion o" the clients +66$668, %ill give so!e non*co!pliance# %hich increases the risk slightly$ Based on the cross ta ulation +Ta le 5$6B, !ore than -A8 o" the clients %ith "ull co!pliance have a loan recovery rate o" C/8 or a ove %hich is :uite good$ But the group o" clients %ith so!e non* co!pliance need to e !onitored since hal" o" the! has a loan recovery rate o" B08 or elo%# %hich is risky$ But this sho%s that co!pliance o" covenants has got good in"luence over the loan recovery rate and thus can e used in credit risk grading e""ectively$
C5
9.%= Personal /eposits<

;reFuenc$ /istri ution< Ta le 5$65' 1re:uency ?istri ution +Personal ?eposits,
Personal /eposits 1re:uency Oalid )o depository relationship Personal accounts o" the key usiness Sponsors3 Principals a Total 1/ 10 6A Percent -6$6 0/$B 1AA$A Oalid Percent -6$6 0/$B 1AA$A Cu!ulative Percent -6$6 1AA$A
1igure 5$.A' Pie Chart +Personal ?eposits,
5A
Southeast Banks Credit Approval & Monitoring Process Cross5ta ulation< Cross ta ulation %ith dependent varia le is given in the ne>t page Ta le 5$0A' Cross Ta ulation +;oan 9ecovery 9ate Q Personal ?eposits,
*oan Reco"er$ Rate G Personal /eposits Crossta ulation Personal ?eposits Personal accounts o" the key usiness Sponsors3 Principals a A 1 1 1 1 . 1 1 1 A 1 1 A A 1 . A 1 A A 1 1/ 1 A A A A 1 A 1 A 1 A A 1 1 A . 1 1 1 . 1 10
)o depository relationship ;oan 9ecovery 9ate -/ -5 /1 /6 BA B1 B6 B0 B/ BB B5 C1 C0 C/ CB 5A 51 56 5/ 55 1AA Total
Total 1 1 1 1 1 6 1 . 1 1 1 1 1 1 1 0 1 . 1 . . 6A
Interpretation< This checks %hether the co!pany or any top o""icials o" the co!pany had any depository account %ith the ank previously thus uilding a good relationship$ -6$668 o" the clients did not have any depository relationship %ith the ank e"ore +Ta le 5$65, and it is a %onder %hy Southeast ank still provided credit "acility to these clients$ The !inority 0/$/B8 o" the clients actually had a previous relationship %ith the ank$ The cross ta ulation clearly tells us that the clients %ith a previous depository relationship %ith the ank are etter in ti!ely repay!ent o" loans$ 1or e>a!ple# !ore than -A8 o" the clients# %ho had previous relationship# had a loan recovery rate o" 5A8 or a ove +Ta le 5$0A,$ <hereas# -A8 o" those# %ho had no relationship# has a loan recovery rate o" e:ual to or less than B08$ But "or the purpose o" our study %e can clai! that having personal deposit does in"luence in loan repay!ent$ Thus this varia le is i!portant "actor o" credit risk grading$
51
9.%1 Regression Anal$sis<
1or purpose o" regression analysis loan recovery rate is set as dependent varia le and all other nu!eric varia les +leverage# li:uidity# pro"ita ility# coverage# usiness size# age o" usiness# industry gro%th# senior !anage!ent e>perience# and utilization o" li!it, as independent varia le$
Ta le 5$01' A)(OA
ANO0A Model 1 9egression 9esidual Total Su! o" S:uares .6AB$/// .-.6$CA1 0C61$0/B d" 5 .A .5 Mean S:uare .-/$0AB 1./$15A 1 .$A6. Sig$ $AA5a
a$ Predictors' +Constant,# Etilization o" ;i!it# Business Size# Snr Mgt =>perience# Industry 2ro%th# Pro"ita ility# ;i:uidity# ;everage# Age o" usiness# Coverage $ ?ependent Oaria le' ;oan 9ecovery 9ate
Ta le 5$0.' Coe""icients
Coe##icientsa
Enstandardized Coe""icients Model 1 +Constant, ;everage ;i:uidity Pro"ita ility Coverage Business Size Age o" usiness Industry 2ro%th Snr Mgt =>perience Etilization o" ;i!it a$ ?ependent Oaria le' ;oan 9ecovery 9ate B 1B$1.B 1$60$A55 $6// .$/B6 6$..C $0/. 0$BBB .$65$-A. Std$ =rror .5$AC1$6A0 $5/C $/..$--A 1$56C .$1C/ 0$0-5 6$00C /$6-/ $15. $A.C $1.1 $61/ $.C5 $A06 $.1/ $1.A $A1/ Standardized Coe""icients Beta t $-C5 1$A6. $1A6 $-C/ 1$A0C 1$//$.1. 1$AB1 $/5$AB5 Sig$ $-/6 $61$515 $-/$6AB $111 $C6$.5B $05$56C
;et# 5.
Southeast Banks Credit Approval & Monitoring Process ;oan 9ecovery 9ate H y ;everage H >1 +one unit change in leverage recovery rate, ;i:uidity H >. +one unit o" change in li:uidity rings A$A55 change in loan recovery rate, Pro"ita ility H >6 +one unit change in Pro"ita ility rings A$6// change in loan recovery rate, Coverage H >0 +one unit change in coverage rings .$/B6 change in loan recovery rate, Business size H >- +one unit change in usiness size rings 6$..C change in loan recovery rate, Age o" Business H >/ +one unit change in age o" usiness rings A$0/. change in loan recovery rate, Industry 2ro%th H >B +one unit change in industry gro%th rings 0$BBB change in loan recovery rate, Senior Manage!ent =>perience H >C +one unit change in senior !anage!ent e>perience rings .$65- change in loan recovery rate, Etilization o" li!it H >5 +one unit change in utilization o" li!it rings A$-A. change in loan recovery rate, So the regression e:uation co!es to e# T H 1$60->1 I A$A55>. IA $66/>6 I .$/B6>0 I 6$..C>- I A$0/.>/ I 0$BBB>B I .$65->C I A$-A.>5 Interpretation< 1ro! the regression analysis %e can see that industry gro%th is the !ost i!portant "actor in deter!ining clients loan recovery rate ecause it has the largest coe""icients$ The second !ost i!portant "actor is usiness size$ 1actors such as leverage# coverage# senior !anage!ent e>perience also have signi"icant i!pact on clients loan recovery rate$ But "actors such as li:uidity# pro"ita ility# age o" usiness and utilization o" li!its are less i!portant in case o" deter!ining clients loan recovery rate$ rings 1$60- change in loan
56
1=. R-CO&&-N/ATIONS AN/ CONC*+SION

1=.1 Reco''endations 1$ 1ro! the cross ta ulation and the regression analysis %e can see that pro"ita ility and age o" usiness have less i!pact on loan recovery rate and have lo% coe""icients$ So these t%o varia les can e eli!inated "ro! credit risk grading$ .$ 1ro! the cross ta ulation %e can see that accounts conduct# second line3 succession# e>it3entry arriers and !arket co!petition have less i!pact on loan recovery rate$ So these varia les ca! e eli!inated "ro! credit risk grading$ But %e should consider the "actor that these varia les are non nu!eric so these varia les %ere not used in regression analysis$ 6$ Business size and industry gro%th have signi"icant i!pact on loan recovery rate$ So these varia les %eight should e increased in credit risk grading$ 0$ 1actors such as li:uidity# utilization o" li!its are less i!portant in case o" deter!ining clients loan recovery rate$ So these varia les %eight should e decreased$
1=.% Conclusion Credit risk grading syste! o" Southeast Bank ;td is e""icient ut there is scope "or i!prove!ent$ So it can e said that !y hypothesis is arely true$ This analysis has conducted ased on data "ro! Southeast Bank ;tds @u ilee 9oad ranch# so it %ill only give an idea a out Southeast Bank ;tds credit risk grading$ To have the true picture the analysis should e conducted on all the ranches o" the ank$ 9ecently Southeast Bank ;td has co!e under Bangladesh Banks %atch list "or ad loans$ So there is lacking in the anks lending although the anks @u ilee 9oad ranch has per"or!ed %ell$
50
BIB*IOGRAP,C
TEXTBOOKS R.D. Mason, W.G. Marchal & Douglas A. Lind, Statistical techniques in Business & Economics, 11th edition, 2002 Murray R. Spiegel & Larry .Stephens, Theory and Problems of Statistics, !rd "dition, McGra#$%ill, 1&&&.
OTHER PUBLICATIONS 'rochures and pu(lications o) S"'L products Annual report o) the year 200& o) *'L
WEBSITES (URLS) So+e #e(sites are ,isited )or collecting so+e secondary data, #hich are http-..###.se(an/(d.co+. ###.eho#.co+ 0 1ersonal 2inance
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Southeast Banks Credit Approval & Monitoring Process

Chapter One ORGANIZATION PART

Southeast Banks Credit Approval & Monitoring Process

Scheduled Banks in Bangladesh

FCB 20% NCB 8% PCB 54% Islamic 8% Specialized 10%

FCB NCB Islamic Specialized PCB

1igure1$1' Scheduled Banks in Bangladesh

2enerally# the co!!ercial

anks and "inance co!panies provide a !yriad o"

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

1.1 O !ecti"e o# the Stud$

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

1.( Scope o# the Stud$

1.) *i'itations o# Stud$

Southeast Banks Credit Approval & Monitoring Process

%. ABO+T SO+T,-AST BAN. *I&IT-/

%.1 ,istor$ o# the Bank

Southeast Banks Credit Approval & Monitoring Process

%.) Slogan o# S-B*

1A Bank 2ith 0ision3

Southeast Banks Credit Approval & Monitoring Process

%.4 Southeast Bank 5 At Present

Southeast Banks Credit Approval & Monitoring Process

%.6 Co''it'ents to Clients o# S-B*

Southeast Banks Credit Approval & Monitoring Process

%.7 S-B* Core 0alues

Integrity 9espect 1airness 4ar!ony Tea! Spirit Courtesy

%.8 S-B* Core Strengths

Southeast Banks Credit Approval & Monitoring Process

%.9 Organi:ational ,ierarch$

A ove is the !anage!ent structure o" the total corporate Southeast

%.1= ;unctional Structure o# S-B*

1igure .$.' 1unctional Structure o" S=B;

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

%.11 /i"isions o# S-B*

Southeast Banks Credit Approval & Monitoring Process

(. BASIC CONC-PTS O; CR-/IT

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

). *-N/ING PROC-SS O; S-B*

Southeast Banks Credit Approval & Monitoring Process

#$al%ating '( )gent

S%pe $ision o! t"e Loan

*is'% sing Loan

Sanctioning and *oc%mentation o! Loan

B anc" Le$el #$al%ation

,eco$e ( o! t"e Loan

+ead o!!ice Le$el

;igure ).1< Process o# ,andling *oan

).% Securit$ o# *oan

Southeast Banks Credit Approval & Monitoring Process

).( Credit Anal$sis

Southeast Banks Credit Approval & Monitoring Process

Southeast Banks Credit Approval & Monitoring Process

).(.1.) *oan a'ount A *oan ter's and conditions A *oan docu'ents

Southeast Banks Credit Approval & Monitoring Process

).) Borro2er Selection Process

). -N/ING PROC-SS O; S-B

).(.1.) oan a'ount A oan ter's and conditions A *oan docu'ents

4. POICC ON OAN C*ASSI;ICATION B PRO0ISIONING

oan Reco"er$ Rate G e"erage Crossta ulation