Credit Risk Management Policy in National Bank LTD

Credit Risk Management policy
in
National Bank Limited
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1
C%apter & ' Introduction
2
'.' (oundation o) t%e Report
BBA program of Mohammadpur Kendriya College Department of Business
Administration is organized and tailored to provide the students with the conceptual,
theoretical and practical tools of analyses !pecial stresses are given on theory and
practice them under an organization "herefore, as an internee # have completed my
practice session and prepared iris re$uired report %ased on investigations carried out %y
me in &ational Ban' (imited )B(* As an internee student # have tried my level %est to
cover the contemporary credit ris' management system of &ational Ban' (imited in this
report
'.* #b+ecti,es
Broad #b+ecti,e- "o analyze the Credit +is' Management policy
Speci)ic #b+ecti,e- "o attain the %road o%,ective the following specific o%,ectives will
%e pursued-
"o identify the various types of credit dis%ursed %y &B(
"o analyze the credit portfolio of &B(
"o get idea a%out the process of credit management practices of &B(
"o e.amine the credit dis%ursement trend of &B(
"o analyze the credit recovery performance of &B(
"o analyze compliance with the Bangladesh %an'/s guidelines
"o analyze the financial performance of &B(
'.. Scope o) t%e Report
"his report has two %road divisions 0ne is the organization part and the other is the
pro,ect part "he organization part descri%es my host organization &B( "he pro,ect part
deals with the specific assignment that # carried out on my host organization "his
specific assignment ort the pro,ect is to find out the effectiveness of credit ris'
management policy of &B(
'./ Met%odology
Source in)ormation- of information1 Both primary and secondary sources of
information were used to complete this report
2
'./.' "rimary Sources
3rimary data and information were collected %y interviewing relevant persons at &B(
"he interviewed personnel were1
'./.* Secondary Sources
"he secondary sources are1
Annual report of &ational Ban' (imited
3eriodicals pu%lished %y the Bangladesh %an'
Different pu%lication regarding %an'ing functions, foreign e.change operation
and credit policies
'.0 Limitation o) t%e Report
"his report will only consider credit ris's of &ational Ban' (imited #t will not cover
Asset and lia%ility4%alance sheet ris'
5oreign 6.change +is'
#nternal control And compliance ris'
Money laundering +is'
'.1 Interns%ip "eriod
#nternship period started on 7anuay 11, 2812 and it will %e continued to April 18, 2812
#n this period, # have to %e covered general %an'ing, investment, and foreign e.change
division at &ational Ban' (imited, (a'e Circus Branch
9
Md Asaduzzaman
3rinciple 0fficer
&ational Ban' ltd
(a'e Circus Branch
Contact1 81:21:1:;1;
Md Anuyar
6.ecutive 0fficer
&ational Ban' ltd
(a'e Circus Branch
C%apter & * An #,er,ie$ o) t%e
National Bank Limited
<
*.' Corporate In)ormation
*.'.' 2istory and 2eritage
&ational Ban' (imited has its prosperous past, glorious present, prospective future and
under processing pro,ects and activities 6sta%lished as the first private sector %an' fully
owned %y Bangladeshi entrepreneurs, &B( has %een flourishing as the largest private
sector Ban' with the passage of time after facing many stress and strain "he mem%ers of
the %oard of directors are creative %usinessmen and leading industrialists of the country
"o 'eep pace with time and in harmony with national and international economic
activities and for rendering all modern services, &B(, as a financial institution,
automated all its %ranches with computer networ's in accordance with the competitive
commercial demand of time Moreover, considering its forth-coming future, the
infrastructure of the Ban' has %een rearranging "he e.pectation of all class
%usinessmen, entrepreneurs and general pu%lic is much more to &B( At present we have
19< %ranches under our %ranch networ' #n addition, our effective and diversified
approach to seize the mar'et opportunities is going on as continuous process to
accommodate new customers %y developing and e.panding rural, !M6 financing and
offshore %an'ing facilities =e have opened 18 %ranches and < !M64Agri %ranches
during 2818
"he emergence of &ational Ban' (imited in the private sector was an important event in
the Ban'ing arena of Bangladesh =hen the nation was in the grip of severe recession,
the government too' the farsighted decision to allow the private sector to revive the
economy of the country !everal dynamic entrepreneurs came forward for esta%lishing a
%an' with a motto to revitalize the economy of the country
&ational Ban' (imited was %orn as the first hundred percent Bangladeshi owned Ban' in
the private sector 5rom the very inception, it was the firm determination of &ational
Ban' (imited to play a vital role in the national economy =e are determined to %ring
%ac' the long forgotten taste of %an'ing services and flavors =e want to serve each one
promptly and with a sense of dedication and dignity
"he then 3resident of the 3eople/s +epu%lic of Bangladesh 7ustice Ahsanuddin
Chowdhury inaugurated the %an' formally on March 2>, 1:>2 %ut the first %ranch at 9>,
Dil'usha Commercial Area, Dha'a started commercial operation on March 22, 1:>2
"he 2nd Branch was opened on 11th May 1:>2 at Khatungon,, Chittagong
At present, &B( has %een carrying on %usiness through its 128 %ranches and 1< !M6 4
Agri Branches ?total 19< service locations* spread all over the country !ince the very
%eginning, the %an' has e.erted much emphasis on overseas operations and handled a
siza%le $uantum of home %ound foreign remittance #t has drawing arrangements with
91< correspondents in @< countries of the world, as well as with 2@ overseas 6.change
Companies located in 12 countries &B( was the first domestic %an' to esta%lish agency
arrangements with the world famous =estern Anion in order to facilitate $uic' and safe
remittance of the valua%le foreign e.changes earned %y the e.patriate Bangladeshi
;
nationals "his has meant that the e.patriates can remit their hard-earned money to the
country with much ease, confidence, safety and speed
&B( was also the first among domestic %an's to introduce international Master Card in
Bangladesh #n the meantime, &B( has also introduced the Bisa Card and 3ower Card
"he Ban' has in its use the latest information technology services of !=#5" and
+6A"6+! &B( has %een continuing its small credit programmes for dis%ursement of
collateral free agricultural loans among the poor farmers of Barindra area in +a,shahi
district for improving their livelihood
&B( focused on all 'ey areas covering capital ade$uacy, maintaining good asset $uality,
sound management, satisfactory earning and li$uidity As a conse$uence, it was possi%le
to a record growth of 1@<<1 percent with "' >,>8:98 million preta. profits in the year
under review over the preceding year "he net profit after ta. and provision stood at "'
;,>;829 million which was "' 2,8@89@ million in the previous year registering a
22129 percent rise "he total deposits increased to "' 182,9@1>2 million %eing 222@
percent increase over the preceding year (oans and advances stood at "':2, 882<;
million in the year under report which was "' ;<,12:2>: million representing 912;
percent rise over the preceding year 5oreign trade stood at "' 199,2<<88 million in
2818 compared to "' 11<,:2:88 million, increased %y 2992 percent compared to that
of the previous year During 2818, the %an' handled inward remittance of "' 9:,19<28
million, 18@2 percent higher than that of the previous year +eturn on 6$uity ?+06*
registered a @@>9 percent rise over the preceding year
&ational Ban', has now ac$uired strength and e.pertise to support the %an'ing needs of
the foreign investors &B( stepped into a new arena of %usiness and opened its 0ff !hore
Ban'ing Anit at Moha'hali to serve the wage earners and the foreign investors %etter
than %efore
!ince its inception, the %an' was aware of complying with Corporate !ocial
+esponsi%ility #n this direction, we have remained associated with the development of
education, healthcare and have sponsored sporting and cultural activities During times
of natural disasters li'e floods, cyclones, landslides, we have e.tended our hand to
mitigate the sufferings of victims #t esta%lished the &ational Ban' 5oundation in 1:>: to
remain involved with social welfare activities "he foundation runs the &B( 3u%lic
!chool C College at Mogh%azar where present enrolment is 1198 Besides awarding
scholarship to the meritorious children of the employees, the %an' has also e.tended
financial support for their education #t also provided financial assistance to the Asiatic
!ociety of Bangladesh at the time of their pu%lication of Banglapedia and o%servance of
988 years of Dha'a City
"he "ransparency and accounta%ility of a financial institution are reflected in its Annual
+eport containing its Balance !heet and 3rofit C (oss Account #n recognition of this,
&B( was awarded Crest in 1::: and 2888, and Certificate of Appreciation in 2881 %y
the #nstitute of Chartered Accountants of Bangladesh
@
"he %an' has a strong team of highly $ualified and e.perienced professionals, together
with an efficient Board of Directors who play a vital role in formulating and
implementing policies
*.'.* Mission
6fforts for e.pansion of our activities at home and a%road %y adding new dimensions to
our %an'ing services are %eing continued una%ated Alongside, we are also putting
highest priority in ensuring transparency, account a%ility, improved clientele service as
well as to our commitment to serve the society through which we want to get closer and
closer to the people of all strata =inning an everlasting seat in the hearts of the people
as a caring companion in uplifting the national economic standard through continuous up
gradation and diversification of our clientele services in line with national and
international re$uirements is the desired goal we want to reach
*.'.. 3ision
6nsuring highest standard of clientele services through %est application of latest
information technology, ma'ing due contri%ution to the national economy and
esta%lishing ourselves firmly at home and a%road as a front ran'ing %an' of the country
are our cherished vision
*.'./ Commitments
In ser,ing Customers In Ser,ing t%e Bank In Carrying #ursel,es
at Work
Customer-first Duality-focus
Credi%ility C !ecrecy
(oyalty "otal
commitment C dedication
6.cellence through teamwor'
Discipline Eonesty
!incerity Caring Creativity
>
*.'.0 #rgani4ational Structure
=e 'now organizational structure plays an important role on the profita%ility of any
organization &ational Ban' (imited is a centralized organization and it/s activates
designed on the %asis of traditional %an'ing %usiness process, !uch as Credit,
#nternational Division, #nvestment, Administration, and operation etc &B( has a formal
organizational structure that is highly specialized and centralized
0rganizational setup of the &ational Ban' (imited is consisting of three organizational
domains 5irstly, the central top management, which contains Board of Directors,
Managing Director, Additional Managing Director and Deputy Managing Director
Ma,or responsi%ilities of this are to ta'e central decision and transmit it to the second
step !econdly, Central e.ecutive level management, which contains 6.ecutive Bice
3resident, !enior Bice 3resident, Bice 3resident and Assistant Bice 3resident Ma,or
responsi%ility of this part to supervise and control division4 department "hirdly, %ranch
operation management, which contains %ranch manager and other mid4 lower level
management Ma,or responsi%ilities of this part are to the 128 %ranches and 1<
!M64Agri Branches ?total 19< service locations* across Bangladesh and report to the
head office time to time
"lanning-
"he strategic planning approach in &B( is top-down "op management formulates
strategy at the corporate level, and then it is transmitted through the division to the
individual o%,ectives Board of directors or 6.ecutive committee usually ta'es the
decision #n this process lower level manager are detached in ma'ing process, even
%rainstorming of lower level manager is a%sent in decision-ma'ing and planning process
#rgani4ing-
0rganizing of the &ational Ban' (imited is %ased on departmentalization "he
organization is divided into twelve departments headed %y 6.ecutive Bice 3resident or
!enior Bice 3resident #n the &B( the whole operation is centralized and authority is
delegated %y written guidelines "hese guidelines are1
Advance manual including advances limit for different management level
Bad and dou%tful recovery manual
Code of conduct
5oreign %an'ing guidelines
Central %an' directives
Different management position holders in departments and %ranches practice
their authorized power in different cases with administrative loophole
:
Sta))ing-
6ntry level recruitment process of the &ational Ban' (imited in conducted in three ways
0ne way is recruitment of pro%ationary officer 6ach pro%ationary officer has one year
pro%ation period After completion pro%ation period the officer ,oins as officer grade-#ll
?%* "he career path of pro%ationary officer is headed toward different management
positions !econd way of recruitment is to recruit non pro%ationary officer who ,oins as
an assistant officer "he career path of an assistant officer is lengthier than pro%ationary
officer "he third way of recruitment is recruitment of staff and su% staff such as typist,
messenger, driver, guard, attendant, cleaner and other lower level positions 3romotion
policy of &B( is %asically %ased on seniority %asis !ometimes, employees are promoted
to the higher position for their outstanding performance Eowever, it is found that the
average length of a position held %y an employee is around five years
Controlling-
"he %an' has strict control over its all organizational activities "he Bangladesh Ban'
directives indicate some control measures "he central %an' conducts credit inspection
%y a team "he &ational Ban' (imited has audit and inspection department to ta'e
controlling measures in internal operations Audit and inspection team send to the
%ranches and then is responsi%le for preparing report that will %e su%mitted to the chief
administration to ta'e necessary actions
5epartment o) 2ead #))ice o) t%e National Bank Limited
Audit C #nspection Division Audit C Budget C Monitoring Division
Computer Division Credit Division
Credit Card Division Dispatch Division
5inancial Administration Division
Euman +esource Division
#nternational Division (aw C +ecovery Division
Merchant Ban'ing Division Mar'eting Division
!hare Division !ystem C 0peration Division
18
*.'.0.' 2ierarc%y o) t%e Bank
Chairman
MD
!B3
6B3
B3
AB3
0fficer Fr1-1
0fficer Fr1-##
0fficer Fr1-###
0fficer Fr-###A
0fficer Fr1-###B
0fficer Fr1-#
7unior 0fficer
!taff
11
*.'.1 5i,ision o) NBL
Audit C #nspection Division
A"M Card Division
Board !ecretariat
Budget C Monitoring Division
Credit Division-1
Credit Division-2
Credit Card Division
Classified (oan +ecovery Division
5inancial Administration Division
Euman +esources Division
#nternational Division
#nformation !ystem C "echnology Division
(aw C +ecovery Division
Mar'eting Division
Merchant Ban'ing Division
3u%lic +elations Division
3rotocol Division
+econciliation Division
!ystem C 0peration
*.'.6 Introducing t%e Branc%
&ational Ban' (a'e Circus Branch is one of the largest %raches of &B( "his %ranch is
located at (a'e circus #t started function in the year of 288;
3resently there are 22 employees in this %ranch as of 28822812, which includes one B3,
9 AB3s, 2 !30s, > 3os, 2 !0s, 9 Assistant 0fficers, 9 7unior 0fficers, 0ne Assistant and
others are messengers, tellers, typist and security guards
12
*.'.6.' #rgan Gram o) Babu Ba4ar Branc%
Lake Circus Branc%
Feneral Ban'ing Credit 5oreign 6.change Accounts
#mport 5oreign +emittance
*.* "roduct 7 Ser,ices
*.*.' 5eposits "roducts
Current Deposit
!avings Deposit
"erm Deposit
5oreign Currency Deposit
Monthly !avings !cheme
Monthly #ncome !cheme
Dou%le Benefit !cheme
Millionaire #ncome !cheme
*.*.* Credit "roducts
0verdraft
(ease 5inancing
Eouse Building
!mall Medium 6nterprise
Consumer Credit !cheme
"rade 5inance
*.*.. Cards
Credits Card
&B( 3ower Card
12
*.. Loan "roducts o) NBL
!ecured 0verdraft ?!0D*
#nvestment against #mported Merchandise ?(#M*
#nvestment against "rust +eceipt ?("+*
3ayment against Document ?3AD*
Eouse Building #nvestment
Eouse Building #nvestment ?!taff*
"erm #nvestment
#nvestment ?general*
Ban' Fuarantee
6.port Cash Credit
Cash Credit ?EG30*
5oreign Documentary Bill 3urchase ?5DB3*
(ocal Documentary Bill 3urchase ?(DB3*
Feneral Discussion on Credit +is' Management
19
C%apter & . Credit Management "olicy
o) t%e National Bank Limited
1<
..' #,er,ie$
Credit e.tension or lending is the principal %usiness of &B( Credits constitute more
than ;8H of a &B(/s assets and remain the main sours of its income But credit is also
the most ris' %earing asset and if not manage prudentlyI it may cause !evier financial
losses to the %an' "his conflicting characteristic of credit provides all the significance to
credit management !trong and effective credit management is essential to ensure the
financial health of a %an' "he dominant o%,ective of credit management is to ma.imize
profit within a consistent framewor' of ris' and credit discipline Credit management
involves credit planning, credit policies, credit producer, credit administration, and credit
monitoring and credit recovery
..* "rinciples o) Credit Management
"he management of credit ris' is central to a sound credit management process "he
%asic principles of &B( have to follow in its credit ris' management are1
!election
(imitation
Diversification
Selection
!election of %orrower is the most important aspects of credit ris' management "he
$uality of the credit portfolio of &B( depends to a large e.tent on the $uality of its
%orrowers "o ,udge the $uality of %orrower &B( considers the folio wings1
Character ? %orrowers honesty, willingness and commitment to pay de%ts*
Capacity ?the success of %usiness*
Collateral
Condition ?economic*
Compliance ?laws and regulation*
Limitation
A system of limits for different types and categories of lending have to %e set "he
essential re$uirement is to esta%lish ma.imization amount that may %e loaned to any
%orrower or a group of connected %orrowers and to any one industry or type of
industries (ending limits have %een set the %an'/s capital and resources into account
1;
... Credit "olicy
&B( have esta%lished credit policies containing1
(ending guidelines
Credit assessment process
Approval authority
....' Lending Guidelines
(ending guidelines should clearly outline the senior management/s view of %usiness
development priorities and the term and condition that should %e followed for loans to %e
approved "he lending guidelines should provide the foundations to formulate
recommendations for loan approval and should include the following1
#ndustry and %usiness segment focus
"ypes of loan facilities
!ingles %orrower4group e.posure limit
(ending caps for a specific sector
Discouraged %usiness types
(oan facility parameter ?eg ma.imum size, ma.imum tenor, security
re$uirement*
....* Credit Assessment
&B( must underta'e through credit and ris' assessment %efore ta'ing decision on loan
approval 5or credit assessment the following should %e ta'en into consideration1
Amount4types of loan proposed
3urpose of loans
(oan structure ?tenor, repayment schedule, interest*
!ecurity
Borrower analysis
!upplier4%uyer analysis
5inancial analysis
5inancial performance
Account conduct
5or the assessment the ris' grading manual of BB should %e followed
1@
..... Appro,al aut%ority
"he authority to sanction4approve loans must %e clearly delegated to senior e.ecutives %y
the Chief 6.ecutive or the Board of Directors Approval authority should prefera%ly %e
delegated to individual e.ecutives %ased on security, the e.ecutive/s 'nowledge and
e.perience to ensure accounta%ility and $uic' decision in the approval process
../ Credit "rocedure
&B( have clear guidelines for procedure to %e followed for loan approval "he approval
process should provide for the +M4mar'eting team should recommend segregation of
+M4Mar'eting from the approving authority and forwarded to the approval team and %e
approved %y the individual e.ecutives
..0 Credit Administration
Credit administration is responsi%le to ensure proper documentation and compliance of
terms and conditions of approval %efore dis%ursement of loan 5or this reason it is
essential that the function of credit administration %e strictly segregated from
+M4Mar'eting
..1 Credit Monitoring
"o minimize credit losses, monitoring procedures and systems should %e in place that
should provide an early indication of the deteriorating financial health of a %orrower
&B(/s strong credit monitoring system helps to identify potential wea'ness of loan
re$uiring closes supervision and attention of the management
..6 Credit Reco,ery
&B( have a separate credit recovery unit, the primary functions of which including the
following1
Determine action plan4recovery strategy
3ursue all options to ma.imize recovery
6nsure ade$uate and timely loan loss provision %ased and e.pected losses
+egular review of classified loans
1>
..8 "rinciple o) Good Lending
#n appraising a credit proposal, &B( follows a few general principles of goods lending,
these are stated %elow1
!afety
(i$uidity
3urpose
3rofita%ility
!ecurity
!pread
&ational interest
Sa)ety-
!afety first is the main slogan of principle of good lending =hile lending a %an'er must
feel that the money will definitely come %ac' "he %an'er is to ensure that the money
advanced %y him will %e employed in a productive field and repaid with interest
Li9uidity-
(ending money must come %ac' within a reasona%le time or on demand 6mployment of
fluids for short term re$uirements and not loc'ed up in long term schemes is desira%le
"he repayment through definite, %ut slow in coming %ac' does not serve the purpose of
li$uidity +ecover of mortgage money of much higher value than advance money
through court process involving few years is safe %ut not li$uid
"urpose-
"he %an'er should ensure that the %orrower applies the money %orrowed for a particular
purpose accordingly, advanced for personal e.pense say1 marriage, pleasure tours or
repayment of previous outstanding de%t are ordinarily refused %y %an's &B(/s also
discourage advance for hoarding stoc's or speculative activities
"ro)itability-
&B( ma'es profit to meet up the e.penses of deposit interest, esta%lishment, staff salary,
rent, stationary etc And then ma'e reserve or pay dividend to shareholders After
considering all these factors a %an' decides upon its lending rates A particulars
transaction may not appear profita%le in itself But %orrowers some ancillary %usiness
may %e highly remunerative to the lending %an' #n this way, the transaction may on the
whole %e profita%le for the %an'
1:
Security-
&B( lends out of %orrowed money against security !ecurity serves as a safety valve for
an emergency Apart from this character, capacity, and capital of the %orrower are well
loo'ed, when an advance is granted
Spread-
+is' is always inherent in every advance A successful %an'er is an e.pert in assessing
such ris' Ee is 'een on spreading4dispersing lending ris's over a large num%er of
%orrowers, industries, areas and different types of securities 5or e.ample, advancing
against only one type of security will run if that class of security steeply depreciates
National Interest-
An advance satisfying all the aforesaid principles may run counter to national interest #n
the changing concept of %an'ing, advancing to priority sectors such as Agriculture, !mall
#ndustries and 6.port oriented industries are assuming greater importance than security
..: Credit "rocessing $it% Special Re)erence to Credit Risk Management
Credit processing covers the tas's from receipt of application for credit along with all
re$uired papers4documcnts4information to evaluation4analysis of the application and
preparation of the proposal for ultimate approval 3rocessing of credit covers the
following stages1
+eceipt of credit application
Credit investigation
Matching of credit application with policy
Mode and sufficiency of securitization
Credit evaluation in terms various ris's involved for ultimate approval
Credit ris's are so e.haustive that a single device cannot encompass all the ris'
Moreover lending to day has assumed such diverse nature, that newer techni$ues are to
%e applied to effectively contain ris's =ith this ends in view credit ris's management
has to %e done in order to ena%le the %an' to manage loan portfolio in order to minimize
losses, hi the present scenario of fast changing, dynamic glo%al economy and the
increasing pressure of glo%alization, li%eralization, consolidation and disintermediation,
it is essential to underta'e ro%ust credit ris's management policies and procedures,
sensitive and responsive to these changes
28
..'; Credit Assessment
A through credit and ris' assessment is to %e conducted %efore granting of loans and
once approved all facilities are to %e reviewed at least annually Credit assessment should
%e presented in a credit application duly singed4approved %y the official of the %ranch
#n case an account deviates from the guidelines the same should %e identified in credit
applications and the originating officials of the %ranch should provide ,ustification for
approval &B( will conduct financial analysis on a regular %asis and monitor changes in
the financial condition
"he proposals are in proposal format that originates in the credit department of the
%ranch and is processed and approved %y the Eead of Branch4+egional Eead4Eead
0ffice Management46C as per delegated authority At the time of originating a proposal
accuracy of all information to %e ensured 0riginating officers shall follow credit
principles, credit policy and guidelines and conduct due diligence on new %orrowers,
principal and guarantors "hey will also adhere to the &B(/s esta%lished Know Gour
Customer ?KGC*, money laundering guidelines, and BB regulations 5or initiating credit
relationship credit officer will call on the client, visit factory4%usiness center to see
3roduction facility4stoc'4storage pattern4%usiness transaction4reputation etc and through
these to assess possi%ilities of esta%lishing a remunerative relationship Ee4she will also
conduct due diligence to get mar'et information on the %orrower from industry sources,
competitors, local area Branch manager may also %e part of this process #n this regard,
if re$uired, the BM4Credit officer will also ta'e help of head office engineer4E0
personnel for initial assessing credit needs of large %orrowers
Based on findings of such calls4visit4inspection, Credit 0fficer, along with the Branch
Manager, will initiate proposal, containing information on client/s %ac'ground, %usiness,
mar'et share, integrity, credit e.posure4e.isting %an'ing relationships, and credit needs
along with pricing etc
Before sending proposal to the approving authority, the originating official of the %ranch
shall ensure that the following step4formalities have %een ta'en4 completed properly and
incorporated in the credit proposal appropriately1
21
Current C#B report is o%tained
+epayment sources for %orrower are ,ustified %y financial analysis
3urpose and amount with types of loan proposed %y the %orrower are stated in the
proposal
6arning from the relationship is properly assessed in the credit proposal
3re-sanction inspection report4call, report4site visit report is in place
Management profile and capital structure, constitution, date of esta%lishment are
stated in the proposal
6.perience of %orrowers, %usiness s'ills, management and successions are
properly mentioned in the proposal
Borrower/s rating in the industry is assessed along with overall industry concerns
and %orrower/s strength and wea'ness relative to its competitors are identified
#ndustry/s position along with supplier and %uyer ris' is analyzed
Borrower credit worthiness is esta%lished %y review of three years historical
financial statements and past trac' record esta%lish %orrower credit worthiness
Cash flow analysis ,ustifying client/s a%ility to repay is reflected in the credit
proposal
#ndustry and %usiness analysis is done in the proposal
Credit facilities availed from other %an's is clearly stated in the proposal and
opinions are o%tained regarding the credit standing of the %orrowers
3ossi%le ris's are identified in the credit assessment and ris' mitigating factors
are clearly mentioned in the credit proposal
Credit proposal clearly mention current outstanding against all limits
Audited financials, large loan position etc are reflected in the credit proposals
Branches ensure that collateral has %een properly valued, verified and managed
Amount and tenors are ,ustified %ased on the pro,ected repayment a%ility and
loan purpose
Account conduct of the %orrower and his allied concern has %een done
Ade$uacy and the e.tent of insurance coverage are assessed
3olicy compliance is clearly stated in the credit proposal
..';.' Risk Assessment Areas
Borro$er Analysis-
"he ma,ority shareholders, management team and group or affiliate companies should %e
assessed Any issues regarding lac' of management depth, complicated ownership
structures or inter-group transactions should %e addressed, and ris's mitigated
22
Industry Analysis-
"he 'ey ris' factors of the %orrower/s industry should %e assessed Any issues regarding
the %orrower/s position in the industry, overall industry concerns or competitive forces
should %e addressed and the strengths and wea'nesses of the %orrower relative to its
competition should %e identified
Supplier<Buyer Analysis-
Any customer or supplier concentration should %e addressed, as these could have a
significant impact on the future via%ility of the %orrower
2istorical (inancial Analysis-
3refera%ly an analysis of a minimum of 2 years historical financial statements of the
%orrower should %e presented =here reliance is placed on a corporate guarantor,
guarantor financial statements should also %e analyzed "he analysis should address the
$uality and sustaina%ility of earnings, cash flow and the strength of the %orrower/s
%alance sheet !pecifically, cash flow, leverage and profita%ility must %e analyzed
"ro+ected (inancial "er)ormance-
=here term facilities ?tenor J 1 year* are %eing proposed, a pro,ection of the %orrower/s
future financial performance should %e provided, indicating an analysis of the sufficiency
of cash flow to service de%t repayments 5acilities should not %e granted if pro,ected cash
flow is insufficient to repay de%ts
Credit Background-
Credit application should clearly state the status of the %orrower in the C#B report "he
application should also contain lia%ility status with other Ban's and 5l/s and also should
o%tain their opinion of past credit %ehavior
Account Conduct-
5or e.isting %orrowers, the historic performance in meeting repayment o%ligations ?trade
payments, che$ues, interest and principal payments, etc* should %e assessed
22
Ad%erence to Lending Guidelines-
Credit Applications should clearly state whether or not the proposed application is in
compliance with the &B(/s (ending Fuidelines "he Ban'/s Eead of Credit or Managing
Director4C60 or Board should approve Credit Applications that do not adhere to the
Ban'/s (ending Fuidelines
Mitigating (actors-
Mitigating factors for ris's identified in the credit assessment should %e identified
3ossi%le ris's include, %ut are not limited to1 margin sustaina%ility and4or volatility, high
de%t load ?leverage4gearing*, overstoc'ing or de%tor issuesI rapid growth, ac$uisition or
e.pansionI new %usiness line4product e.pansionI management changes or succession
issuesI customer or supplier concentrationsI and lac' of transparency or industry issues
(acility Structure-
"he amounts and tenors of financing proposed should %e ,ustified %ased on the pro,ected
repayment a%ility and facility purpose 6.cessive tenor or amount relative to %usiness
needs increases the ris' of fund diversion and may adversely impact the %orrower/s
repayment a%ility
"urpose o) Credit-
Ban's have to ma'e sure that the credit is used for the purpose it was %orrowed =here
the o%ligor has utilized funds for purposes not shown in the original proposal, Ban's
should ta'e steps to determine the implications on creditworthiness #n case of corporate
facilities where %orrower own group of companies such diligence %ecomes more
important Ban's should classify such connected companies and conduct credit
assessment on consolidated4group %asis
"ro+ect Implementation-
#n case of a large e.pansion, which constitutes investment of more than 28H of total
capital of a company or for a green field pro,ect, pro,ect implementation ris' should %e
thoroughly assessed 3ro,ect implementation ris' may involve construction ris'
?Festation period, regulatory and technical clearances, technology to %e adopted,
availa%ility of infrastructure facilities* funding ris', and post pro,ect %usiness, financial,
and management ris's
29
(oreign Currency (luctuation-
Credit application should clearly state the assessment of foreign currency ris' of the
applicant and identify the mitigating factors for its e.posure to foreign currency
Security-
A current valuation of collateral should %e o%tained and the $uality and priority of
security %eing proposed should %e assessed internally and prefera%ly %y a third party
valuer 5acilities should not %e granted %ased solely on security Ade$uacy and the e.tent
of the insurance coverage should %e assessed
!ype o) Control on Cas% (lo$-
"he credit application should contain and assess if there is any control on the %orrowers
cash flow for securing the repayment "his may include payment assignment from e.port
proceed, payment assignment from customers of the %orrower etc
=it #ption-
Credit application should clearly state the e.it option from the %orrower in case of early
identification of deterioration of grading of the %orrower
Name Lending
Credit proposals should not %e unduly influenced %y an over reliance on the sponsoring
principal/s reputation, reported independent means, or their perceived willingness to
in,ect funds into various %usiness enterprises in case of need "hese situations should %e
discouraged and treated with great caution +ather, credit proposals and the granting of
facilities should %e %ased on sound fundamentals, supported %y a thorough financial and
ris' analysis
2<
..'' Risk Grading
..''.' #,er,ie$ o) CRG
"he Credit +is' Frading ?C+F* is a collective definition %ased on the pre-specified scale
and reflects the underlying credit-ris' for a given e.posure A Credit +is' Frading
deploys a num%er4 alpha%et4 sym%ol as a primary summary indicator of ris's associated
with a credit e.posure Credit +is' Frading is the %asic module for developing a Credit
+is' Management system
..''.* Credit Risk Grading "rocess
5or superior ris' grading C+F e.ercise is not applica%le
Credit ris' grading matri. would %e useful analyzing for credit proposal, new or
renewal for regular limits or specific transaction #f %asic information on a
%orrowing client to determine the degree of each factor is a readily availa%le, %
current, c dependa%le, and d parameters4ris' factors are assessed ,udiciously and
o%,ectively "he %ranch credit officer will collect re$uired information as per data
collection chec'list
+is' factors are to %e evaluated and weighted very carefully on the %asis of most
up to date and relia%le data and complete o%,ectivity must %e ensured to assign
the correct grading Actual parameters should %e inputted in the credit ris'
grading score sheet
C+F e.ercise should %e originated %y trained credit officer of the %ranch and
should %e an ongoing and continuous process "hey shall complete the credit ris'
grading score sheet and arrive at a ris' grading in consultation with the advance
in charge and document it as per credit ris' grading form "his shall %e concur %y
the authorized approving official of the %ranch
All credit proposal whether new, renewal, enhancement, rescheduling cases or
specific facility should consist of a Data Collection, % (imit Atilization 5orm, c
Credit +is' Frading !core !heet and d Credit +is' Frading 5orm
"hen the credit officers would pass the approved credit ris' grading form to
credit administration department for updating their M#!4+ecord
2;
..''.. Risk Grading )or Corporate and SM
"he proposed C+F scale is applica%le for %oth new and e.isting %orrowers #t consists of
> categories, of which categories 1 to < represent various grades of accepta%le credit ris'
and ; to > represent unaccepta%le credit ris'
GRA5ING S2#R! NAM N>MBR
!uperior !A3 1
Food FD 2
Accepta%le ACC3" 2
Marginal4=atch (ist MF4=( 9
!pecial Mention !M <
!u% standard ss ;
Dou%tful D5 @
Bad C (oss B( >
+is's intensity num%er in ascending order, higher is the num%er assigned to a credit
higher is the ris' %ased on which lesser %e %an'/s intention to lend
..''./ Credit Analysis
#n case of credit analysis &B( focus on these1
0Cs 0Ms 0"s 0Rs
C K Character4Conduct
C K Capacity4Capa%ility
C K Capital
C K Condition ?6conomic*
C K Collateral
M K Man
M K Money
M K Materials
M K Mar'et
M K Management
3 K 3erson
3 K 3urpose
3 K 3roduct
3 K 3lace
3 K 3rofit
+ K +esponsi%ility
+ K +elia%ility
+ K +especta%ility
+ K +esource
+ K +eturn
2@
..'* Risk Rating
Risk Rating Grade 5e)inition
!uperior -
(ow +is'
Credit facilities, which are fully secured ie fully cash
covered Credit facilities fully covered %y government
guarantee Credit facilities fully covered %y the guarantee of
a top tier international Ban'
Food-
!atisfactory
+is'
!trong repayment capacity of the %orrower
"he %orrower has e.cellent li$uidity and low leverage
"he company demonstrates consistently strong earnings and
cash flow certainty
Borrower has well esta%lished, strong mar'et share
Bery good management s'ill C e.pertise
Credit facilities fully covered %y the guarantee of a top tier
local Ban'
Aggregate !core of >< or greater %ased on the +is' Frade
!core !heet
Accepta%le-
5air +is'
"hese %orrowers are not as strong as F00D Frade
%orrowers, %ut still demonstrate consistent earnings, cash
flow certainty and have a good trac' record
Borrowers have ade$uate li$uidity, cash flow and earnings
Credit in this grade would normally %e secured %y
accepta%le collateral ?1st charge over inventory 4 receiva%les
4 e$uipment 4 property*
Accepta%le management
Accepta%le parent4sister company guarantee
Aggregate !core of @<->9 %ased on the +is' Frade !core
!heet
Marginal-
=atch list
"his grade warrants greater attention due to conditions
affecting the %orrower, the industry or the economic
environment
"hese %orrowers have an a%ove average ris' due to strained
li$uidity, higher than normal leverage, thin cash flow and4or
inconsistent earnings
=ea'er %usiness credit C early warning signals of emerging
%usiness credit detected
"he %orrower incurs a loss
5acility repayments routinely fall past due
Account conduct is poor, or other untoward factors are
present
Credit re$uires attention
Aggregate !core of ;<-@9 %ased on the +is' Frade !core
!heet
!pecial
Mention
"his grade has potential wea'nesses that deserve
management/s close attention #f left uncorrected, these
wea'nesses may result in a deterioration of the repayment
prospects of the %orrower !evere management pro%lems
2>
e.ist 5acilities should %e downgraded to this grade if
sustained deterioration in financial condition is noted
?consecutive losses, negative net worth, e.cessive leverage*,
An Aggregate !core of <<-;9 %ased on the +is' Frade
!core !heet
!u%standard 5inancial condition is wea' and capacity or inclination to
repay is in dou%t
"hese wea'nesses ,eopardize the full settlement of facilities
Bangladesh Ban' criteria for su%-standard credit shall apply
An Aggregate !core of 9<-<9 %ased on the +is' Frade
!core !heet
Dou%tful and
Bad ?non-
performing*
5ull repayment of principal and interest is unli'ely and the
possi%ility of loss is e.tremely high
Eowever, due to specifically identifia%le pending factors,
such as litigation, li$uidation procedures or capital
in,ection, the asset is not yet classified as Bad C (oss
Bangladesh Ban' criteria for dou%tful credit shall apply
An Aggregate !core of 2<-99 %ased on the +is' Frade
!core !heet
(oss ?non-
performing*
Credit of this grade has long outstanding with no progress in
o%taining repayment or on the verge of wind up4li$uidation
3rospect of recovery is poor and legal options have %een
pursued
3roceeds e.pected from the li$uidation or realization of
security may %e awaited "he continuance of the facility as a
%an'a%le asset is not warranted, and the anticipated loss
should have %een provided for
"his classification reflects that it is not practical or desira%le
to defer writing off this %asically valueless asset even
though partial recovery may %e affected in the future
Bangladesh Ban' guidelines for timely write off of %ad
facilities must %e adhered
to (egal procedures4suit initiated
Bangladesh Ban' criteria for %ad C loss credit shall apply
An Aggregate !core of less than 2< %ased on the +is' Frade
!core !heet
..'. CRG 2elps
3romote &B(Ls safety and soundness
Measure credit ris's
Management monitor change and trend in ris' level
Management manages ris' to optimize return
2:
..'/ >se o) Credit Risk Grading
C+F allows application of uniform standards to credits
0%ligor level analysis ?C+F output is used*
Credit selection and pricing
Monitoring and internal M#! and Assessing the aggregate ris' profile of a %an'
..'0 arly Warning Signal ?WS@
6=! indicated ris' or potential wea'ness of an e.posure, re$uiring monitoring
supervision and close attention %y management
#rrespective of credit ris' score o%tained %y any o%ligor as per C+F score sheet,
the grading of the account to %e highlighted as 6=! a4c and it has the following
ris' symptoms1
a. Marginal<Watc% List ?MG<WLA/@- i)A
Any loan is past due4overdue for :8 days and a%ove
5re$uent drop in security value or shortfall in drawing power e.ists
b. Special Mention ?SMA0@- i)A
Any loan is past due4overdue for :8days and a%ove
Ma,or document deficiency prevails ?such deficiencies include %ut not limited to,
%oard resolution for %orrowing not o%tained, sanction letter not accepted %y
client, charges4hypothecation over assets favoring %an' not filed with register of
,oint stoc' companies, mortgage not in place, guarantees not o%tained etc*
A significant petition or claim is lodged against the %orrower
+eporting of 6=! accounts1 the credit ris' grading form of accounts having early
warning signals should %e completely %y the credit officer of the %ranch and sent
to the %ranch approving authority "he credit ris' grade should %e updated as
soon as possi%le and no delay should %e there in referring early warning signal
accounts or any pro%lem accounts to the credit administration division, head
office
Credit administration division, E0 and particulars of early warning accounts E0
credit administration division will also identify accounts with early warning
signals, report to the higher authority, monitor such accounts, and advise the
%ranch suita%ility to improve status of such accounts
28
..'1 CRG Re,ie$
Risk Grading Re,ie$ (re9uency ?at least@
!uperior, Food and Accepta%le Annually
Marginal4=atch (ist Ealf Gearly
!pecial Mention, !!, D5, and B( Duarterly
..'6 Managerial In)ormation System ?MIS@ on CRG
Credit +is' Frading +eport ?Consolidated*
Credit +is' Frading +eport ?Branch =ise*
Credit +is' Frading +eport ?Branch C Frade =ise*
Credit +is' Frading +eport ?Frade =ise Borrower (ist*
..'8 Special Attention
6nsure implementation of the instructions provided in Credit 0perations
Division, CAD and Bangladesh Ban' regarding Credit +is' Frading
0fficers who will approve ris' grading shall have necessary competence and
overall understanding of C+F Manual
6nsure origination of credit ris' grading score sheet %y trained officer, which
shall %e approved %y the approving authority at the %ranch level and thereafter %e
sent to sanctioning authority
6nsure completion of C+F form for all the accounts having early warning
signals
3repare financials prefera%ly form audited accounts
6nsure calculation of financial ratios correctly
Compute parameters of different components of %usiness4 industry ris'
Assess grading score o%,ectively ?where applica%le*
6nsure that ris' grading is shown in the first page of proposal
6nsure matching of security ris' with sanction advice and documentation
6nsure proper understanding %y the originating officer of relationship ris'
3repare financial on the %asis of latest financial statements
Complete prescri%ed format in preparing comprehensive M#! on ris' grading
Data collection chec'list C limit utilization form should %e used uniformly
5or considering proposal of a client under any group C+F shall have to %e done on the
group instead of the concerned unit only #n case a %orrower has sister concern than sister
concern/s C+F shall have to %e done also
21
Monitoring should %e in place to ensure that ris' factors are evaluated and weighted very
carefully on the %asis of most up to date and relia%le data and complete o%,ectivity must
%e ensured to assign the correct grading Careful assessment should %e done after
receiving all the re$uired information and actual parameters that deserves %y the account
should %e inputted in the credit ris' grading score sheet
..': Limitation o) CRG
"here are some limitations of C+F which are given %elow1
Basically the template of C+F score sheet is fully applica%le for manufacturing
concern and it may also useful for trading concern although some pro%lems have
occurred here, %ut the template of C+F score sheet if not in line with fully for
service concern
!ize of %usiness has %een determined on the %asis of turnover of sales, as a result
a num%er of good enterprises may %e deprived due to sales turnover %eing less
than t' ;8 cores 0n the other hand a num%er of %ad enterprises may %e awarded
due to sales turnover %eing more than t' ;8 cores
C+F score sheet %asically highly weighted on financial ris' ie it is %asically
%ased on financial statement
Duality of management %ased on total num%er of years of e.perience of the
senior management in the industry, %ut how many yearsM
(ac' of data %an' to ascertain the industry growth, %usiness outloo', mar'et
competition accurately
!ecurity ris' is not a credit ris'
C+F does not fully cover the security ris' parameter for all cases
Camouflage4 windedness of financial statement
Most of the entrepreneurs are not aware a%out financial statement
Although some pro%lems have %een occurred in C+F %ut also C+F is a %est 'ey
measurement process of a %an'/s assets $uality
..*; Credit Appro,al "rocess
&ational Ban', conducts its %an'ing operation under %ranch %an'ing system 5or
administrative control and smoothing its day to day operation and e.tension of
appropriate and $uic' services, $uic' credit delivery, some %ranches have %een placed
under some regional office +esponding to the re$uirement of customers in the state of
lac' of full computerization facilities of the %ranches and on line %an'ing facilities some
credit sanctioning powers have %een delegated to the %ranch managers and the regional
managers Credit proposal are generally originated at %ranch Eowever proposals may
also %e received at head office for syndication and also from %ig clients, financial
institutions
22
At the %ranch level, the officers4e.ecutives of credit department will have full 'nowledge
of the policy C procedures of credit operations After o%taining credit applications
through %ranch manager along with all re$uired paper4documents, the credit
officers4e.ecutives ensures sufficiency and consistency of the paper4 documents "hey
will originate credit proposal, prepare detailed credit memorandum after underta'ing a
through credit chec' and conducting credit ris' assessment of the clients in light of credit
policy guidelines of the %an' "he fully documented credit memorandum ?CM* will %e
placed to the %ranch credit committee %y the in charge credit Credit committee after
thoroughly C critically e.amining the proposal will recommend it to the %ranch manager
who will approve credit under his delegated authority =hen the proposal falls %eyond
the power of the %ranch manager, the %ranch manager will send it to the regional
manager with his recommendation +egional manager will get the proposal critically
e.amined %y the credit officers and recommended %y credit committee at regional office
and will approve under his delegation of %usiness power, if the proposal is found
approval worthy
=hen the proposal falls %eyond regional manager/s power he will send it to head office,
credit division Division head, credit will get credit and ris' assessed %y credit officials
"he proposal %eing found accepta%le will %e placed to head office credit committee if the
proposal falls under the delegated authority of the e.ecutive committee, the proposal
having %een assessed %y the credit officers4e.ecutives will %e placed to the 6C, through
divisional head
Credit DMD and the Managing Director, where the approval will %e recorded #f the
proposal is not met the %asic criteria as per C+M guidelines and %an'ing norms, it will
%e declined and credit operations division will inform the decision to the %ranch
accordingly Eead office credits operations division 'eep credits files under proper
control and use is restricted to authorized officials
..*;.' Mandatory C%ecking
3roposal credit facilities are compliant of the e.isting %an'ing regulations
C+F has %een done
0ther analysis and assessment has %een done properly
Computer authority as per %an'/s policy approves facilities in writing
All credit approvals are given on a one o%ligor %asis
(imit is approved as per delegated authority
!tandard facilities are descri%ed using standard language
(arge loans are approved within the ceiling advised %y Bangladesh Ban'
5resh approvals, renewal, rescheduling, compromise agreement for the %oard as
per Bangladesh Ban' guidelines places large loan accounts for approval
3roposal incorporates that facilities are su%,ect to %an'ing regulation, which shall
%e mentioned in the sanction letter also
22
..*;.* Appeal "rocess
Any declined credit will %e represented to the ne.t higher authority for re-assessment4
approval 5low chart for the approval process of loans C advances1
Credit Application 3rocessed %y Credit 0fficers
Branch Credit Committee
Branch Manager
+egional 0ffice
+egional 0ffice Credit Committee
+egional Eead
Eead 0ffice, Credit Division
Eead 0ffice Credit Committee
Deputy Manager Director ?Credit*
Managing Director
6.ecutive Committee ?6C*

29
2<
..*;.. Credit Administration (unction
Credit administration function will %e critical in ensuring that proper documentation and
approval are in place in respect of dis%ursement of loan facilities Credit Administration
functions will comprise the following1
..*;...' 5isbursement
Fetting approval
6nsuring completion of security documentation
6nsuring adherence to the approved terms and other re$uirements
%efore dis%ursement %y the %ranch
6nsuring limit creation and complying with dis%ursement chec' list %y %ranch
#n order to administer credit in a proper manner under the present institutional
and operational set up, tas' of credit administration will %e done in the following
manner1
A copy of sanction letter will %e sent %y the credit sanctioning authority to E0
credit administration division4%ranch and regional office Branch credit
administration on receipt of the sanction letter will complete full documentation
and formalities as per terms of sanction and send compliance to E0 credit
administration with a copy to regional office along with a list of documents
o%tained 5or e.ception of full documentation %ranch will mention in the
compliance certificate a%out the documentation, which could not %e complete
for genuine reasons and re$uest credit administration for allowing them to
dis%urse, pending completion of those documents with specific mention a%out
time within which incomplete documentation will %e completed
Eead office credit administration will e.amine the sufficiency of the
documentation #f documentation is found to have not %een properly done, E0
credit administration will advise the %ranch to complete full documentation and
confirm and dis%urse credit after completion of documentation =here %ranch
see's permission for dis%ursement 'eeping some documents incomplete E0
credit administration division if considers such e.ception accepta%le, will issue
authorization to dis%urse with the condition to complete incomplete
documentation within specific time limit
Branch credit administration will 'eep the documentations under their strict
prefera%ly in loc'ed fireproof storage and all the term of approval has %een
complied where against drawing will %e allowed
2;
..*;...* "re 5isbursement Stage
Before dis%ursement of the approved facilities, %ranch credit administration shall ensure
that the following steps have %een properly followed1
!tandard loan facility documentation has %een used
Credit office and credit administration officer of the %ranch ,ointly singed
documentation chec'list %efore dis%ursement
Branch credit administration unit4E0 credit administration has issued security
compliance certificate and loan dis%ursement4limit loading chec'list
and authorization from %efore dis%ursement
(egal counsel has ensured that the %an'/s security interest is perfected
#ncomplete documentation has received a temporary waiver from approving
authority
Branch credit administration unit4E0 credit administration has ensured that all
dis%ursement is covered %y approved credit lines
Credit has %een authorized as per our %an'/s policy
6vidence of dis%ursements is properly documented
Anauthorized approvals have %een surfaced and proper actions ta'en
6.cess over limit have %een allowed under due approvals of the competent
authority
..*;.... Custodian
0utstanding security documentation as per approval
!afe storing loan4security documents ?fire-proof*
3eriodic review of documentation
6nsuring insurance of the insura%le o%,ects
Cash collateral such as fi.ed deposit receipt, script, %onds, mar'eta%le securities
and security documentation etc are held under dual control in fireproof vault
"wo custodians and their alternates are identified in writing
!afe in and safe out register is properly maintained to trac' movement of
documents
+elease of collateral of de%t o%ligation instruments has %een made under
appropriate approval
#nsurance re$uirements are detailed in the credit proposal and policy 'ept in the
vault
#nsurance policy is current and renewed on a timely %asis
"eriodically Means-
+is' Frade +eview 5re$uency
J ; Duarterly
9-< !emi-annuals
2@
1-2 Annually
2>
..*;.../ Compliance re9uirement o) credit administration
Credit administration shall su%mit all re$uired Bangladesh Ban' circulars 4
regulations 4 guidelines relating to credit centrally, ensure issuance of
corresponding circular and advise all relevant departments to ensure compliance
of the content of the circular
All 2
rd
party service providers li'e values, lawyers, C3A/s etc shall %e approved
and their performance reviewed on annual %asis
..*;...0 Credit Monitoring
"o minimize credit losses, monitoring procedures and system should %e reinforced and
more system should %e developed in view of varied comple.ities involved in various
types of credit "he procedures and system must provide early indication of deteriorating
financial health of a %orrower
At a minimum, report on the following to %e generated and su%mitted to management
and %ranch to %e instructed regularize the same
0verdue principal and interest ?Monthly*
0verdue trade %ills ?Monthly*
6.cess over limit4e.cess over facility approved ?Monthly*
Collateral shortfall
Breach of loan covenants4terms and conditions4documentations deficiencies
?fortnightly*
&on-payment and late payment
&on-receipt of financial statement in time ?Annually*
0%,ections of internal4e.ternal or regulator inspection4audit and advice corrective
measures timely
Details of early alert accounts and preparation of list of delin$uent account and
special mention account ?!MA*, ?Monthly*
#dentification of the account, which shall %e !MA status due to non-renewal
?Monthly*
(isting of the accounts, which shall %e !MA if not renewed with in 2 month and
ta'ing necessary measures ?Monthly*
6nsuring renewal of limits 2 months ahead of e.piry dates
6ntering all credit facility amounts into M#! data%ase
2:
..*' !ypes o) Ad,ance LoanB #,erdra)tB Cas% Credit
"he main functions of a &B( are two, a to ta'e deposits and % to ma'e advance
Ma'ing of advance is the most important function of a %an', as upon it/s depend the
profita%ility of the %an' Moreover, %an' ma'e advance out of deposit of the pu%lic
which are paya%le on demand A commercial %an' ma'es advance to different sectors for
different purpose #e financing of trade and commerce, imports and e.ports, industries,
agriculture, transport, and house %uilding etc advance %y commercial %an's are made in
different forms such as loans, overdrafts, cash credits
..*'.' Loan
=hen an advance is made hi a lump sum repaya%le either hi fi.ed monthly installments
or in lump sum and su%se$uent de%it is ordinarily allowed e.pected %y way in interest
and incidental charges, etc it is called a loan
(oan is allowed for a single purpose where the entire amount may %e re$uired at a time
or in a num%er of installments within a period of short span
After dis%ursement of the entire loan amount, there will %e only repayment %y the
%orrower A loan once repaid in full or in part, cannot %e drawn again %y the %orrower
6ntire amount of loan is de%ited to the loan a4c in the name of the customer and is paid to
him through his !B4CD4A4c sometimes loan amount is dis%ursed in cash Commercial
%an's generally ma'e loans for the following purpose1
&ow a dayNs commercial %an's especially the nationalized commercial %an's in
our country are to ma'e loans under different schemes B#O, agriculture loans and
loans under self employment scheme etc
Depending upon the purpose, loans may %e repaya%le within a few months or the
repayment period may e.tend up to a few years
Agricultural loans are generally repaya%le within a period of 2 ?three* months to
1 ?one* year But repayment of transport loans and house %uilding loans may ta'e
longer period comprising a num%er of years
(oans are generally secured %y lien on fi.ed4term deposits, shares, de%entures,
protira'hsha sachoy patra, insurance policy, pledge of gold, mortgage or real
estate and hypothecation of crops, vehicles, machineries etc depending upon the
nature and purpose of the loan
98
..*'.* #,erdra)t
"he overdrafts are always allowed on a current a4c operated upon %y che$ues "he
customer may %e allowed a certain limit up to which he can overdraw within a stipulated
period of time #n an over daft a4c withdrawals and deposits can %e made any num%er of
times within the limit and prescri%ed period #nterest is calculated and charged only on
the actual de%it %alances on a daily product %asis 0ver draft are of three 'inds1
a "emporary 0ver Draft ?"0D*
% Clean 0ver Draft ?C0D*
c !ecured 0ver Draft ?!0D*
!#5-
"0D is allowed to honor an important che$ue of a valued client without any prior
arrangement As this facility is allowed for a very short period, it is called "emporary
0verdraft
C#5-
!ometimes over draft are allowed with no other security e.cept the personal security of
the %orrowers "hese types of overdrafts are called Clean 0verdraft
S#5-
!ome overdrafts are allowed against securities they are called !ecured 0verdraft
0verdrafts are generally to contractors and supplier for carrying on construction wor's
and supply orders and to %usinessmen for their %usiness
..*'.. Cas% Credit
Cash credit is allowed to the %usinessmen, traders and industrialists etc for meeting their
wor'ing capital re$uirements, cash credit is always allowed against hypothecation or
pledge of goods Eence, cash credit is two types1
a Cash credit ?Eypothecation*
% Cash credit ?3ledge*
91
..*'...' Cas% Credit ?2ypot%ecation@
Cash credit allowed against hypothecation of goods is 'nown as cash credit ?EG30*
limit #n case of hypothecation the %orrower retains the ownership and possession of
goods on which charge of the lending %an' is created Eolden says, hypothecation is a
legal transaction, where%y goods may %e made availa%le as security for de%it without
transferring either the property of the possession the lender "he documents, which
creates charge of the lending %an' on the hypothecated goods, is called letter of
hypothecation By singing this letter of hypothecation, the %orrower %inds him to give
possession of the hypothecated goods to the lending %an' when called upon to do so As
the hypothecated goods remain under the as such the %an'er should ta'en the following
precautions1
"he %an'er should carefully verify the stoc's of hypothecated goods and their
mar'et price
3eriodical statement of stoc' duly signed %y the %orrower should %e o%tained
!toc' should duly insure against fire %urglary +!D with %an' clause
Ban'er should try to o%tain sufficient collateral security
"he %orrower should %e trustworthy and prudent customer
"he goods are readily salea%le and have good demand in the mar'et
"he price of the goods, offered as security, is to %e calculated as per following
principle purchase price or mar'et price whichever is lower
"he price of the goods is steady
..*'...* Cas% Credit ?"ledge@
Cash credit allowed against pledge of goods is 'nown as cash credit ?pledge* limit #n
case of cash credit ?pledge* limit, the %orrower pledges his goods to the %an'ers as a
security against the credit facility, pledge has %een defined as Pa %ailment of goods as
security for payment of de%t or performance of a promiseP "he ownership of the pledge
goods remains with the pledge
&B(/s retain the effective control of the pledge goods 3ledged goods may %e stored in
godown of the %orrower %ut under loc' and 'ey of the %an' Ban'/s guards are posted
round the cloc' to protect the godown !ometimes, pledge goods are stored in %an's
godown Ban's ma'es delivery of the pledge goods to the party against payment
92
5ollowing points should %e ta'en into consideration while allowing cash credit ?pledge*
limit
"he $uantity of the goods is ascertained
"he goods are readily sala%le and have a constant and effective demand in the
mar'et
"he $uantity of the goods is ensured, the goods are not perisha%le and will not
deteriorate and $uality as a result for long or short duration
Foods are stored in pucca godown to save them from deterioration and to guard
them against ris's of pilferage
"he %orrower has an a%solute title of the goods
"he prices of the goods should %e steady and are not su%,ect to violent changes
"he valuation of the goods should %e made very carefully P3urchase price or
mar'et price whichever is lowerP is the general principle for assessing the
valuation of the goods
"he goods should %e stored in the presence of responsi%le %an' official
"he goods are insured against all ris's, such as fire, theft +!D etc and the
insurance policy %ears PBan' Mortgage ClauseP
"he stoc's report is o%tained duly singed %y the %orrower
!toc's must %e inspected regularly %y the %ranch in charge
!toc's cards indicating the $uantity of stoc's, their value and rate is placed in the
godown
"he loc's of the godown are sealed and 'eys are deposited in the %ranch
..** 5ra$ing "o$er
Both in case of hypothecation and pledge, the %an'er should find out the drawing power
Advance is allowed against hypothecation4pledge of goods after deduction of the margin
#f the margin for advance against stoc' of PCotton GarnP is 28H then %an' can advance
t' @84-against hypothecation4pledge of stoc' of cotton yarn of t' 188@- in this case t'
@8@- is the drawing power A %an'er should 'now the mar'et price of the goods to arrive
at a correct D3
92
..*. Comparati,e Study among LoanB Cas% Credit and #,erAdra)t
Rudiments Loan Cas% Credit #,erAdra)t
Dis%ursement 0ne time
dis%ursement or
may %e part %y part
As and when
re$uired
As when re$uired
#nterest 0n dis%ursement
amount as per
schedule
0n drawn amount 0n drawn amount
+epayment At a time or %y
installment as per
schedule
Any amount any
time within
stipulated period
Any amount any time
within stipulated period
Chec'ing 5acility &o Ges Ges
"ransaction 0nce repaid cannot
%e withdrawn
+evolving nature As per
re$uirement4revolving
nature
Borrower Both new C old
customer
&ormally
old customer
&ormally old customer
Account "hrough a separate
loan account
"hrough a separate
loan account
Allowed on a current
account4separate loan
account
!ecurity ?primary* 5+D, Fold, +eal
6state, Behicle,
5inanced Assets
3ledged goods,
Eypothecated
goods
5D+, Assigned wor'
order4supply order etc
99
C%apter & / (inancial "er)ormance
,aluation o) NBL
9<
!o analy4e )inancial per)ormance o) NBLB $e %a,e to see t%ese-
Capital Ade$uacy +atio
Deposits
#mport C 6.port
&et 3rofit after "a.
#ndustry wise (oans C Advances
+emittance
Current 5inancial 3osition of &B(
/.' Capital Ade9uacy Ratio
Capital Management of the Ban' is to maintain an ade$uate capital %ase to support the
pro,ected %usiness and regulatory re$uirement &B( always maintains a prudent %alance
%etween "ier-# and "ier-2 capital- "otal capital as on Decem%er 21, 2818 was "'
1:,1:8@: million and capital ade$uacy ratio was 122: H Maintenance of ade$uate
capital enhanced the Ban'/s single %orrower/s e.posure limit up to a high level to cope
with the corporate customers demand
9;
/.* Import 7 =port
#n harmony with earlier years/ trend, &ational Ban' (imited was intensely active in
international trade during the year 2818 "he Ban' put forth every possi%le attempt to
e.pand its e.ternal %usiness %y esta%lishing (C, underta'ing e.port %ill negotiations,
realization of e.port proceeds, foreign remittance etc
"he Ban' opened a total 29,@@< (Cs amounting to A!D 1,2:882 million for facilitating
import trade in 2818 "he main commodities were capital machinery, raw cotton, scrap
vessels, rice, wheat, edi%le oil, petroleum products, yarn, fa%rics, garment accessories
and other consumer items
"he Ban' has %een nurturing the e.port %usiness enthusiastically since its inception #n
2818 it handled 22,12< e.port documents valuing A!D ;:1@: million with agrowth of
29 percent over the last year/s volume of A!D <<:@> million 6.port finances were
e.tended mainly to readymade garments, 'nitwear, frozen food and fish, tanned leather,
handicraft, tea, ,ute goods etc
9@
/.. 5eposit
"he deposit %ase of the %an' registered a growth of 222@ percent in the reporting year
over the last year and stood at "'182, 9@1>2 million 6.pansion of %ranch networ',
competitive interest rate and deposit products contri%uted to the growth "he customers
of the %an' were individuals, corporations, financial institutions, government and
autonomous %odies etc
/./ Net "ro)it a)ter !a=
6fficient Board and management, strong capital %ase, wide %ranch networ', support from
other sta'eholders helped &B( in revenue earnings and profit ma.imization During the
period &B( earned an operating profit of "' >,:98;8 million in 2818 which was "'
2,2:@<8 million in 288: registering a growth of 1;21< percent &et 3rofit after ta. grew
%y 22129 percent to "' ;,>;829 million in 2818 after ma'ing provision for loan loss
and ta.ation
9>
/.0 Industry $ise Loans 7 Ad,ances
&ational Ban' (imited formulated %efitting credit ris' management criteria and
strategies for creation of %alanced lending mi. in its portfolio %oth for short and long
term with the %ottom line o%,ective to ensure ris' ad,usted rate of return in its credit
transactions (oan and advances in the year 2818 registered an increase %y 912;H to
BD" :2,882<; million from BD" ;<,12:2: million in 288: During the year 2818, the
credit e.pansion mainly was in %ilateral pro,ect finance, syndicate finance, e.port,
import and trade finance as well as !M6 and Agri finance "he %an' as a matter of policy
prioritizes to ma'e lending in the thrust sectors of the economy so as to ma'e distinctive
value addition in overall economic uplift of the country
9:
/.1 Remittance
&ational Ban' (imited e.erted highest emphasis on overseas operation and handling a
sizea%le $uantum of home%ound foreign remittance since %eginning By this time, it has
earned a reputation as the leader in providing such remittances not only among the
customers %ut also among the regulators #n 1:>< the Ban' esta%lished e.change house
with e$uity ownership and management in 0man !u%se$uently many arrangements
have %een made with different e.change houses and also %y esta%lishing su%sidiaries
a%road for e.panding the Ban'/s overseas networ' in places with high concentration of
Bangladeshi e.patriates
&ational Ban' (imited in 1::2 introduced =estern Anion Money "ransfer, a glo%al
leader in money transfer services in Bangladesh remained lone agent till 2882 #t was a
%rea'through in getting prompt payment of foreign remittances %y the %eneficiaries
which encouraged remitters to use legal channel As a contri%utor of national economy,
&B( is relentlessly wor'ing to ease the flow of inward foreign remittance "he %an'
introduced different products and technology including 0nline Ban'ing, 65" and other
automated devices for uninterrupted speedy payments 5urthermore, &B( entered into a
deal with A!A, a leading &F0 having 2,888 outlets throughout the country and also
with !ocial #slamic Ban' (imited ?!#B(* to provide inward remittance products on
%ehalf of &B( #n 2818, foreign remittance %rought through &B( was A!D @8>;@
million with an increase of A!D ;2@8 million over the previous year showing a growth
of :@8H
<8
/.6 Current (inancial "osition o) NBL
/.6.' "ro)it 7 Loss account
Based on continued operation of &B( financial performance is very well Based on
unaudited 3rofit C (oss account on 5rom 81 7anuary to 21 March 2811 &B( earned &et
3rofit after "a. t' ;,2:;,129,2<; where &et 3rofit after "a. was t' 2,212,>1@,9@> on
5rom 81 7anuary to 21 March 2818 !o &B( earned more than three times profit in the
same period compare to previous year At 21 March 2818 63! 8@< %ut now at 21 March
2811 63! 1<1, which is almost, dou%le than previous year
/.6.* Balance S%eet
As at 21 March 2811 &B( total assets t' 12@,999,>>@,>99 %ut at the same time in
previous year as at 21 Decem%er 2818 was t' 129,@22,212,22: !o here we see &B(
assets condition also increased
Because of issuing %onus share &B(/s paid up capital t' >,;82,;<;,828 which is almost
dou%le than previous year Bt it/s negatively affect &B(/s retained earnings &ow &B(/s
operating profit is much higher among commercial %an' in the current continued
operation
<1
C%apter & 0 SW#! Analysis o) NBL
<2
!=0" analysis is the detailed study of an organization/s e.posure and potential in
perspective of its strength, wea'ness, opportunity and threat "his facilitates the
organization to ma'e their e.isting line of their performance and also foresee the future
to improve their performance in comparison to their competitors As though this tool, an
organization can also study its current position, it can also %e considered as an important
tool for ma'ing changes in the strategic management of the organization
0.' Strengt%s
&ational Ban' (imited has already esta%lished a favora%le reputation in the %an'ing
industry of the country #t is one of the leading private sector commercial %an's in
Bangladesh "he %an' has already shown a tremendous growth in the profit C deposits
sector
&ational Ban' (imited has already achieved a high growth rate accompanied %y an
impressive profit growth rate in 2818 "he num%er of deposits and the loans and
advances are also increasing rapidly
&ational Ban' has the reputation of %eing the provider of good $uality services to its
potential customer
0.* Weakness
"he main important thing is that the %an' has no clear mission statement and strategic
plan "he %an's not have any long term strategies of whether it wants to focus on retail
%an'ing or %ecome a corporate %an' "he path of the future should %e determined now
with a strong feasi%le strategic plan
"he %an' failed to provide a strong $uality recruitment policy in the lower and some mid
level position As a result the services of the %an' seem to %e dues in the present days
"he poor service $uality has %ecome a ma,or pro%lem for the %an' "he $uality of the
service at &ational Ban' is not higher than the Dha'a Ban', 3rime Ban', or Dutch
Bangla Ban' etc so the %an' has to complete with the multinational %an' located here
!ome of the ,o% in &ational Ban' has no growth or advisement path !o lac' of
motivation e.ists in persons filling those positions "his is a wea'ness of &B( that it is
having a group of unsatisfied employees
#n terms of promotional sector, &B( has more emphasize on that "hey have to follow
aggressive mar'eting campaign
&B( remittance payment system is very poor, to pay a customer %an' consume huge
time ?in some cases it ta'es a day to pay*, %ecause their #" investment is poor
<2
0.. #pportunity
#n order to reduce the %usiness ris', &B( has to e.pand their %usiness portfolio "he
management can consider options of starting merchant %an'ing or diversify into leasing
and insurance sector
&B( has a huge scope to increase their customer service $uality By investing more in #"
sector, recruit dynamic people who can ensure ma. customer %enefit
"he percentage of classified loan of &B( is a%out <H, so here %an' has a huge scope to
ma.imize performance 6ven though classified loan in Ba%u Bazar Branch is less than
1H
A large num%er of private %an's coming into the mar'et in the recent time in this
competitive environment &B( must e.pand its product line to enhance its sustaina%le
competitive advantage in that product line, they can introduce the A"M to compete with
local and foreign %an' "hey can introduce credit card and de%it card system for their
potential customer
#n addition of those things, &B( can introduce special corporate scheme for the
corporate customer or officer who have an income level higher from the service holed
At the same time, they can introduce scheme or loan for various service holders And the
scheme should %e separate according to the professions such as engineers lawyers,
doctors etc
0./ !%reats
All sustain multinational %an's and upcoming foreign private %an's possess enormous
threats to &B( #f that happen the intensity of competition will rise further and %an's
will have to develop strategies to compete against on slough of foreign the %an's
"he default ris's of all terms of loan have to %e minimizing in order to sustain in the
financial mar'et, %ecause default ris' leads the organization towards to %an'rupt &B(
has to remain vigilant a%out this pro%lem so that proactive strategies are talent to
minimize this pro%lem if not elimination
"he low compensation pac'age of the employees from mid level to lower level position
threats the employee motivation As a result, good $uality employees leave the
organization and its effects the organization the as a whole
<9
Chapter Q ; +ecommendation and
Conclusion
<<
1.' Recommendation
A %an'er cannot sleep well with %ad de%ts in his portfolio "he failure of commercial
%an's occurs mainly due to %ad loans, which occurs due to inefficient management of the
loans and advances portfolio "herefore any %an's must %e e.tremely cautious a%out its
lending portfolio and credit policy !o far &ational Ban' (imited has %een a%le to
manage its credit portfolio s'illfully and 'ept the classified loan at a very lower rate
"han's go to the standard and stringent credit appraisal policy and practices of the %an'
But all things around us are changing at an accelerating rate "oday is not li'e yesterday
and tomorrow will %e different from today Fiven the fast changing, dynamic glo%al
economy and the increasing pressure of glo%alization, li%eralization, consolidation and
disintermediation, it is essential that &ational Ban' (imited has a ro%ust credit ris'
management policies and procedures that are sensitive to these changes "o improve the
ris' management culture further, &ational Ban' (imited should adopt some of the
industry %est practices that are not practiced currently "hese are
&B( should have a clear written lending guideline "he lending guideline should
include #ndustry and Business !egment 5ocus, "ypes of loan facilities, !ingle
Borrower and group limit, (ending caps, Discouraged Business "ypes, (oan
5acility 3arameters and Cross %oarder +is'
#t should adopt a credit grading system all facilities should %e assigned a ris'
grade And the %orrowers ris' grades should %e clearly stated on credit
application
Approval authority should %e delegated to individual e.ecutives rather than
6.ecutive Committee4 Board to ensure accounta%ility "his system will not only
ensure accounta%ility of individual e.ecutives %ut also e.pedite the approval
process
All lending functions should %e segregated in the following way1
Credit Approval 4 +is' Management
+elationship Management 4 Mar'eting
Credit Administration
"hey should avoid nepotism and favoritism,
"hey should improve relationship with Bangladesh Ban'
<;
"he segregation of duties will improve the 'nowledge levels and e.pertise in each
department
"he organization structure should have to %e changed to put in place the
segregation of the Mar'eting4 +elationship Management function from
Approval 4 +is' Management 4 Administration function
"he responsi%ilities of the 'ey persons of the a%ove function must also %e clearly
specified
"here should %e a +ecovery Anit to manage directly accounts with sustained
deterioration "o encourage +ecovery Anit incentive program may also
introduced
1.* Conclusion
During the internship program at &B( almost all the des' has %een o%served more or
less, for gaining 'nowledge a%out practical %an'ing and to compare this practical
'nowledge with theoretical 'nowledge "hough all departments and sections are covered
in the internship program, it is not possi%le to go to the depth or each activities of
division %ecause of time limitation !o, o%,ective of this internship program have not
%een fulfilled with complete satisfaction Eowever, highest effort has %een given to
achieve the o%,ectives of the internship program
<@
<>

Credit Risk Management Policy in National Bank LTD

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Credit Risk Management Policy in National Bank LTD

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Credit Risk Management policy

Branch Credit Committee

+egional 0ffice Credit Committee

Eead 0ffice, Credit Division

Eead 0ffice Credit Committee

Deputy Manager Director ?Credit*

6.ecutive Committee ?6C*

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