Professional Documents
Culture Documents
3. Introduction
Comprehensive risk management is a core competence of EBL. EBL take a prudent and
conservative approach to risk that is fully aligned with their long-term strategy. The risk
framework combines centralized policy setting with board oversight supported by risk
execution and monitoring. It provides management with the ability to oversee the banks
large and highly diversified portfolio effectively and efficiently.
EBLs risk management systems are designed to identify and analyze risks management
processes by establishing a credit risk management policy, credit underwriting standards,
and credit risk rating methodology. It also established a Credit Risk Management Division,
which is independent from relationship management units to ensure proper controls on its
lending.
1.
Receive sales order. The order entry department sends a copy of each sales order to the credit
department. If the customer is a new one, the credit manager assigns it to a credit staff person.
A sales order from an existing customer will likely be given to the credit person already assigned
to that customer.
2.
Issue credit application. If the customer is a new one or has not done business with the company
for a considerable period of time, send them a credit application and request that it be completed
and returned directly to the credit department. This may be done by e-mail to speed the
application process.
3.
Collect and review credit application. Upon receipt of a completed sales order, examine it to
ensure that all fields have been completed, and contact the customer for more information if
some fields are incomplete. Then collect a credit report, customer financial statements, bank
references, and credit references.
4.
Assign credit level. Based on the collected information and the companys algorithm for granting
credit, determine a credit amount that the company is willing to grant to the customer. It may
also be possible to adjust the credit level if a customer is willing to sign a personal guarantee.
5.
Hold order (optional). If the sales order is from an existing customer and there is an existing
unpaid and unresolved invoice from the customer for more than $___, place a hold on the sales
order. Contact the customer and inform them that the order will be kept on hold until such time
as the outstanding invoice has been paid.
6.
Obtain credit insurance (optional). If the company uses credit insurance, forward the relevant
customer information to the insurer to see if it will insure the credit risk.
7.
Verify remaining credit (optional). A sales order may have been forwarded from the order entry
department for an existing customer who already has been granted credit. In this situation, the
credit staff compares the remaining amount of available credit to the amount of the sales order,
and approves the order if there is sufficient credit for the order. If not, the credit staff considers a
one-time increase in the credit level in order to accept the order, or contacts the customer to
arrange for an alternative payment arrangement.
8.
Approve sales order. If the credit staff approves the credit level needed for a sales order, it
stamps the sales order as approved, signs the form, and forwards a copy to the shipping
department for fulfillment. It also retains a copy.
9.
File credit documentation. Create a file for the customer and store all information in it that was
collected as part of the credit examination process.
Credit approval authority to the proper body and/or executive is a precondition for ensuring smooth
and transparent credit operation in the Bank. Since inception, credit approval authority has been
delegated to different tiers of both the Board of Directors and the Management. Authorities who
enjoy delegation of business power i.e credit approval authority are as follows:
1.
2.
3.
4.
2.
3.
The Board of Directors: The Board of Directors will have the authority to sanction any loan for the
amount not exceeding the regulatory limit the Bank can provide to a single customer. Besides, all
proposals for waiver of interest, commission, charges etc and principal must be approved by the
Board of Directors. Any proposal for reduction of rate of interest by more than one percent from
minimum level of approved interest rate band must be approved by the Board.
The Executive Committee of the Board: The Executive Committee of the Board of Directors may
sanction any loan for the amount not exceeding the regulatory limit the Bank can provide to a single
customer. However, it will not have the authority to approve any proposal for waiver of interest,
commission; charges etc and principal must be approved by the Board of Directors. Any proposal
for reduction of rate of interest by one percent or less from the minimum level of approved interest
rate band may be approved by the Executive Committee of the Board. Any proposal beyond the
delegated authority of the Managing Director will be placed before the Executive Committee of the
Board for approval.
The Management: Different tier of the Management may be delegated credit approval authority to
ensure timely disposal of the credit proposals at root level. In the Management, the following
executives may be delegated credit approval authority:
1.
2.
3.
4.
Composite Limit
Credit Limit to a single customer comprising of more than one facility/product will be treated as a
Composite Limit. Different tier of the Management may be delegated authority to sanction a
composite credit limit to a customer which the respective executive will exercise after complying
with all preconditions set in different chapters of this policy document and in the relevant circulars in
force. Specially, any executive having delegated authority to sanction a composite limit will exercise
this provided that the subject composite limit is covered by collateral security having forced sale
value which is at least 1.25 times of the total funded limit. However, the executives having approval
authority may sanction following facilities without taking collateral security within their authority:
SOD (FO), SOD (WO), SOD (EM), SOD (EDF), SOD (CI), FDBP, IDBP, Bid Bond and the
Managing Director may sanction following facilities without taking collateral security within his
authority: SOD (FO), SOD (WO), SOD (EM), SOD (EDF), SOD (CI), FDBP, IDBP, LIM, LTR and all
non-funded facilities. Different tiers of the Management may be delegated the following authority for
approving composite credit limit:
Fig. in Lac Tk
Sl.
Designation
No
Authority
to
delegated
Funded
be Maximum
Total
Non-funded
1.
Managing Director
250.00
300.00
300.00
2.
200.00
250.00
250.00
3.
150.00
200.00
200.00
4.
100.00
150.00
150.00
5.
75.00
100.00
100.00
6.
Vice President
50.00
80.00
80.00
7.
40.00
60.00
60.00
8.
25.00
50.00
50.00
Assess risks inherent in the credit proposal sent by Corporate Division and also evaluate
proposed facility pricing based on risks, security, structuring and terms and conditions to suit the
business condition and to protect Banks interest.
b)
Compliance to the existing rules and regulations of the Bank and all regulatory authorities
and laws of the country and to advise the Corporate Division for rectification, if required.
c)
Advise the Corporate Division about changes, if required, in the structure and terms and
e)
f)
g)
Review the performance of the customer on Off-site Basis and prescribe appropriate
remedial measures, if required until the loan account becomes a Special Mention one.
h)
Review/revise risk grading of the customer from time to time based on the Early Alert
Mention or below.
target customers and as such offers new products and services to cater to their
contemporary taste and need of Personal Loan. In the past couple of years the Bank
came up with several exciting products and service propositions. We wish for so many
things in life be it a little get away from the daily monotony, be it decorating the home, be
it securing our childs future by sending her overseas for studies, and so many other
things. Wow, there is a chance for you to make these wishes come true. Any person agree
to get loan then he or she are apply to EBLs and they get easy to their urgent
requirement full fill, EBLs are many branch of Bangladesh, for this reason most of the
people are apply to their requirement Personal Loan.
EBL introduces the most convenient & practical Home Loan that suits your all home financing needs. Let it be for
apartment purchase, home construction, extension or renovation - EBL is here with the ultimate solution for you. With so
many attractive features in it - the home you wanted to buy, or to extend the existing one or renovate the same is no
longer a distant dream.
Features
Home Loan for the purpose of
Flat/Apartment Purchase
House construction / Extension / Renovation / Up-gradation/ Face uplifting / Finishing work
Takeover of existing home loan from any bank / Financial institution
Loan Amount Ranges from BDT 500,000 to BDT 10,000,000 (or 50 times of Gross Monthly Income, whichever is lower)
Competitive interest rate
No Processing fee for Take over home loans from other Banks/ Financial Institutions
Repayment tenure of up to 20 years
Automatic realization of Monthly Installments
Early full and partial settlement allowed
Shortest Loan Processing Time
Interest Rate: 14% pa.
Eligible Customers
Any credit worthy individuals with a minimum of three (3) years experience like:
Salaried executives
Self Employed : Doctors, Architects, Engineers, Chartered Accountant and Certified Consultant & IT Professionals
Businessperson
Landlords
Age:
Minimum : 25 Years
Maximum : 65 years
Joint applicant allowed; Combined Gross monthly income should be minimum BDT 40,000 per month.
Property Features
Loan facility for both Lease hold and free hold properties.
TPA (Tri Partite Agreement) allowed for up to 18 months from the date of the loan disbursement
EBL Mukti
Credit facility up to BDT 300,000 (three lac) in
any legitimate business
EBL Nobodoy
Loan for agro based industry, loan amount
minimum BDT 2,00000 - maximum BDT
70,00000.
EBL Projukti
Loan will be extended to the owners up to 15
bighas cultivable land /7.5 bighas for potato &
sugarcane cultivation
Credit Monitoring
While financial institution have faced difficulties over the years for a multitude of
reasons, the major cause of serious banking problems continues to be directly related to
lax credit standards for borrowers and counterparties, poor portfolio risk management or
a lack of attention to changes in economic or other circumstances that can lead to a
deterioration in the credit standing of a banks counterparties. Credit risk is most simply
defined as the potential that a bank borrower or counterparty will fail to meet its
obligations in accordance with agreed terms. The goal of credit risk management is to
maximize a banks risk-adjusted rate of return by maintaining credit risk exposure within
acceptable parameters. Banks need to manage the credit risk inherent in the entire
portfolio as well as the risk in individual credits or transaction. Banks should also
consider the relationship between credit risk and other risks. The effective management
of credit risk is a critical component of a comprehensive approach to risk management
and essential to the long term success of any banking organization.
The sound practices set out in the document specially address the following areas:
Establishing an appropriate credit risk environment
.Operating under a sound credit granting process.
Maintaining an appropriate credit administration, measurement and monitoring
process.
Ensuring adequate controls over credit risk.
features in a more effective manner, UCBL has put in place in Standard Operating
Procedure (SOP) in line with internationally accepted best practices.
3.2.2
Credit Recovery
The bank has in place a system for monitoring the condition of individual credits,
including determining the adequacy of provision and reserves. For NPL provisioning and
write off the guidelines established be Bangladesh Bank for CIB reporting, provisioning
and write off of bad doubtful debts and suspension of interest are followed in all cases.
The bank has in place a system for monitoring the overall composition and quality of
the credit portfolio. All credit extensions must comply with the requirements of the
banks memorandum and articles of the association, Bank Company Act, 1991 as
amended from time to time, Bangladesh Banks instruction circulars, guidelines and other
applicable laws, rules and regulations, Bans credit risk management policy, credit
operational manual and all relevant circulars in force. Any deviation from the internal
policy of the bank must be justified and well documented. The portfolio shall always be
well diversified with respect to sector, industry, geographical region, maturity, size,
economic purpose etc. Concentration of credit shall be carefully avoided to minimize
risk.
To minimize investment losses, monitoring procedures are system should be in place that provide
an early indication of the deteriorating financial health of a customer. At a minimum the following
are looked into.
Past due principal or profit payments, past due trade bills, account excesses, and branch of
investment covenants.
Investment terms and condition are monitored, financial statements are received on a regular basis,
and any covenant breaches or expectation are referred to IRM and the RM team for timely followup.
Timely corrective action is taken to address finding for any internal, external or regulator audit.
All customer relationship facilities are reviewed and approved through the submission of an
investment management at least annually.
Exception to be followed up on the corrective action taken in a timely manner before the account
deteriorates further.
Findings
During my internship period I have some findings related with Credit appraisal & credit
management system of Prime Bank Limited. The findings are shown in parts of credit appraisal,
credit recovery and credit default.
Findings on Credit appraisal
EBL uses credit appraisal technique comprising technical, market, financial, economic, and
management & organization analysis.
Credit appraisal technique is good enough itself, but the problems lie with personnel involves in
appraisal process
The main problems can be summarized in the following way:
One of the problems with credit appraisal is inadequate and inaccurate data.
Sponsors always tend to overstate their future cash flow, revenue and income and understate
the risk with capturing market and expenses.
Market dont remain same over the years especially over the time gap between loan sanction
and loan recovery.
Lengthy procedure and long time involved in the appraisal of project
Sometimes, there is pressure groups involvement in sanctioning loan.
Many viable projects do not get sanctioned loan due to absence of bribe and pressure from
corrupt.
Physical verification is not rigorously done for every project that is why the project appraisal
Usually EBL inform the borrowers before 7 days of the scheduled date of payment about his/her
next upcoming installment due.
Visiting to the borrowers premises is hardly done before the loan is defaulted.
The recovery department cannot coerce or make bound to repay the loan because of pressure
from political and other higher management.
Sometimes sponsors do like to linger the repayment time to have the replacement facilities.
The recovery amount has been increasing for last 5 years, and the variance between recovery
targets.
o
o
technology cannot compete with modern technology resulting in less cash generation.
Sometimes, project is not implemented because the shortages of fund from the part
of borrower.
Lack of financial commitment from the part of borrower the result is the failure of
o
o
o
o
o
mobilization of equity. They divert their equity in other purposes after getting the loan amount
Default amount shows a down-ward trend during 5 years
Law department functions very slowly and follow a difficult bureaucratic process.
After enactment of the, the legal action has got speed and the number law suits have
increased.
Most of the cases settled outside the court.
There are some problems of taking over the company, like maintenance of the
property and selling the property.
It takes time to settle a suit, because the borrower has right to writ against the
verdict.
Analytical Findings
Throughout credit analysis of Eastern Bank Limited some mentionable results are found Bank is doing well in its credit operation. The amount of interest earning shows the success.
The banks Net Interest Margin is in the decreasing trend.
EBL has good credit ratings. That is a plus point for it.
Strong financial condition helps the bank to be a market leader.
From regression analysis it has shown that loan amount of the bank is inversely related with
Interest rate.
EBL is mainly focusing on Industrial credit beside other type of credit.
Recommendations
A banker cannot 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 Eastern Bank Limited has been able to manage its credit portfolio skillfully and kept
the classified loan at a very lower rate thanks go to the standard and stringent credit appraisal
policy and practices of the bank.
But all things around us are changing at an accelerating rate. Today is not like yesterday and
tomorrow will be different from today. Given the fast changing, dynamic global economy and the
increasing pressure of globalization, liberalization, consolidation and disintermediation, it is
essential that Eastern bank limited has a robust credit risk management policies and procedures
that are sensitive to these changes.
Eastern bank Limited has an efficient & excellent credit management team and performing with
great expertise and care. There are some limitations that can be overcome by some measures to
make the performance outstanding. There are some suggestions for prime banks credit
management team from my observation.
file management system to faster the dealings with the clients proposal.
On the basis of that Return on Equity (ROE) model, risk and return of the bank is analyzed.
Prime Bank has a good return in the following years from its operation. But Bank should be careful in
its riskiness. It should improve its liquid assets to reduce the liquidity risk. It should also try to
increase its reserve.
Conclusion
Researchers support the fact that economic and financial development of a country are highly
correlated to the development of its banking and financial system. The more developed and
efficient the banking sector of a country is, the more developed is the business industry sectors will
be.
With a view to improving the quality and soundness of loan portfolio, credit risk management
methods were updated in 2005. The Bank is now applying a new system of credit risk assessment
and lending procedures by striker separation of responsibilities between risk assessments and
lending decisions and monitoring functions. The Bank monitors its exposure to particular sectors of
economy on an ongoing basis. The Bank has undertaken the changes in policy of credit risk
management, credit risk administration and credit monitoring and recovery in line with the
guidelines of Bangladesh Bank, formulated in the last year.
Credit Appraisal system of this bank is pretty efficient. From the beginning of the process of credit
appraisal system the credit committee is sufficiently committed and caring. After received loan
application from the client, in-depth study of various related documents & gathering of information
from different banks and other sources are performed. The loan proposal that is prepared by the
credit officer and submitted to the higher authority for approval is the most important part of credit
appraisal system because based on this proposal the granting of credit decision is made. Credit
collection process of PBL is also strict and satisfactory.
We hope that EBL will lead by example by continuing its efficient lending policy in keeping the
banks financial performance indicators at above industrial average and contribute to countrys
economic development-thus attaining a middle income status in the world.