Professional Documents
Culture Documents
CHAPTER-01
INTRODUCTION
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1.1 Introduction
Loans comprise the most important asset as well as the primary source of earning for the banking
financial institutions. On the other hand, this (loan) is also the major source of risk for the bank
management. A prudent bank management should always try to make an appropriate balance
between its return and risk involved with the loan portfolio. An unregulated banking financial
institution might be fraught with unmanageable risks for the purpose of maximizing its potential
return. In such a situation, the banking financial institutions might find itself in serious financial
distress instead of improving its financial health. Consequently, not only the depositors but also
the general shareholders will be deprived of their money from the bank. The deterioration of loan
quality will also affect the intermediation efficiency of the financial institutions and thus the
economic growth process of the country. This establishes the fact that banks should provide
increasing emphasis on various analytical tools and techniques for screening proposals and loan
decision taking. Credit Worthiness Analysis is one of the most important activities before
sanctioning any credit to a new borrower as well as existing borrower to avoid any default risk
and for improving the operational efficiency of nationalized and private sector commercial
banks.
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To find out the strengths and weakness of the credit procedure method.
To identify the factors that must be considered and analyzed by the bank and financial
institutions in determining the credit worthiness of the client.
To get an overall idea about the performance of Southeast Bank Ltd, Bandar Bazar
Branch, Sylhet.
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Due to lack of practical experience, some errors might be occurred during the study.
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CHAPTER-02
Organizational overview
of Southeast Bank Limited
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2.3 Core Values, Core Strengths and Core Competencies of the SEBL
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Core Strengths
Integrity
Transparent
and
Core Competencies
quick Knowledge
decision making
Respect
Fairness
Satisfied customers
Customer
Harmony
Internal control
Focus
Transparency
Team spirit
Determination
Courtesy
Diversification
Zeal of Improvement
Orientation/
Commitment
Pursuit
of
Disciplined
Service Excellence
Growth Strategy
Reliability
2.4 Slogan
The slogan of Southeast Bank Limited is A Bank with Vision
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Provide service with high degree of professionalism and use of modern technology
Moulovibazar,Khulna,Feni,CoxsBazar,Rangpur,Noyakhali,Narsingdi,Narayangonj,Bogra,Gazip
ur,Barisal,Rajshahi,Noagaon and Comilla. The registered office (Head Office) of Southeast Bank
Limited is at Eunoos Trade Cenre 52-53,Dilkhusha Commercial area, Dhaka-1000.
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in
2008
2007
Taka
in Taka
Million
2006
2005
in Taka in
Taka in
Million
Million
Million
3500.00
2500.00
2500.00
22810.76
21120.74
1056.37
4186.60
2828.18
1180.47
6468.36
4940.92
2236.84
55474.05
46056.18
38258.15
48164060 41147.28
32551.09
8462.86
6265.55
5113.14
38470.34
35125.12
29079.30
28771.36
25874.61
13511.10
9008.32
8656.80
7975.00
8670.47
6766.11
4689.55
5754.27
4706.45
3216.11
2916.20
2062.66
1473.44
1222.97
909.88
374.20
1708.11
1300.39
790.62
64370
53706.12
43294.81
40.88
59.71
35.42
15%
20%
Million
Authorized Capital
10000.00
3500.00
3422.64
2852.20
Paid-up Capital
Reserve Fund
6504.52
Equity
Fund
(Capital
4804.81
and
Reserve)
Deposit
9927.16
7657.01
96669.05
68714.67
77497.57
60281.26
Advance
Investment
21350.23
12299.61
Import Business
69582.92
58019.77
Export Business
46724.47
42178.60
Guarantee Business
11916.74
15078.99
Total Income
13704.45
10250.13
Total Expenditure
9087.79
7237.55
Operating Profit
Net
Profit
after-Tax
Provision
Fixed Assets
4614.66
3012.58
1870.19
887.24
and
4338.85
2685.56
Total Assets
Earning per Share (Taka)
112676.92 81181.53
54.64
31.11
35%(20:7)
16.51%
1.66%
19.90%
17.98%
17.64%
1.90 %
1.66%
0.86%
3.77%
3.97%
4.37%
13.00%
11.50%
6.90%
140
138
130
598
536
507
9636
8855
5750
964
845
759
12.06%
1.09%
Non performing Loans as % of 3.73%
Total Loans
Capital Adequacy Ratio
4.12%
11.72%
11.12%
Number
Banks
Number
of
Correspondent 146
145
of
Foreign 589
Correspondents
Number of Shareholders
587
22152
12536
Number of Employees
1254
Number of Branches
1080
38
31
56
46
Source: Annual Report 2009, Southeast Bank Ltd.
31
a) Deposit: In this case, Bank collects money from its customer by two types of account.
One is Al-Wadiah where depositors are not given any profit. Another one is Mudaraba,
where profit and loss is divided into two parties, bank and customer.
b) Investment: Bank invests into different sector by providing loan to reasonable client.
c) Remittance and Fund Transfer: In this case, bank provides foreign remittance service
to the customer and also provides fund transfer service to the customer.
2.8.2 Various Types of Accounts at Banadar Bazar Branch, SEBL:
Southeast Bank Limited, Bandar Bazar Branch maintains different types of account. The list of
different types of account is given below:
Table-2: Various Types of Account at Bandar Bazar Eranch, SEBL as On 30/06/2010
Application
Al-Wadiah Current Account
Mudarabah Savings Deposit
Mudaraba Savings Deposit Staff
Mudaraba Short Term Deposit
Mudaraba Term Deposit Recpt(1 Month)
Mudaraba Term Deposit Recpt(3 Month)
Mudaraba Term Deposit Recpt(6 Month)
Total Accounts
1,155
3,830
30
71
2
274
24
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129
8
2
2
4
1
2
10
31
22
155
6
66
227
30
95
2
4
9
10
7
1
48
4
173
Source: Daily Affairs June 30, 2010, Bandar Bazar Branch, Southeast Bank Ltd.
CHAPTER-03
Credit Management Procedure and Practice
at Southeast Bank Limited, Bandar Bazar
Branch.
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3.1 Overview
The word credit comes from the Latin word Credo meaning I believe. It is a lenders trust in
a persons/ firms/ or companys ability or potential ability and intention to repay. In other words,
credit is the ability to command goods or services of another in return for promise to pay such
goods or services at some specified time in the future. For a bank, it is the main source of profit
and on the other hand, the wrong use of credit would bring disaster not only for the bank but also
for the economy as a whole.
The objective of the credit management is to maximize the performing asset and the
minimization of the non-performing asset as well as ensuring the optimal point of loan and
advance and their efficient management. Credit management is a dynamic field where a certain
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Islamic Bank in purport and nature is an investment house. An Islamic Bank mobilizes
deposits from the masses according to Mudarabah principles and deploys the same in various
investment activities under different modes permitted by Islamic Shariah. The Profits derived
from such investment operations are divided among the bank and depositors according to the
ratio as declared in the beginning of a particular financial/banking year. Some Popular modes
of Islamic Investments are practiced in Southeast Bank, Bangladesh are mentioned below:
Southeast Bank, Bandar Bazar Branch conducts its investment portfolio mainly under three
mechanisms. These are as follows:
01. Bai Mechanism (Buying & Selling mode)
02. Share Mechanism (profit & Loss sharing mode)
03. Ijara (Rent Sharing mode)
There are some other forms of investments which can be categorized as miscellaneous.
3.3.1 Product List
The product list of Southeast Bank Ltd is shown below:
Table 3: Total Product List of Southeast Bank Ltd, at Bandar Bazar Branch
Classification of
Classification of
Classification
Bai Mechanism
Share Mechanism
of Ijara
1.Bai-Murabaha
2.Bai-Muajjal
1.Mudaraba
2.Musharaka
1.Ijara
2.Hire purpose
Miscelleneous
1.Al-Quard-ul-Hasan
2.Consumer
credit
scheme
3.Staff house building
3.Bai-Salam
loan
Source: Credit Policy Guide 2009, Southeeast Bank Ltd
It is permissible for the Client to offer an order to purchase by the Bank particular goods
describing its specification and committing him to buy the same from the Bank on Murabaha,
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3.5 Bai-Muajjal
The terms Bai and Muajjal have been derived from Arabic words and . The word
means purchase and sale and the word means a fixed time or a fixed period. Bai-Muajjal
means sale for which payment is made at a future fixed date or within a fixed period. In short, it
is a sale on Credit.
Bai-Muajjal is a contract between the Bank and the client (Seller and Buyer) under which the
Bank (Seller) sells to the client (Buyer) certain specified goods (permissible under Shariah and
Law of the country), purchased as per order and specification of the client at an agreed price
payable within a fixed future date in lump-sum or by fixed installments.
3.5.1 Important Features:
01. Bank is not bound to declare cost of goods and profit mark-up separately to the client.
02. Spot delivery of the item and payment is deferred.
03. Ownership and possession of the goods is transferred by the Bank to the client before
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04.
05.
the promise.
3.5.2 Steps of Bai-Muajjal:
This type of financing by the bank is considered to be more risky than the other Islamic modes of
investment. Therefore, the application/proposal for Bai-Muajjal investment must be reviewed
very carefully to ensure the client can ultimately make payment. . The following steps may be
taken to ensure the Bai-Muajjal Investment is a good proposition for the bank:
1. The bank may meet with the prospective client regarding his investment needs and
business experience prior to an application /proposal is submitted.
2. The bank may review the clients past performance and other financing arrangements he
may have had with the bank in the past.
3. The bank may review its current investment policy regarding this type of financing
arrangement to ensure the proposal meets bank guidelines.
4. It should be remembered that if the Bai-Muajjal investment is not secured by first class
collateral securities, it becomes more risky than investments under other modes of
Islamic banking.
The following points should receive attention before making any investment decision under BaiMuajjal.
a)
Whether the goods that the client intends to purchase are marketable and have steady
demand in the market.
b) Whether the price of the goods is subject to frequent and violent changes.
c) Whether the goods are perishable in short or in long-term duration.
d) Whether the quality and other specifications of the goods as desired by the client can be
ensured.
e) Whether the goods are available in the market and the bank will be in a position to
purchase the Goods in time and at the negotiated price.
f)
Whether the sale price of the goods is payable by the client at the specified future date in
lump sum or in Installments as per the agreement.
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3.6 Bai-Salam
Bai-Salam is a contract between a buyer & a seller under which the seller sells in advance the
certain commodities/products permissible under Islamic Shariah and the Law of the land, to the
buyer at an agreed price payable on execution of the said contract and the commodities/products
are delivered as per specification, size, quality, quantity at a future time in a particular place.
In other words, Bai-Salam is a sale whereby the seller undertakes to supply some specific
commodities/products to the buyer at a future time in exchange of an advanced price fully paid on
the spot. Price is paid in cash and delivery of the goods is deferred.
The Bai-Salam sales serve the interests of both parties (Ibid).
1. The seller receives advance payment in exchange for the obligation to deliver the
commodity at some later date. He benefits from the Salam sale by locking in a price for
his commodity, thereby allowing him to cover his financial needs whether they are
personal expenses, family expenses or business expenses.
2. The purchaser benefits because he receives delivery of the commodity when it is needed
to fulfill some other agreement, without incurring storage costs. Second, a Bai-Salam sale
is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the
purchase to lock in a price, thus protecting him from price fluctuation.
3.6.1 Important Features:
01.
02.
03.
under Bai-Salam.
Permissible to obtain collateral security from the seller to secure the investment from any
04.
05.
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The seller (manufacturer) client may be made agent of the bank to sell the goods
delivered to the bank by him and a separate agency agreement is to be executed between
02.
03.
04.
05.
06.
07.
08.
and buying. The agreement should be signed before two witnesses (Surah Al-Baqarah-282).
Name, specification, brand, quality, quantity, size etc. of the goods must be specified clearly.
Unit price and total price of the commodity must be fixed and mentioned.
Exact time and place of delivery must be specified.
Mode of transportation, cost, and other charge, if any, must be specified.
The name of party who will bear those costs to be mentioned.
Price shall be paid to the seller in full at the time of signing the contract.
Delivery of the commodity/product can be made / taken in installment or at a time within the
3.7 Mudaraba
Mudaraba may be defined as a contract between two parties under which one party (Bank)
supply capital and another party (client) invest his efficiency, labor, experience and necessary
business activities. In such a business, Bank is called Sahib-Al-Mall and the client is called
Mudarib.
In Mudaraba both the parties share the profit as per agreed upon ratio and the losses, if any, being
borne by the provider of funds. But if the loss is due to breach of trust i.e. misconduct,
negligence or violation of the conditions agreed upon by the Mudarib, then the loss is fully borne
by the Mudarib.
3.7.1 Important Features:
01. Bank supplies capital as Sahib-Al-Maal and the client as the Mudarib invests in business
02.
03.
04.
05.
the Bank.
3.7.2 Rules of Mudaraba:
There are some legal rules that govern the business relationship Mudaraba which are as
follows.
1. It is a condition in Mudaraba that the capital be specific in nature.
2. It is a condition that capital must be in the form of currency in circulation.
3. It is a condition that the capital cannot be subject to indebtedness.
4. It is a condition that the capital of the Mudaraba is delivered to the Mudarib.
5. It is permissible for the capital owner to deliver capital to two Mudharibs in a single contract.
6. It is permissible to impose restrictions on the Mudarib as long as the restriction is beneficial
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3.8 Musharaka
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ii.
Diminishing Musharaka.
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It is a condition that the capital provided by each partner is specific, existent and easily
accessible.
2.
3.
4.
5.
A partner is a trustee of company funds in his possession and is responsible for their proper
use.
6.
It is a condition that each partners share of the profits be known to avoid uncertainty.
7.
In principle, profit must be divided among partners in ratios proportionate to their shares in
capital but some of the jurists permit variation in profit shares, so long as it is agreed to by all of
the partners.
8.
ii) Diminishing Musharaka: In this type of Musharaka the share of capital or ownership to the
assets/property of the Bank gradually reduces and goes to the account of the Client with the
payment of share value by the Client in addition to share in profit as per agreement.
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3.9 Ijarah
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Contracting parties: This includes a lessor, the owner of the property, and a lessee, the party
It is a condition that the assets to be leased must not be a fungible one (perishable or
It is a condition that the subject (benefit/service) or the contract must actually and legally
be attainable/ derivable.
3.
It is a condition that the lessee shall ensure that he will make use of the asset(s) as per
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The lease contract is permissible only when the assets and the benefit/service derived from
it are within the category of Halal or at least Mobah as per Islamic Shariah.
5.
The lessor is under obligation to enable the lessee to the benefit from the assets by putting
the possession of the asset(s) at his disposal in useable condition at the commencement of the
lease period.
6.
In a lease contract, the period of lease and the rental to be paid in terms of time, place or
It is a condition that the rental falls due from the date of handing over the asset to lessee
It is permissible to advance, defer or install the rental in accordance with the Agreement.
10.
It is permissible to review the lease period or the rental or the both, if the lessor and the
12.
The lessor/owner bears all the costs of legally binding basic repairs and maintenance
including the cost of the replacement of durable parts on which the permanence and suitability of
the leased assets depends.
13.
It is permissible to make the lessee bear the cost of ordinary routine maintenance, because
this cost is normally known and can be considered as part of the rental.
14.
It is permissible for the lessee to let the asset to a third party during the lease period
whether for the same rental or more as long as the asset is not affected by the change of user and
not barred/restricted by the Lease Agreement/customs to do so.
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It is permissible to purchase an Asset bearing a lease contract. The lease contract may
continue since the purchased agrees to its continuity up to the end of the lease term.
16.
As soon as the lease period terminates the lessee is under obligation to return the Asset to
the owner or if the lessor agrees he may enter into a fresh lease contract or purchase if from the
lessor on payment of agreed upon price as per market rate.
17.
The lease contract is binding and no one party shall unilaterally rescind except reasons that
If the leased asset is damaged or destructed by the act of Allah and if the lessor offers a
substitute with the same specifications agreed upon in the lease contract, the contract does not
terminate.
weighted fund.
The full ownership of the goods stays with the Bank throughout the contract period.
The ownership is usually transferred to the client after the rental period.
The client has to pay a fixed rental throughout the rental period.
As the ownership of the goods is with the bank thus the risk of damage of goods is also
with the Bank, if the damage is not due to the negligence of the client.
3.11 Al-Quard-ul-Hasan
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Quard means loan without interest and Hasan means beautiful. Al-Quard-ul-Hasan implies
beautiful loan on good faith or beneficial loan. Islamic Banks do not recover any charge, even
service, from Al-Quard-ul-Hasan account. Loanee has to repay the principal amount. This loan
facility is extended only to deserving cases on compassionate grounds and special welfare
consideration. The principal amount is refundable within a reasonable time. Southeast Bank
grant this loan not only for consumption purpose but also for owning factor(s) of production.
The ultimate objects of both the consumption and production Al-Quard-ul-Hasan are to enable
the loanees to support economic problems.
In Islamic Banking Branches of Southeast Bank an investment is created against pledge of
Term Deposit. Generally 80% of the Term Deposit is allowed to the holder for Halal activities
without any profit. Only a minimum service charge per deal is taken. Thus It is also called
Quard against Term Deposit Receipt.
Any Citizen of Bangladesh having age in between 1855 falling under the following
categories are eligible for availing of credit facilities under the scheme:
Members of Armed Forces, BDR, Police & Ansar subject to fulfillment of terms and
conditions as per circular No. 3204/R/AG (PS1) dated 03.03.99 of Head Quarters of
Armed Forces (Copy enclosed).
Permanent Employees with minimum of 02 years continued service as to the limit date
of application
Self employed businessmen with minimum of 03 years continued business as to the date
application.
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Tobacco sector
Share Lending (Not more than 40% of share value or as per guidelines of Bangladesh
Bank)
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Debtors/Borrowers information
2.
Owners information
3.
4.
5.
Other sources
Other sources of information about the borrower include press reports regarding purchase and
sales of property, auctions and decrees. Registration, revenue and municipal records can also be
referred to with advantage to verify the properties owned by the borrower and charges thereon, if
any.
Demand promissory note: Here the borrower promises to pay the loan as and when
demand by bank to repay the loan.
ii.
Letter of arrangement.
iii.
Letter of continuity.
iv.
v.
Stock report: This report is used for OD and CC. In this report, information about the
quality and quantity of goods hypothecated is furnished.
vi.
Memorandum of deposit of title deed of property duly signed by the owners of the
property with resolution of Board of Directors of the company owning the landed.
vii.
viii.
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ix.
other formalities.
x.
xi.
Letter of Revival.
Letter of lien for advance against FDR.
The Document will help the bank to include protective clauses to safeguard the interest of
the bank.
Instrument executed in blank (amount. security, and liability) with a bad intention.
Direct collateral security: Direct collateral security means security obtained from the
borrower himself to secure his own account.
ii.
Indirect collateral security: Indirect collateral security means any form of security
given by a third person to secure a customers account.
3.21.3 Pledge:
Pledge is the "Bailment of goods as security for payment of a debt or performance of a
promise"(sec-172 of Cont. Act)
Bailment is the delivery of goods by one person to another for some purpose, under a contract
that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of,
according to the direction of the persons delivering them.(sec-172 of Cont. Act)
Features of Pledge:
Ownership remains with pledgor, (borrower) Possession retains with pledgee, (bank).
3.21.4 Hypothecation:
Hypothecation is a charge against property for an amount of debt where neither ownership nor
possession is passed to the creditor. Though the borrower is an actual physical possession but the
constructive possession remains with the Bank as per the deed of hypothecation. The borrower
holds the possession not in his own right as the owner of the goods but as the agent of the Bank.
Features of Hypothecation:
Borrower binds himself to give possession of the hypothecated goods to the Bank -when
called upon to do so.
It is a floating charge.
It is rather precarious.
3.21.5 Mortgage:
Mortgage is created on the immovable property like land, building, plant etc. Most common type
of mortgage is legal mortgage in which ownership is transferred to the bank by registration of the
mortgage deed. Another method called equitable mortgage is also used in bank for creation of
charge. Here mere deposit of title to goods is sufficient for creation of charge. Registration is not
required. In both the cases, the mortgage property is retained in the hand of borrower.
Security Arrangements
KYC Concept:
The credit officers/RM must know their customers and conduct due diligence on new borrowers,
principals, and guarantors to ensure such parties are in fact who they represent themselves to be
i.e. Know Your Customer (KYC).
At first the Banker-Customer relationship would be established through opening of CD/SB
accounts. Proper introduction, photographs of the account holders/ signatories, passports etc., all
the required papers as per Bank's policy are to be obtained during account opening. Physical
verification of the address is to be made. A declaration regarding approximate transaction in the
account is to be obtained during opening of account. Information regarding business pattern,
nature of business, volume of business, etc are be ascertained. At least three Cs, i.e., Character,
Capital & Capacity must be confirmed. Any suspicious-transaction must be timely addressed and
brought down to the notice of Head Office/ Bangladesh Bank as required and also appropriate
corrective measures to be taken as per the direction of Bank authority/ Bangladesh Bank.
3.22.2 Risk Management -Lending Decision:
To safeguard Banks interest over the entire period of the advance, a comprehensive view of the
capital, capacity, integrity of the borrower, adequacy, nature of security, compliance with all legal
formalities, completion of all documentation and finally a constant watch on the account is called
for. Where advances are granted against the guarantee of a third party, that guarantor must be
subjected to the same credit assessment as made for the principal borrower. The basis of security
valuations will be expert third party assessments, current market price and forced sale value. The
Bank has enlisted some surveyor firms/companies for valuation of assets of the borrower; the
credit officer must obtain the valuation report from the enlisted surveyors only for the valuation
of security.
While making lending decisions, particular attention should be given to the analysis of credit
proposals received from heavily leveraged companies and those dealing in non-essential
consumer goods, taking special care about their debt servicing abilities.
Emphasis should be given on the following sound credit principles:Page 45 of 82
Present and future business potentiality for optimum deployment of Banks fund to increase
return on assets.
Risk dispersion is basic to sound credit principles and policies. Bank should be careful
about large and undue concentration of credit to industry, one obligor and common product line
etc.
Managing the amount, size, nature and soundness of one obligor exposures relative to the
size of the borrower and Banks position among his other lenders.
Personal guarantees of the principal partners or the Directors of the companies and where
The asset-conversion or transaction flow cycle and the net-trading cycle of the customer i.e.
Technological Risk
Account Conduct
Mitigating Factors
Loan Structure
Security
The Credit Risk Grading matrix allows application of uniform standards to credits to
ensure a common standardized approach to assess the quality of individual obligor, credit
portfolio of a unit, line of business, the branch or the Bank as a whole.
As evident, the CRG outputs would be relevant for individual credit selection, wherein
either a borrower or a particular exposure/facility is rated. The other decisions would be
related to pricing (credit-spread) and specific features of the credit facility. These would
largely constitute obligor level analysis.
Risk grading would also be relevant for surveillance and monitoring, internal MIS and
assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level
analysis.
The proposed CRG scale consists of 8 categories with Short names and Numbers are provided as
follows:
Table-4: Credit Risk Grading
Page 47 of 82
Short Name
Numbe
Superior
Good
Acceptable
Marginal/Watchlis
SUP
GD
ACCPT
MG/WL
r
1
2
3
4
t
Special Mention
Sub standard
Doubtful
Bad & Loss
SM
SS
DF
BL
5
6
7
8
Acceptable - (ACCPT) 3:
These borrowers are not as strong as GOOD Grade borrowers, but still demonstrate
consistent earnings, cash flow and have a good track record.
Borrowers have adequate liquidity, cash flow and earnings.
Credit in this grade would normally be secured by acceptable collateral (1st charge over
inventory / receivables / equipment / property).
Acceptable management
Acceptable parent/sister company guarantee
Aggregate Score of 75-84 based on the Risk Grade Score Sheet.
Marginal /Watchlist - (MG/WL) 4:
This grade warrants greater attention due to conditions affecting the borrower, the industry or
the economic environment.
These borrowers have an above average risk due to strained liquidity, higher than normal
leverage, thin cash flow and/or inconsistent earnings.
Weaker business credit & early warning signals of emerging business credit detected.
The borrower incurs a loss
Loan repayments routinely fall past due
Account conduct is poor, or other untoward factors are present.
Credit requires attention
Aggregate Score of 65-74 based on the Risk Grade Score Sheet
Special Mention - (SM) 5:
This grade has potential weaknesses that deserve management's close attention. If left
uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the
borrower.
Board of Directors
President & Managing Director
Deputy Managing
Director - 1
Deputy Managing
Director 2
Head of Corporate/
Commercial
Banking
(Marketing)
Relationship
Managers (RM)
Executives/Officers
Head of Credit
(Credit Appraisal
& Approval)
Head of Credit
Administration
Department
Executives/Officers
Disbursement
(Ensuring
compliance with
terms &
conditions of
approval, Issuing
Disbursement
Letter)
Custodial
Duties
Monitoring &
Recovery
(CIB Report
collection,
Documentation
formalities)
(Managing
SMA, SS, DF,
BL accounts,
Dealing legal
matters)
(CIB, CL
returns,
Producing all
statements
required by
the
Management)
Executive
Officers
Executive
Officers
Executive
Officers
Executive
Officers
Compliance
Before approving any facility the approval authority must ensure that the borrowers CIB
The credit approval function has been separated- from the marketing/ relationship
management function.
Approvals are evidenced in writing (sanction letter). Approval records are kept in file with
All credit risks must be authorized by Committee within the authority limit delegated to them
The aggregate exposure to any borrower or borrowing group is used to determine the
approval
authority required.
Any credit proposal that does not comply with. Lending Guidelines, regardless of amount, is
MD/Head Office Credit Committee / Board as per the delegated power approve and monitor
Any breaches of lending authority to be reported to MD, Head of Internal Audit/ Control &
Compliance Department.
HEAD OF BRANCH
(APPROVAL/DECLINE)
AS PER DELEGATION
BOARD OF DIRECTORS
(APPROVAL/DECLINE)
BEYOND CAPACITY
RECOMMENDED TO
HEAD OF
BEYOND CAPACITY
RECOMMENDED TO
CORPORATE/COMMERCIAL
BANKING (MARKETING)
EXECUTIVE COMMITTEE OF
DIRECTORS
(APPROVAL/DECLINE)
AS PER DELIGATION
(MARKETING)
FORWARDED TO
HEAD OF CREDIT
BEYOND CAPACITY
RECOMMENDED TO
(APPROVAL/ DECLINE)
AS PER DELIGATION
BEYOND CAPACITY
RECOMMENDED TO
MD
(APPROVAL/DECLINE)
AS PER DELEGATION
DMD
(APPROVAL/DECLINE)
AS PER DELEGATION
BEYOND CAPACITY
RECOMMENDED TO
At Branch level : Branch Authority must take decision within maximum of 3-5 days
At Head Office level: The Head Office Credit Committee/EC/Board should take decision
Sanction letter on approval, the sanction letter to be issued within 1-2 days time.
In case of other specific loans like Directors loan, prior approval from Bangladesh Bank to
Disbursement
Custodian
Approval from
competent
authority
Obtaining Security
Documentation as
per approval
Monitoring
Conditions &
Covenant
Breach
Monitoring
Compliance
Returns to BB,
CIB Reporting,
default list
circulation
Completion of
Security
Documentation
Safely Storing
Loan/Security Documents
(fire-proof)
Maintain BB Circulars
& ensure compliance
by all Depts.
Ensure adherence
to approved
terms & other
requirements
before
disbursement.
Periodic Review
of Documentation
Audit,
Internal/BB
Inspection
Compliance
Ensure Collateral is
Insured & Properly
Valued
Disbursement
Page 56 of 82
Page 57 of 82
3.30 Recovery and Follow up of Non Performing Loans (NPL) and Advances
Loans and advances in whatever form granted by the Bank to its clients are repayable either on
demand or at the expiry of fixed period or as per repayment schedule agreed upon while granting
the facilities. If loan is repayable on installment basis, default may be purely an oversight on the
part of borrower but, in other cases, it may be much more serious, giving the Bank the first
tangible evidence that the borrower is in financial difficulty. At this point the procedure for
dealing with potential loan losses comes into operation. The Branch Managers (HoBs) should,
therefore, keep a close and constant watch on all their loans and advances to ensure that timely
action is initiated in each case for adjustment of the account or its renewal, if it is decided to
continue the facility.
3.30.1 Recovery procedure of Southeast Bank:
When Southeast Bank is facing difficulties in getting repayment of advance, he takes the
following steps:
A. Exerting moral pressure
B. Notice for recalling advance
C. Legal Action
Exerting moral pressure: The banker will visit the borrowers place of business and find out the
causes of non-payment of the banks dues. If there is a guarantor, he is also called upon to adjust
the account or have it adjusted by the principal. In case of small borrower manger invite for tea
and try to say about dues.
Notice for recalling advance: In case the borrower does not adjust the account as desired, the
only course left open to the bank would be to send a notice by registered post to the last known
address of the borrower and guarantor, if any, preferably through a lawyer.
Legal Action: Legal proceedings are lengthy and time consuming as well as having an element
of negative publicity and as such every effort must be made to settle a defaulters outstanding out
of court. However, if situation compels the Bank to take legal action for recovery of stuck up
loans and advances, the same should be done with prior approval of Head Office.
Page 58 of 82
CHAPTER-04
Trend
Analysis
through
Major
Page 60 of 82
4.1 Analysis of Loans & advances of Bandar Bazar Branch, Southeast Bank
A detailed analysis of loans and advances of Southeast Bank Ltd, Bandar Bazar Branch is given
below:
4.1.1 The Scenario of Deposit at Bandar Bazar Branch (Last Five Years):
Table-5: Scenario of Deposit (Fig. in Tk.)
Year
Amount
2006
45,85,99,032
2007
48,38,55,295
2008
58,96,35,436
2009
148,79,94,903
2010 (Upto June)
82,51,62,221
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL
The amount of deposit has been increased in each year. In 2006, the total amount of
deposit was approximately
Tk.148.80 Crore by the year 2009 and approximately 82.52 crore in 2010 (June). So,
there is a positive increasing rate of the total deposit.
Graph-1: Scenario of Deposit
4.1.2 Amount of Various Kinds of Deposit at Bandar Bazar Branch,SEBL (Last Five Years):
Page 61 of 82
Demand Deposit
4,40,23,033
3,71,56,113
4,77,35,604
4,03,33,058
3,04,92,365
Savings Deposit
12,41,21,730
13,00,20,069
11,73.56,118
87,25,22,140
47,14,12,247
Time Deposit
29,04,54,269
31,66,79,114
42,45,43,714
57,51,39,705
32,32,57,609
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
From the above table we can see that People are very interested about Time Deposit among
various Depository Schemes. The amount of time deposit is increasing year by year. It is
Noticeable that the amount of saving deposit was increased in a great amount by 2009. The
amount of demand deposit of this branch is not in satisfactory level compare to others.
Graph-2: Amount of Various Kinds of Deposit
4.1.3 Amount of Total Loans and Advances at Bandar Bazar Branch,SEBL (Last Five Years):
Table- 7: Amount of Total Loans and Advances (Fig. in Tk.)
Year
Amount
Page 62 of 82
4.1.4 Various Types of Loans and Advances at Bandar Bazar Branch,SEBL (Last Five Years):
Table-8: Amount of various Types of Loans and Advances (Fig. in Tk.)
Year
Bai-
Bai-Muajjal
Hire Purchase
Al-Quard-
Consumr
Staff
Murabaha
(Commercial)
(Real estate)
ul-Hasan
Credit
House
Scheme
Building
(Commerci
Page 63 of 82
2006
2007
2008
2009
2010
al)
39,49,564
21,30,560
-
11,00,24,200
11,64,54,385
13,36,29,241
10,44,11,658
9,30,01,429
22,45,96,547
31,61,58,504
36,88,50,720
43,04,04,650
40,53,31,650
1,05,73,955
1,70,82,122
4,21,91,602
65,08,89,155
10,65,58,782
14,81,816
15,62,548
10,64,735
7,36,770
4,61,583
Loan
30,00,000
29,43,450
(Upto
June)
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
The most popular modes of disbursement of this branch are Bai-Muajjal and Hire purchase.
These two modes of disbursement contribute more than 50% of total disbursement for each
financial year, though the al-Quard-ul-Hasan and CCS has the great influence on this specified
area. In 2010 (Upto June), the highest disbursement of loan is occurred in the field of Hire
Purchase. In 2009, the most popular mode of Investment is Al-Quard-ul-Hasan. The highest
disbursement on Quard against Deposit has been occurred in 2009. In that period more than TK.
65 Crore has been financed to various economic sectors. This loan is mainly given for business
and other purposes. Again, in the year 2006, the amount of disbursement on Hire Purchase was
highest where more than TK. 22.45 crore had been financed to the real estate. Consumer credit
scheme is a type of loan which is mainly given to the professionals or public/private employee.
The amount of CCS is decreasing. Staff house building loan is a loan which is issued only to the
staffs of the branch at a lower interest rate for the purpose of house building for staff. The
volume of this mode of finance is also very much negligible.
Page 64 of 82
4.1.5 Amount of Short Term, Mid Term and Long Term Loan at Bandar Bazar Branch,SEBL:
Table-9: Amount of Short Term, Mid Term and Long Term Loan (Fig. in Tk.)
Year
Short-term Loan
Mid-term Loan
Long-term Loan
2006
12,70,28,007
22,35,98,000
2007
13,72,29,265
31,61,58,854
2008
15,52,52,866
6,35,27,807
32,69,55,625
2009
10,44,11,658
30,44,787
108,19,85,788
2010 (Upto June)
4,39,10,620
13,27,407
56,30,58,867
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
From the chart we can see that the amount of Long Term loan is so negligible in 2006 and 2007
compare to others. But it was increased in a noticeable amount by the year 2008, 2009 and 2010.
But the amounts of investment in Short Term Loans are varying from year to year. The amount of
Mid term Loan is in a good position by 2006 and 2007. But it was started to gradually decline by
2008. And by 2009, the amount of this loan was so poor that it was only more than 30.44 lac.
Graph-5: Amount of Short Term, Mid Term and Long Term Loans
Page 65 of 82
4.1.6 Percentage of Short Term, Mid Term and Long Term Loan at Bandar Bazar
Branch,SEBL (Last Five Years):
Table-10: Percentage of Short Term, Mid Term and Long Term Loan
Year
Short-term Loan
Mid-term Loan
Long-term Loan
2006
36%
64%
2007
30%
70%
2008
28%
12%
60%
2009
8.75%
0.25%
91%
2010 (Upto June)
7.25%
0.25%
92.50%
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
The percentage of short term loan on the basis of total loan is decreasing year by year. And last
year it was only 7.25%. The percentage of mid term loan was better by the year 2007 and it was
70% but last year it declined to 0.25% only. From the above table we can say that the branch
give more preference to long term loan from last 2 years. And in 2008, 60 percent of total loan
was long term loan.
Graph-6: Percentage of Short, Mid, Long Term Loan
Page 66 of 82
Consumer
Staff
Loan
12,45,47,719
13,56,67,067
17,58,20,844
75,53,00,813
34,82,17,007
Loan
14,81,816
15,62,548
10,64,735
7,36,770
2,38,442
9,50,96,547
12,18,01,458
11,14,79,720
12,18,66,650
7,13,53,445
30,00,000
60,52,000
Communication
12,95,000,00
19,43,57,046
25,73,71,000
30,85,38,000
18,24,36,000
(Upto
June)
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
The Southeast Bank Ltd, Bandar Bazar Branch is financing most of its disbursement on the
communication, real estate and for the business/trade sectors. In these three sectors this branch
investing more than 90% of its total loans and advances. Consumer loan is another important
segment where this branch is also keeping a significant role on the total economy. This branch is
also financing on staff loan sector which has an influence on its total disbursements.
Page 67 of 82
4.1.8 Provisioning:
Specific Provision:
Head office credit division prepares a list of credit accounts, which are considered to be totally or
partially
be
unrecoverable
&
keeps
provision
against
the
outstanding
loans.
Rate of Provisioning:
Southeast Bank Limited in the time of loan provisioning to get the real picture of the income
mainly follows the Bangladesh Bank guideline. The rate of provisioning used in SEBL is
summarized in the following table.
Rate
Page 68 of 82
5%
5%
20%
50%
100%
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
Graph-8: Provision of Loans
Recovery(Amount)
15,10,00,000
10,80,00,000
28,74,00,000
Page 69 of 82
4.1.10 Classified Loans of Bandar Bazar Branch, Southease Bank Ltd (Last Five Years):
Table- 14: Total Classified Loans (Fig. in Tk.)
Types
Special
2006
Mention 1,51,000
Account
Sub Standard
Doubtful
56,000
73,000
2007
62,000
2008
0
2009
0
0
82,000
5,51,000
54,60,000
1,17,49,000
0
2,11,23,500
0
Page 70 of 82
4.1.11 Amount of Profit at Bandar Bazar Branch, Southeast Bank Ltd ( Last Five Years):
Table-15: Amount of Profit (Fig. in Tk.)
Year
Profit
2006
1,22,00,000
2007
2,15,05,313
2008
1,88,46,826
2009
2,83,27,760
2010 (Upto June)
81,01,420
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
Page 71 of 82
Page 72 of 82
Total Deposits
Total
Percentage of Disbursements on
disbursements
Deposits
2006
45,85,99,032
35,06,26,007
76%
2007
48,38,55,295
45,33,88,119
94%
2008
58,96,35,436
54,57,36,298
93%
2009
148,79,94,903 118,94,42,233
80%
2010 (Upto June) 82,51,62,221
60,82,96,894
74%
Source: Annual Report 2009 and Daily Affairs June 30, 2010, Bandar Bazar Branch, SEBL.
The percentage of disbursements on deposits is calculated by the following formula:
% of disbursements on deposits = Total Disbursements/Total Deposits
From the above table we see that percentage of disbursements was 76% in 2006. In 2007 it was
increased from to 94%. Again the percentage was declined by the period 2009. But it will
increase by 2010.
Graph -12: Percentage of Disbursements on Deposits
4.2.2 Disbursement and Recovery at Bandar Bazar Branch,SEBL (Last Five Years):
Page 73 of 82
Page 74 of 82
discrimination.
Provide speedy customer service at a very competitive cost.
Deal with customers in a transparent manner and without any hidden cost.
Maintain strict secrecy of customer account.
Deal quickly with complaints received from customers.
There is no discrimination on grounds of religion, sex or race at any stage.
Weaknesses
Weaknesses are attributes of the organization that are harmful of to achieve the organizations
objectives. Some weaknesses of the credit department of Southeast Bank Limited, Bandar Bazar
Branch are as follows:
Page 75 of 82
The management of this Branch says that they conduct interest-free banking but in actual the
Branch has not abolished interest. They only changed the nomenclature of their transactions.
It has not yet been successful in devising an interest-free mechanism to place their funds.
According to the Bangladesh Bank guidelines the spread between the FDR rate and loan
against FDR rate should not more than 3%. But the bank some times charge more than that
spread rate for loan.
Lack of employees in credit department.
SEBL, Bandar Bazar do not have the necessary expertise and trained manpower to appraise,
monitor, evaluate and audit the projects they are required to finance.
Higher interest rate in case of consumer loan.
Guidelines provided by Bangladesh Bank do not followed properly.
Opportunities
Internal conditions those are helpful to achieve organizations objectives. Some opportunities of
the credit department of Southeast Bank are as follows:
The population of Bangladesh is continuously increasing at a rate of 7.3% per annum. The
countrys growing population is gradually and increasingly learning to adaptation of
consumer finance. Lower interest rate for financing consumer can attract a large number of
consumers.
Southeast Bank Limited has the chance to capture student segment of the market by giving
them customized service for both saving and credit scheme.
As Sylhet started its journey as Metropolitan City that is why there is a huge opportunity of
industrial advance.
It can attract more clients by lowering its interest rate in case of consumer loan.
Page 76 of 82
Some Banks offering more attractable rate on deposits than Southeast Bank in some cases
which reduce the deposit of bank as a result bank cannot provide more loan.
Numbers of domestic private banks and foreign banks are increasing day by day which are
providing efficient modern services and they continuously innovating new product.
Foreign banks are occupying markets by various attractive advertising and promotional
activities.
Restless political condition in Bangladesh becomes a serious threat for Banks.
Current law and order situation is not positive for the investment part.
Pessimistic representation to the government and Bangladesh Bank.
CHAPTER-05
RECOMMENDATION
Page 77 of 82
5.1 Recommendation
Southeast Bank Limited is a second generation private commercial bank in the country with
commendable operating performance. Some recommendations regarding banks betterment are
described below. The recommendations given below are not decisions; rather they are only
suggestions to improve the performance in order to fulfill the customer satisfaction so that clients
Page 78 of 82
Page 79 of 82
CHAPTER-06
CONCLUSION
Page 80 of 82
6.1 Conclusion:
A banker can not sleep well with bad debts in his portfolio. The failure of commercial banks
occurs mainly due to bad loans, which occurs due to inefficient management of the loans and
advances portfolio. Therefore any banks must be extremely cautious about its lending portfolio
and credit policy. So far Southeast Bank Limited has been able to manage its credit portfolio
skillfully and kept the classified loan at a very lower rate.
All things around us are changing at an accelerating rate. Today is not like yesterday and
tomorrow will be different from today. The Credit Management system that may seem fit today
but may not work tomorrow. So, by taking consideration the fast changing, dynamic global
economy and the increasing pressure of globalization, liberalization, consolidation and
disintermediation, it is essential that Southeast Bank limited has a robust credit risk management
policies and procedures that are sensitive to these changes.
Southeast Bank Limited is a private sector bank having a small market share of the industry.
Although it is a second generation bank facing government deposit restrictions, it has all the
potentials to penetrate in the market. If the weakness are addressed appropriately and
opportunities are explored keeping in view the threats behind with a stable and adroit
management having regard to appropriate corporate governance and modern automation
technology, it is expected that Southeast Bank advance up in the ladder of success in the coming
years.
Page 81 of 82
References
Credit Policy Guide-Guidelines for Credit Risk Management of Southeast Bank Limited.
Islamic Banking and Finance- written by Sk. Harun-ar-Rashid and Sk. Nazibul Isalm
(published on October 02,2005)
http://www.sebankbd.com
http://www.Bangladesh Bank.com
Page 82 of 82