DIFFERENT ASPECTS OF CREDIT

POLICY OF
PRIME BANK LIMITED

Supervised by:

Md. Abdullah Raihan

Assistant Professor In Economics
Department of Business Administration
International Islamic University Chittagong Dhaka Campus

Prepared by:

Ekramul Hoque
ID No: B061340
Batch: 22nd (A-2)
Department of Business Administration
International Islamic University Chittagong Dhaka Campus
Date of submission: 15th June, 2010

An Internship Report On
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DIFFERENT ASPECTS OF CREDIT

POLICY OF
PRIME BANK LIMITED
AN INTERNSHIP REPORT SUBMITTED FOR THE
SATISFACTION OF THE REQUIREMENTS FOR THE DEGREE
OF
BACHELOR OF BUSINESS ADMINISTRATION

Supervised by:

Md. Abdullah Raihan

Assistant Professor In Economics
Department of Business Administration
International Islamic University Chittagong Dhaka Campus

Prepared by:

Ekramul Hoque
ID No: B061340
Batch: 22nd (A-2)
Department of Business Administration
International Islamic University Chittagong Dhaka Campus
Date of submission: 17th June, 2010

Letter of Submission
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June 17, 2010

Md. Abdulla Raihan

Internship Supervisor
Assistant Professor In Economics
Department of Business Administration
International Islamic University Chittagong (Dhaka Campus)

Subject: Submission of the Internship Report.

Dear Sir,
It is my great Pleasure to inform you that I have the opportunity to submit an
elaborate report on Credit Operation of PBL. I have completed my practical
Orientation in Banking from March 24, 2010 to Jun 23, 2010 as part of BBA
curriculum. The report is mainly focused on “Credit Operation” with special reference
of Satmasjid Road Branch.

I am very much fortune that got the opportunity to work with some experienced and
devoted professionals. I got acquainted about the banking environment by their
helping hand.

I sincerely believe that you find this study very much interesting, informative and
enlightening. I will glad to furnish you with further explanations or classifications that
you may feel necessary in this regard. I shall be obliged if you kindly approve this
reports.

Sincerely yours,
Ekramul Hoque
Matric no: B061340
Batch: 22nd A-2,
IIUC (Dhaka Campus)

Letter of Acceptance

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The Internship Report on “Different aspects of credit policy of prime bank

limited” a study on Satmasjid Road Branch by Ekramul Hoque bearing ID No:
B061340 Batch: 22nd (A-2) (Major in Finance & banking). The report seems to me
authentic and is accepted.

The Report has been prepared under my guidance and is a record of bonafide work
carried out successfully .

Md. Abdulla Raihan

Internship Supervisor
Assistant Professor in Economics
Department of Business Administration
International Islamic University Chittagong (Dhaka Campus)

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Preface

All praises almighty Allah the sustainer of the universes, who has bestowed us with
the straight path of Islam. Peace is upon his last prophet Muhammad (S.M) the
leader of the Muslims, who has left behind him The Quran and Sunnah of their
guidance.

In an attempt to uplift the practical knowledge, it is very much important to undertake

the internship program offered by the Concern University. This is, because of the
academic knowledge is not sufficient enough to equip a professional practical insight
of the subject.

After completion of BBA program, I was being placed in Prime Bank Limited
(Satmosjid Road Branch) for my internship program. Theoretical discussion have
sometimes differs with practical world and put there to have a practical working
experience and have an understanding of the real from a close distance. One of the
most tried and a proven method of combating the shortcomings in experience is the
internship program. This type of curriculum is perhaps the best system yet devised to
integrate education and experience.

In the practical, BBA program is targeted to produce skilled “Business Executive”

having an absolute professional out look. So, the graduates of this discipline should
be programmatic and should have a first hand view of the real life business
environment. The prime objective of internship program is to produce learners with
the knowledge of practical working environment, so that, they can tune up
themselves for the jobs in future and can get an opportunity to reconcile the
theoretical knowledge with real life situation.

For this reason internship program is an indispensable part of the BBA program. As
a final year student of Business Administration of respective University I have been
placed in the Prime Bank Limited & assigned to work on best to smake this report
effective and realistic as well as at the same it may fruitful if any body is benefited
from this one.

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Acknowledgement

Thanks to Al-mighty Allah for blessing in completing the report with in the scheduled
time. No noble achievement can be achieved by an individual. We are indebted to a
number of persons for their kind recommendation, submission, direction, co-
operative, and their collaboration.

For fear of sounding like a vote of thanks speech, I could not possibly thank all of
those marvelous people who have contributed something of them to this report.
There are of course some very special people who can not go without mention.

First thanks my heartiest gratitude to my reverend teacher Prof. Dr. Jahirul Hoque
Head of Department of Business Administration IIUC (Dhaka Campus), for his kind
cooperation and suggest me prepared this Report.

And thanks to honorable heartiest gratitude teacher Md. Abdulla Raihan supervisor
of the internship program and Assistant Professor in Economics, Department of
Business Administration (Dhaka-Campus) who’s enthusiastic guidance and
comments during the entire phase of the study made it possible for me to prepare
this report. My debt to him is warmly acknowledged.

I would like to convey my sincerest gratitude to Md. Ehsan Habib, Senior Vice-
president and Manager of PBL Satmasjid Branch, for his kind permission to allow me
for practical Banking. I would also like to thank Md. Mahiuddin Ahmed, Vice
President and Second Officer of PBL Satmasjid Road Branch Branch. Grateful to
Shah Mohammad Moshin Senior Executive Officer, Md. Masud Uddin Ahmed,
First Assistant Vice President and other Employee of PBL Satmasjid Branch for
guiding supervising my work in this matter

I am truly very grateful from the bottom of my heart to all the employee of PBL
Satmosjid Road Branch Branch for the expansion of their tremendous helping hand
to me. And a sincere thanks to those helped me in giving information personally and
institutionally regardless of their busy schedule.

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Executive Summary

Prime Bank Limited is a second-generation private commercial bank established in

Bangladesh in the year 1995 under the Companies Act, 1994. Since inception, it is
committed to provide high quality financial services to the countrymen with a view to
accelerate economic development of the nation. As such, it has been working for
stimulating trade and commerce, accelerating the pace of industrialization, boosting
up export, creating employment opportunity, alleviating poverty, raising standard of
living of the people etc and thereby contributing to the sustainable development of
the country.

Since inception, the Bank has been making significant profit every year and
positioning itself as second highest profit-making bank in the country for last five
consecutive years. This has been possible due to significant credit growth of the
bank. On an average, credit portfolio of the bank has been growing @ 40% every
year. Present size of the credit portfolio is about Tk. 3100 crore with about 30000
loan accounts. However, asset quality of the Bank was never compromised for this
high growth. It has been well maintained which is reflected in its classification rate
that never exceeded 2% in its 10 (Ten) years of life. As the lion share of the total
revenue comes from credit operation and the existence of the Bank depends on
quality of asset portfolio, efficient management of credit risk is of paramount
importance.

After analyzing the latest FY 2009 Financial Report of PBL, it was found that
Consolidated Loans and advances/investments (credit under Islamic Shariah) of the
Bank grew strongly by 18.97 percent and stood at Tk 89,946 million in 2009. Loans
and advances of PBL increased by Tk 14,096 million showing a growth of 18.76
percent during 2009. Concentration of loans and advances was well managed. Ratio
of non performing loan of PBL improved to 1.29 percent from 1.76 percent of
previous year and the ratio is much below the industry average of 10.8 percent. It
can be said undoubtedly that Prime Bank’s sound credit policy has a great impact on
this success which has made Prime Bank one of the most profitable commercial
Banks in the country.

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Table of Contents

SL NO. PARTICULARS PAGE NO.

CHAPTER : 1
INTRODUCTION 11
1.1 Introduction 11

1.2 Objectives of the study 10

1.3 Justification of the study 12

1.4 Methodology of the study 12

1.5 Scope of the study 13

1.6 Limitation of the study 13

CHAPTER : 2
AN OVERVIEW OF PRIME BANK
LIMITED
2.1 Background of PBL 15-16

2.2 Mission & Vision of PBL 16

2.3 Brief Profile of PBL 17

2.4 Business Activities of PBL 18-20

2.5 Products & Services of PBL 21-24

CHAPTER : 3
AN OVERVIEW OF LOANS AND
ADVANCES PRODUCT OF PBL
3.1 Definition of Lending 26

3.2 Types of Credit Facilities 26-28

3.3 Lending Sector 29-31

3.4 Credit Policy of PBL 32-34

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3.5 Credit Monitoring Policy of PBL 35

3.6 Mode of Recovery 35-36

3.7 Procedure of Sanction Loan 37

3.8 Credit Risk Assessment (Credit Worthiness) & 38-45

Grading

CHAPTER – 4
Contributions of Sound Lending Policy in
PBL
4.1 Significance of Sound Lending 47

4.2 Management of Credit Portfolio of PBL 48

4.3 Financial Analysis 2009 48-49

CHAPTER – 5
5.1 Findings & Analysis 51-52

Chapter – 6
Recommendation & Conclusion
6.1 Recommendation 54

6.2 Conclusion 55

Appendix 56-66
Bibliography 67

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Chapter - 1
Introduction

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1.1 Introduction
Like any other business organizations, commercial banks are established for the
purpose of earning profit. The main profit earning activity of banks is to earn interest
income or profit from extending loans of the funds mobilized as deposits. As such
loan extended, both interest and principal must be recovered on time in order to
keep the depositors’ money safe and also to maintain funds to be utilized as loans.
Therefore, a sound lending policy is imperative for providing loans by properly
analyzing the creditworthiness of an individual or organization for maximization of
profit from its funds. In this connection, this report has been prepared to study the
concept of sound lending policy and its contribution in banks as a requirement of my
internship report which is mainly on “A Study of Different Aspects of Credit
Policy in PBL”

1.2 Objectives of the study

The broad objective of the study is to explore the effect of sound lending policy in
overall lending and credit operations of Banks. The specific objectives of the study
are as follows:

• Focus on the Concept of Sound Credit Policy

• Study the General guidelines of Bangladesh Bank on Credit

• Analyze the Prime Bank’s Credit Portfolio.

• Assess the Prime Bank’s Lending Policy in evaluating the credit worthiness of
the customers.

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1.3 Justification of the study

In our economy, there are mainly three types of schedule commercial banks are in
operation. They are Nationalized Commercial Banks, Local Private Commercial
Banks and Foreign Private Commercial Banks. Islami Bank has discovered a new
horizon in the field of banking area, which offers different General Banking,
Investments and Foreign Exchange banking system. So I have decided to study on
the topic “A Study of Credit Operation Of Prime Bank Limited”. Because the
Internship program of the university is an integral part of the BBA program. So it is
obligatory to undertake such task by the students who desirous to complete and
successfully end-up their BBA degree. This also provides an opportunity to the
students to minimize the gap between theoretical and practical knowledge. During
the internship program the teachers of the department are attached to actively and
constantly guide the students.

Students are required to work on a specific topic based on their theoretical and
practical knowledge acquired during the period of the internship program and then
submit it to the teacher. That is why I have prepared this report.

1.4 Methodology of the study

The methodology adopted for conducting the research is qualitative in nature.
However, quantitative analysis has been provided from review of annual report of
Prime Bank Ltd. As the study is qualitative in nature, secondary information
containing relevant data have provided major input. The following types of data have
been studied for analysis and findings:

• Credit policy guideline by Bangladesh Bank (BB)

• Lending and Credit Policy of Prime Bank Ltd

• Annual report of Prime Bank Ltd.

• Interview with key resource persons related with lending and

• credit policy of Prime Bank Ltd.

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1.5 Scope of the report

The study has focused primarily on sound lending policy and principles in banking
sectors specially in Prime Bank Ltd. Specifically, the funded credit and advance
facilities have been studied in detail as lending is provided with fund of the bank.

1.6 Limitations of the study

Despite best efforts, the following limitations have been considered during
conduction of the study:

• Due to confidential nature of the lending policy, leading bank’s policy

could not be consulted for comparison with Prime Bank’s lending
policy

• The contribution cannot be measured in quantitative nature as it

requires detail statistics of specific policy and its impact on prime
bank’s lending performance

• The time allowed for conducting the study considering the subject
matter is quite short and due to day long training primary data and
information could not be collected through many interviewees.

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Chapter - 2
An overview of Prime Bank Ltd.

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2.1 Back ground of Prime Bank

Limited
 During the booming years of the banking industry of Bangladesh a group
of highly successful local entrepreneurs conceived an idea of floating a
commercial bank with different outlook. As pre their views the idea was
competence, excellence and consistent delivery of reliable service with
superior value products. Consequently, Prime Bank Ltd. was created and
commencement of business started on 17 - April 1995. The founders are
well reputed tycoons of Bangladesh in the field of trade and commerce
and their stake ranges from diversified business sectors of the country.

 So far as a full phased commercial bank, Prime Bank Ltd. is being

managed by a team of professional team with dedication and long
experience in banking sector. Prime Bank Ltd. constantly focuses on
understanding and predicting customer needs and tends to be very
customer oriented. As the banking scenario undergoes changes so is the
bank and it repositions itself in the changed market condition to adapt
even after the ever changeable field.

 The Bank offers almost all kinds of Commercial Corporate and Personal
Banking services covering all segments of society within the framework
of Banking Company Act and rules and regulations laid down by our
central bank. Diversification of products and services include Corporate
Banking, Retail Banking and Consumer Banking right from industry to
Telecommunication, RMG, FMCG and so on.

 It has already made significant progress within a very short period of its
existence. The bank has been graded as a top class bank in the country
through internationally accepted CAMEL rating. The bank has already
occupied an enviable position among its competitors after achieving
success in all areas of business operations so far.

 Prime Bank Ltd. has consistently turned over good returns on Assets and
Capital. Until the year 2007, the bank has achieved an operating profit of
Tk. 3257 million and its capital funds stood at Tk 6382 million. Out of
this, Tk. 2659.21 million represents reserves and retained earnings and
Tk. 2275 million consists of paid up capital by shareholders. Even after
the business environment and default culture, quantum of classified loan
in the bank is very insignificant and stood at less than 1.35%. The bank’s
current capital adequacy ratio of 11.50% is in the market.

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 Since the opening of the Bank, it has attached more importance in

technology integration. To retain competitive edge, investment in
technology is always a top agenda and under constant focus. Keeping
the network within a reasonable limit, its strategy is to serve the
customers through capacity building across multi delivery channels.
Prime Bank is better placed and poised to take its customers through
fast changing times and enable them compete more effectively and
efficiently. The Bank’s past performance gives an indication of the proper
development and implication of its strength.

 Finally, Prime Bank Ltd. has already made significant progress within a
very short period of its existence. The bank has been graded as a top
class bank in the country through internationally accepted CAMEL
(Capital, Asset, Management, Earnings and Liquidity) rating. The bank
has already occupied an enviable position among its competitors after
achieving success in all areas of business operation.

2.2 Company Vision

 Every Company has their own vision. By fixing vision they can set their future
growth. Prime Bank Ltd has its own vision to be leader in the banking industry.

 To be the best Private Commercial Bank in Bangladesh in terms of efficiency,

capital adequacy, asset quality, sound management and profitability having
strong liquidity.

2.3 Company Mission

 To build Prime Bank limited into an efficient, market driven, customer focused
institution with good corporate governance structure. Continuous improvement
in business policies, procedure and efficiency through integration of technology
at all levels.

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Brief Profile of Prime Bank

1. Date of Incorporation : 12th February, 1995

2. Date of Inauguration of Operation : 17th April, 1995

3. Name of the Chairperson of the board : Mr. Ajam J Chowdhury

4. Name of the Managing director : Mr. M. Ehsanul Haque

5. Number of Branches : 71

6. Number of Employees : 1400

7. Publicly Traded Company : Share quoted daily in DSE & CSE

8. Credit Card : Member of Master Card

9. Banking Operation System : Both Conventional and Islamic

Banking System.
10. Technology Used : Member of SWIFT
On line Banking
UNIX based Computer System
11. Head Office : Adamjee Court Annex II, 119-120
Motijheel C/A, Dhaka-1000.
Phone: 9567265 (PABX)
Telex: 642459 PRIME BJ
671543 PBL MJ BJ
Fax: 88-02-9567230/9560977
E-mail: primebank@bangla.net
Web Site: www.prime-bank.com
SWIFT: PRBLBDDH

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2.5 Business Activities

Prime Bank Limited provides a full range of products and services to its customers,
some of which are mentioned below with a brief overview of the major business
activities.

Consumer Finance

There are branches and finance centers under this division with a qualitative
workforce of employees. Some of the services provided by this division are
unsecured personal loans, credit cards, and vehicle related lease etc.

Personal Banking

There are branches with highly qualified workforce provide various kinds of loans,
various types of accounts, cheques, card money etc.

Islamic Banking

Prime Bank Ltd. works under the correspondence with Bangladesh Bank regarding
operation of Islamic Banking Branches through a Subsidiary.

Corporate Banking

Prime Bank Limited provides a wide range of services to institutional clients,

commercial, merchant and central banks; brokers and dealers; insurance
companies; funds and managers, and others. It provides relationship managers who
are close to their customers and speak local language. This wide network of
corporate banking facilities includes transaction, introduction, problem solving and
renders advice and guidelines on local trading condition.

International Trade Management

This division is operational throughout the group and PBL’s core strength is trade
finance and services. With an experience, Prime Bank has developed knowledge of

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trade finance, which is world class. Principle services to importers include imports
letter of credit, import bills for collection and back-to-back letters of credit facilities.
Services provide to exporters include export letters of credit, direct export bills,
bonds, and guarantees.

Cash Management

Prime Bank recognizes the importance of cash management to corporate and

financial institutional customers, and offers a comprehensive range of services
and liquidity management.

Treasury

Treasury operations had been consideration as an important avenue for

income generation purpose. The treasury division publishes daily and weekly
currency newsletters, which provide analysis of currency trends and related
issues. Prime Bank is one of the first local banks in Bangladesh to integrate
treasury dealings of local money market and foreign currency under one
Treasury umbrella. Prime Bank's Dealing Room is connected with Automated
Reuters Terminal facility, thus enabling the bank to provide forward/future
facilities to its corporate clients at a very competitive rate.

Electronic Banking

Electronic Banking provides various types of support through a wide range of

operating systems, sweeping transactions accession with the provisions of
reporting features or other special functions.

Foreign Exchange Business

Over the years, foreign trade operations of the bank played a crucial role in
the overall business development of the bank. The bank has established
relationship with as many as 110 new foreign correspondents abroad thereby
raising the total number of correspondents to 350. The bank has also entered
into remittance arrangements with several banks and exchange houses and
expects to handle increased volume of remittance business over the near
future.

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Online Branch Banking

The bank has set up a Wide Area Network (WAN) across the country to provide
online branch banking facility to its valued clients. Under this scheme, clients of any
branch shall be able to do banking transaction at other branches of the bank.

Under this system a client will be able to do following type of transactions:

• Cash withdrawal from his/her account at any branch of the bank.

• Cash deposit in his/her account at any branch of the bank irrespective of the
location.
• Cash deposit in other’s account at any branch of the bank irrespective of the
location.
• Transfer of money from his/her account with any branch of the bank.

Swift

Prime Bank Limited has become member of SWIFT (Society for Worldwide Inter-
bank Financial Telecommunication) in 1999. SWIFT is a member-owned co-
operative system, which provides a fast and accurate communication network for
financial transactions such as Letters of Credit, Fund Transfer etc. By becoming a
member of SWIFT, the bank has opened up possibilities for uninterrupted
connectivity with over 5,700 user institutions in 150 countries around the world.

Information Technology in Banking Operation

Prime Bank Limited adopted automation in banking operation from the first day of its
operation. The main objective of this automation is to provide efficient and prompt
services to the bank's clients. At present, all the branches of the bank are
computerized. At branch level, the bank is using server-based multi-user software
under UNIX operating system to provide best security of automation.

Profitability and Shareholder Satisfaction

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Prime Bank Ltd. always tried to maintain strong customer relationship is of

utmost importance. By giving quality service, PBL ensures higher profitability.
Even though the capital market of the country has been suffering over the last
few years, the good performance of Prime Bank made sure that the banks
share price remained in a respectable position. Thus, they achieve greater
shareholders satisfaction.

2.6 Products and Services

Prime Bank Limited offers various kinds of deposit products and loan schemes. The
bank also has highly qualified professional staff members who have the capability to
manage and meet all the requirements of the bank. Every account is assigned to an
account manager who personally takes care of it and is available for discussion and
inquiries, whether one writes, telephones or calls.

 Deposit Products

• Contributory Savings Schemes (CSS)

Under this scheme Minimum size of the monthly installment is Tk.500.00 and
multiples of Tk.1000.00. Maximum installment size shall be 25000.00 for five year
period. Lump sum amount shall be paid after maturity or monthly pension shall be
paid for the next 5 years according to size of deposit.

• Lackhopati Deposit Scheme

Under this scheme size of the monthly installments are Tk.250.00, Tk.500.00,
Tk1285.00, Tk.2400.00 depositor will receive Tk.1,00,000.00 after a number of
period depending on installment size .Higher the installment size lower will be the
maturity period .

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• Prime Millionaire Scheme

This scheme is similar as Lackhopati deposit scheme only the installment amounts is
larger and at maturity depositor will get 10, 00,000.00.

• Education Savings Scheme (ESS)

Under this scheme parents can save for their children’s education by paying a
certain amount of monthly installment and Lump sum amount shall be paid after
maturity.

• Monthly Benefit Deposit Scheme (MBDS)

Under this scheme customer can deposit a fixed amount of money for five years
.The amount has to be 100,000 or multiple of 100,000 he / she will receive 900 per
month as interest on every lac during those five years.

• Double Benefit Deposit Scheme (DBS)

Under this scheme a customer can keep a fixed amount of money for six year end of
the maturity period the amount will become double .The amount has to be multiple of
25000.

• Fixed Deposit Receipt Scheme (FDR)

Under this scheme customer can devote a fixed amount of money for one month,
three months, six months or twelve months for interest rate of 7.5%, 11% or 11.5%.

• Current Account
Current Account is a non interest bearing checkable deposit (Demand Deposit)
which allows the owner of the bank accounts to write checks to third parties.

• Savings account

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Savings Account is an interest bearing checkable deposit (Negotiable order of

withdrawal) which allows the owner of the bank accounts to write checks to third
parties.

 Loan and Advances Products

Loan and advances have primarily been divided into two major groups:

• Fixed term
These are the loans made by the Bank with fixed repayment schedules. Fixed tern
loans are categorized into three based upon its tenure which is defined as follows:

Short term : Up to 12 months

Medium term : More than 12 and up to 36 months

Long Term : More than 36 month

• Continuing Loans
These are the loans having no fixed repayment schedule, but have an expiry date at
which it is renewable on satisfactory performance of the customer. Furthermore, all
categories of loans are accommodated under the following prime sectors:

i. Agriculture: Credit facilities to the customers of doing agro business falls

under this category.

ii. Term Loan to Large & Medium Scale Industry: This category of advances
accommodate the medium and long term financing for capital formation of
new Industries or for an existing units who are engaged in manufacturing of
goods and services.

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iii. Term Loans to Small & Cottage Industries: These are the medium and
long term loans allowed to small & cottage manufacturing industries. No short
term or continuous credits will be included in this category.

iv. Working Capital: Loans allowed to the manufacturing units to meet their
working capital requirements, irrespective of their size - big, medium or small,
fall under this category. These are usually continuous credits and as such fall
under the head "Cash Credit"

v. Export Credit: Credit facilities allowed to facilitate export of all items against
Letter of Credit and/or confirmed export orders fall under this category. It is
accommodated under the heads "Export Cash Credit (ECC)", Packing Credit
(PC), Foreign Documentary Bill Purchased (FDBP) etc.

vi. Commercial Lending: Short term Loans and continuous credits allowed for
commercial purposes other than exports fall under this category. It includes
import financing for local trade, service establishment etc. No medium and
long term loans are accommodated here. This category of advance is allowed
in the form of (i) Loan against Imported Merchandise (LIM), (ii) Loan against
Trust Receipt (LTR), (iii) Payment against Documents (PAD), (iv) Secured
Overdraft (SOD), (v) Cash Credit etc. for commercial purposes.

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Chapter-3

An Overview of
Prime Bank Lending Policy

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3.1 Definition of Lending

According to the dictionary of Banking and Finance, loans can be defined as “The
lending of a sum of money by a lender to a borrower to be repaid with a certain
amount of interest.”

According to Timothy W Koch “ A loan is a formal agreement between a bank and

borrower to provide a fixed amount of credit for a specified period.

So a profit oriented business such as bank provides its resources for lending or
credit to its clients under certain conditions for specific durations.

3.2 Types of Credit Facilities

Depending on the various nature of financing, all the credit facilities have been
brought under two major groups: (a) Funded Credit and (b) Non-funded Credit.
Under non-funded credit, there are basically two major products namely Letter of
Credit and Letter of Guarantee.
Under Funded Credit, there are the following products:

• Loan (General)
Short, Medium & Long term loans allowed to individual/firm/industries for a specific
purpose but for a definite period and generally repayable by installments fall under
this type. These are mainly allowed to accommodate financing under the categories
(I) Large & Medium Scale Industry and (ii) Small & Cottage Industry.

• Housing Loan (Commercial)

Loans allowed to individual/enterprises for construction of house for commercial
purpose only fall under this type. The amount is repayable by monthly/quarterly
installments within a specified period.

• Home Loan
Loans allowed to individuals for purchase of apartment or construction of house for
residential purpose fall under this type. The amount is repayable by monthly
installments within a specified period.

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• House Building Loan (Staff)

Loans allowed to the employees of PBL for purchase of apartment/construction of
house shall be known as House Building Loan (Staff) or HBL (Staff).

• Lease Financing
Lease Financing is one of the most convenient sources of acquiring capital
machinery and equipment whereby a customer is given the opportunity to have an
exclusive right to use an asset usually for an agreed period of time against payment
of rental.

• Consumer Credit Scheme (CCS):

It is a special credit scheme of the Bank to finance purchase of consumer durable by
the fixed income group to raise their standard of living. The loans are allowed on soft
terms against personal guarantee and deposit of specified percentage of equity by
the customers. The loan is repayable by monthly installments within a fixed period.

• SOD (Financial Obligation)

SOD (Financial Obligation) is allowed to individuals/firms against financial obligations
(FDR, MBDS, and Scheme Deposits of PBL or similar products of other banks). This
is a continuous loan having usual maturity period of 1 (one) year and renewable for
further periods at maturity.

• SOD (General)
SOD (General) is allowed to individuals/firms for miscellaneous purpose. This is a
continuous loan having usual maturity period of 1 (one) year and renewable for
further, periods at maturity.

•
SOD (Work Order)
Advances allowed against assignment of work order for execution of contractual
works falls under this type. This advance is generally allowed for a definite period
and specific purpose. It falls under the category "Others".

• SOD (Export)
Advance allowed for purchasing foreign currency for payment of Back to Back (BTB)
L/C liability where the exports do not materialize before due the date of import
payment. This is an advance for temporary period and categorized "Export Finance".

• PAD
Payment made by the Bank against lodgment of shipping documents of goods
imported through L/C falls under this type. It is an interim advance connected with
import and is generally liquidated against payments usually made by the customer

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for retirement of the documents towards release of imported consignment from the
customs authority.

• LIM
This is funded credit facility allowed for retirement of shipping documents and
release of goods imported through L/C taking effective control over the goods by
pledge in go downs under Bank's lock & key. This is a temporary advance connected
with import which is known as post-import finance and falls under the category
"Commercial Lending".

• LTR
Advance allowed for retirement of shipping documents and release of goods
imported through L/C falls under this type. The goods are handed over to the
importer on trust with the arrangement that sale proceeds will be deposited to
liquidate the loan account within the specific time.

• ECC
Funded credit facility allowed to a customer for export of goods falls under this type
and is categorized as "Export Cash Credit". The advances must be liquidated out of
export proceeds within 180 days.

• Packing Credit (P.C.)

Advance allowed to a customer against bills under BTB L/C and/or firm contract for
processing/packing of goods to be exported falls under this type and is categorized
as "Export Credit". Packing Credit must be adjusted from proceeds of the relevant
exports within 180 days.

• FBP
Payment made to a customer through Purchase or Foreign Currency
Cheques/Drafts falls under this type. This temporary advance is adjustable from the
proceeds of the cheque/draft.

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3.3 Lending Sector

As initiated by Bangladesh Bank vide BCD Circular No. 33 dated 16-11-89 different
kinds of lending were subdivided into 11 categories w.e.f. 01-01-90 which was
subsequently reduced to 9 vide BCD Circular No. 23 dated 09-10-93 and again to 7
prime sectors vide BCD Circular No.8 dated 25.04.94.

Loan and advances have primarily been divided into two major groups:

a) Fixed term loan: These are the loans made by the Bank with fixed
repayment schedules. Fixed term loans are categorized into three based upon its
tenure which is defined as follows:

Short term : Up to 12 months

Medium term : More than 12 and up to 36 months
Long Term : More than 36 months

b) Continuing Loans: These are the loans having no fixed repayment

schedule, but have an expiry date at which it is renewable on satisfactory
performance of the customer. Furthermore all categories of loans are
accommodated under the 7 prime sectors which are as under:

3.1.1 Agriculture

Credit facilities provided to the customers for doing agro business falls under this
category. It is divided into two major sub-sectors:

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a) Loans to primary producers: This sub-sector of agricultural financing refers to

the credit facilities allowed to production units engaged in farming, fishing, forestry or
livestock. Loans to processors or traders of agricultural products are not to be
categorized as agricultural loans. Loans to tea gardens for production are treated as
agricultural loan, but loans to tea gardens for export will be treated as "Export
Credit". Similarly medium and long-term loans to tea gardens are categorized as
industrial term lending.
b) Loans to input dealers/distributors: It refers to the financing allowed to input
dealers and (or) distributors in the agricultural sectors.
Loan to Agriculture sector may include short, medium and long term loans as well as
continuous credits. As a product, it may fa ll under Loan (Gen)/Hire-Purchase/Lease
Finance/Cash Credit/Overdraft etc.

3.1.2 Term Loan to Large & Medium Scale Industry:

This category of advances accommodate the medium and long term financing for
capital formation of new Industries or for BMRE of the existing units who are
engaged in manufacturing of goods and services.Term loan to tea gardens may also
be included in this category depending on the nature and size.
As the financing under this category have fixed repayment schedule it may fall under
the heads Loan (Gen)/Hire-Purchase/Lease Financing etc.

3.1.3 Term Loans to Small & Cottage Industries:

These are the medium and long term loans allowed to small & cottage manufacturing
industries [Small industry is presently defined as those establishments whose total
investment in fixed capital such as land, building, machinery and equipment
(excluding taxes and duties) does not exceed TK 30 million and investment in
machinery and equipment (excluding taxes and duties) does not exceed TK 10
million. Cottage industries also fall within this definition].
No short term or continuous credits will be included in this category. Medium & Long
term loans to weaver are also included in this category. Like the Large & Medium
Scale Industry it is also allowed in the form of Loan (Gen)/Hire Purchase/Lease
Financing etc.

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3.1.4 Working Capital:

Loans allowed to the manufacturing units to meet their working capital requirements,
irrespective of their size - big, medium or small, fall under this category.
These are usually continuous credits and as such fall under the head "Cash Credit"

3.1.5 Export Credit:

Credit facilities allowed to facilitate export of all items against Letter of Credit and/or
confirmed export orders fall under this category. It is accommodated under the
heads "Export Cash Credit (ECC)", Packing Credit (PC), Foreign Documentary Bill
Purchased (FDBP), Inland Documentary Bill Purchased etc.

3.1.6 Commercial Lending:

Short term Loans and continuous credits allowed for commercial purposes other
than exports fall under this category. It includes import financing for local trade,
service establishment etc. No medium and long term loans are accommodated here.
This category of advance is allowed in the form of (I) Loan against Imported
Merchandise (LlM), (ii) Loan against Trust Receipt (LTR), (iii) Payment Against
Documents (PAD), (iv) Secured Overdraft (SOD), (v) Cash Credit etc. for commercial
purposes.

3.1.7 Others :
Any loan that does not fall in any of the above categories is considered under the
category "Others". It includes loan to (I) transport equipments, (ii) construction works
including housing (commercial/residential), (iii) work order finance, (iv) personal
loans, etc.

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3.4Credit Policy of Prime Bank

Limited
Prime bank Limited is second generation Bank. It is committed to provide high
quality financial services /products to contribute to the growth of G.D.P of the country
through stimulating trade and commerce , accelerating the pace of industrialization ,
boosting up export, creating employment opportunity for the educated youth, poverty
alleviation, raising standard of living of limited income group and overall sustainable
socio-economic development of the country.

In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is of
paramount importance as the greatest share of the total revenue of the bank is
generated from it, Maximum risk is centered in it and even the very existence of the
bank depends on prudent management of the credit portfolio .The failure of the
commercial bank is usually associated with the problem in credit portfolio and is less
often the result of shrinkage in the value of other assets. As such, credit portfolio not
only features dominant in the assets structure of the Bank, it is critically important to
the success of the bank also.

To provide a broad guide line for the Credit Operation towards achieving the
objectives of this Bank, for efficient and profitable deployment of its mobilized
resources and to administer the credit port-folio in the most efficient way, a clearly
defined, well-planned, comprehensive and appropriate credit policy and control
guidelines of the bank is prerequisite.

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1. Loans and advances shall normally be financed from customers’ deposits and
not out of temporary funds or borrowing from other banks.

2. Credit will be allowed in manner which will no way compromise the bank’s
standards of excellence and customers who will complement such standards.

3. All credit extension must comply with the requirements of Bank’s

Memorandum & Articles of Association, Banking companies Act 1991 as
amended from time to time, Bangladesh Bank’s instruction & other applicable
rules and regulations.

4. Interest on various lending categories will depend on the level of risk and type
of security offered. It should be borne in mind that rate of interest in the
reflection of risk in the transaction. The higher the risk, the higher is the
interest rate.

5. Interest may be reviewed at least once in 6 month and more often when
appropriate fixed interest rate should be discouraged. Preferably all rates
should vary with cost of funds fluctuation based on a spread of profit.

6. Effective yield can be enhanced to the extent the borrowers are required to
maintain deposits to support borrowing activities. Yield should be further
improved by commitment fee and Service charges where possible .All pricing
of loans should however have relevance with the market condition and be
approved by the Executive committee / Managing Director from time to time.

7. Where repayment and interest servicing performance of a credit deteriorates it

shall be identified at an early state and closely monitored in order to avoid
loan losses.

8. It is recognized that there will be exceptions to the stated policy which can be
justified. However,, these should be approved by the Executive Committee or
by the Board and the circumstances must be fully documented din the credit
file.

9. The aggregate of all cash facilities shall not exceed 80% of customer
deposits. It is further governed by the statutory and liquidity reserve
requirement of Bangladesh Bank.

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10. Aggregate long term facilities shall not exceed 20% of the total credit portfolio.
Facilities shall not be allowed for a period exceeding 5 year. Any exceptions
will require the approval of the Board of Directors.

11. Credit facilities in aggregate extended to any one customer group shall not
normally exceed 15% of the capital Fund or Tk 16.50 crore whichever is
lower. However, Board o f Directors may relax this limit in deserving cases. All
proposals submitted to Head Office will also be required to indicate the extent
of the Bank’s global exposure to that customer group.

12. Aggregate bank advance to corporate or individual customers (other than

government or parastatal organizations) which are not secured by collateral
and are allowed on the strength of customers’ personal integrity and financial
standing or the corporate customer’s balance sheet ,with or without
hypothecation stock shall not exceed 30% of the local credit portfolio.

13. For a unsecured credit facilities extended to a business dominated by one or

two individuals, the bank shall insist on taking Life insurance Policies by the
principals which is sufficient to repay the loan in the event of death or injury of

14. any one key individual. The policy to be assigned to the Bank and the
premium to be paid by the customer through the bank under suitable
arrangement.

15. Sector –wise allocation of Credit shall be made annually with the approval of
Executive Committee /Board of Directors. This will be reviewed from time to
time.

16. Collectivity of Loan

17. Effectiveness of security.

18. CIB report

19. CRG

20. Approval procedure

21. Post –facto approval

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22. Import of capital Machinery

23. Opening of BTB L/C

24. Collateral 1.5 times for LTR Doubles

25. Selection of Borrower

26. Safety

27. Security

28. Profitability

29. Purpose

30. Diversification

31. Paper dose

32. Director’s loans.

3.5 Credit Monitoring Process

Credit monitoring process starts immediately after disbursement of the facility.
The customers start repayment the loan from the next month. Simultaneously,
Branch relationship Officer starts monitoring the loan on site basis. If the officer
finds any deviation to the terms and conditions of the loan or borrower’s wealth,
he/she sends an Early Alert Report to the Corporate Banking Division. An Early

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Alert Account is the one that has risks or potential weakness requires monitoring,
supervision or close attention of the management. After having the Early Alert
Report, Credit Administrative Division monitors the loan on an off-site basis and
thereby reports the Credit Risk Management Division to take necessary action.
On the other hand, if any clients fail to pay three monthly installments
simultaneously, the Relationship officers reminds the clients through phone calls,
reminds later or visit in person where necessary.

3.6 Mode of Recovery

To remove the financial burden bank’s recovered the loan amount along with
interest through monthly installment. Generally these amounts are round figure
and during the determination of the installment amount bank consider the
payment ability of the client. The entire loan amount shall be paid into equal
monthly installment throughout the loan period. Any excess or shortage has
adjusted with last installment. Dues shall be recoverable in the following manners:

a) In equal monthly installments.

b) The monthly installment shall be payable by the 8th of every month, but
the first installment shall be payable by the 8 th of the subsequent month
of disbursement.
c) Through deduction from the monthly salary of the client wherever
applicable, by his employer. In this regard the concerned employee shall
authorize irrevocably his employer to deduct the said amount from his
monthly salary. The client can only revoke this authority with the
concurrence of the bank.
If the customer fails to repay three monthly installments, bank reserves the right
to cancel or call back the entire outstanding loan liability of the concerned account
irrespective of the validity of the account and bank can also take initiative for legal
action under Artha Rin Adalot Ain Act-2003.

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3.7 Procedure of Sanction Loan:

Appraisal
 Interviewing the client’s
 CIB
 Preparing the credit proposal
 Landed property valuation

Pre-disbursement
 Issuing Sanction letter
 Acceptance from the client
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 Completion of all documentation
formalities as per Head Office.
 Prime Bank

Disbursement
 Loan Input
 Voucher

Monitoring
 Ensure adjustment as per
repayment
 Communicate with the clients.
 Physical visit.
 Obtain various reports regarding

Repayment
 Installment realizes from the clients.

Flowchart 2: Processing of Credit

3.8Credit Risk Assessment (Credit

Worthiness) and Grading

Credit Risk Grading:

While providing credit facility to a customer, Bank undertakes many risks among
which credit risk is considered to be the most important one. As such, an in-depth
study should be conducted on the borrower’s creditworthiness which will help the
bank to identify all possible risks underlying in a particular credit transaction. A
formal evaluation of borrower’s financial health and ability to repay debt obligation is
called credit rating which helps the Bank to grade the concerned customer. As such,
it is also called credit risk grading. And, risk identified through credit rating/risk

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grading is quantified for better understanding and taking appropriate mitigating

technique. Besides, it helps the Bank to charge commensurate risk premium on a
particular credit facility. Therefore, it is important to accurately measure the risks in a
transaction and rate/grade the facility accordingly.

Prime Bank’s Risk Grading Framework:

All credit proposals must be supported by a comprehensive risk analysis. It will

encompass the following three things: (a) Lending Risk Analysis (LRA), (b) Risk
Grading Scorecard and (c) Risk Grading. No proposal can be put up for approval
unless there has been a complete written analysis subject to the condition that LRA
will be conducted where it is applicable as per Bangladesh Bank Guideline. It is the
absolute responsibility of the proposal originating officer to conduct comprehensive
risk analysis and affix its result e.g Risk Grading Score, Risk Grade etc in the
proposal. He/she will also ensure that all necessary documents/papers/information in
support of the proposed risk grading are annexed with the proposal before the facility
request is sent to the competent approval authority.

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Lending Risk Analysis (LRA):

Lending Risk Analysis (LRA) will be conducted for the credit facilities of Tk 50 lac or
above in the prescribed form. The lending risk analysis tool concentrates on analysis
of both the business risk and security risk. The important part of this analysis is the
assessment of risk of failure to repay which deals with the overall lending risk
composed of the business risks and security risks i.e (i) Suppliers risk, (ii) Sales risk,
(iii) Performance risk, (iv) Resilience risk, (v) Management Competence Risk, (vi)
Management Integrity Risk, (vii) Security Cover Risk and (viii) Security Control
Risk. The overall matrix provides four kinds of lending risk for decision makers i.e. (i)
Good, (ii) Acceptable, (iii) Marginal and (iv) Poor. Prime Bank will not approve any
credit facility having overall risk at “Marginal” or “Poor” level without proper
justification except for renewal of existing facilities under compelling circumstances.

Risk Grading Scorecard:

As per instruction of Bangladesh Bank, Prime Bank Limited has developed Risk
Grading Scorecard which will be used to find out rating of all credit facilities and/or
customers of the bank except the loans under Retail Credit Division. The score of the
risk grading scorecard will be weighted one. There are 10 (ten) rating criteria and
separate parameters have been set to measure borrower’s position against each
criterion. After analyzing borrower’s financials or other relevant documents, the
Relationship Officer will first find out the points the borrower earns against each
criterion based on the parameters set and then multiply the points obtained by the
relevant risk weight which will produce Weighted Score. A snapshot of criteria and
weight assigned to each criterion is as follows:

Sl. No. Criteria Weight (%)

a) Gearing 15
b) Liquidity 10
c) Profitability 15
d) Account Conduct 10
e) Business Outlook 10
f) Management/Key Person 15
g) Age of Business 5
h) Size of Business 5
i) Personal Banking Relationship 5
j) Security 10

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The Relationship Officer of the Branch will prepare Risk Grading Scorecard in case
of new proposal, renewal and/or enhancement of existing facility, any deterioration in
the borrower’s business position, any breach of contract by the borrower or as and
when he/she feel it necessary. In addition, aggregate weighted score of the customer
is to be affixed in the relevant field of the Credit Assessment Sheet.

Risk Grading:

After preparation of Risk Grading Scorecard, concerned Relationship Officer will

assign risk grade to the customer within the following Credit Risk Grading Model:

Risk Letter Numeric

Definition
Grade Grade Grade

Superior – AAA 1 Facilities are fully secured by cash deposits,

Low Risk government bonds or a counter guarantee
from a top tier international bank. All
security documentation are in place.

Good – AA 2 The repayment capacity of the borrower is

Satisfactor strong. The borrower should have excellent

y Risk liquidity and low leverage. The company

should demonstrate consistently strong

earnings and cash flow and have an

unblemished track record. All security

documentation should be in place.

Aggregate Score of 95 or greater based on

the Risk Grade Scorecard.

Acceptable A 3 Adequate financial condition though may

– Fair Risk not be able to sustain any major or

continued setbacks. These borrowers are

not as strong as Grade 2 borrowers, but

should still demonstrate consistent

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Risk Letter Numeric

Definition
Grade Grade Grade

earnings, cash flow and have a good track

record. A borrower should not be graded

better than 3 if realistic audited financial

statements are not received. These assets

would normally be secured by acceptable

collateral (1st charge over stocks / debtors /

equipment / property). Borrowers should

have adequate liquidity, cash flow and

earnings. An Aggregate Score of 75-94

based on the Risk Grade Scorecard.

Risk Letter Numeric

Definition
Grade Grade Grade

Marginal - Grade 4 assets warrant greater attention

Watch list B+ 4 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. Facilities should be
downgraded to 4 if the borrower incurs a
loss, loan payments routinely fall past due,
account conduct is poor, or other untoward
factors are present. An Aggregate Score of
65-74 based on the Risk Grade Scorecard.

Special B 5 Grade 5 assets have potential weaknesses

Mention that deserve management’s close attention.
If left uncorrected, these weaknesses may
result in a deterioration of the repayment
prospects of the borrower. Facilities should
be downgraded to 5 if sustained

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Risk Letter Numeric

Definition
Grade Grade Grade

deterioration in financial condition is noted

(consecutive losses, negative net worth,
excessive leverage), if loan payments
remain past due for 30-60 days, or if a
significant petition or claim is lodged
against the borrower. Full repayment of
facilities is still expected and interest can
still be taken into profits. An Aggregate
Score of 55-64 based on the Risk Grade
Scorecard.

Risk Letter Numeric

Definition
Grade Grade Grade

Substandar C 6 Financial condition is weak and capacity or

d inclination to repay is in doubt. These
weaknesses jeopardize the full settlement
of loans. Loans should be downgraded to 6
if loan payments remain past due for 60-90
days, if the customer intends to create a
lender group for debt restructuring
purposes, the operation has ceased trading
or any indication suggesting the winding up
or closure of the borrower is discovered.
Not yet considered non-performing as the
correction of the deficiencies may result in
an improved condition, and interest can still
be taken into profits. An Aggregate Score
of 45-54 based on the Risk Grade
Scorecard.

Doubtful D 7 Full repayment of principal and interest is

and Bad unlikely and the possibility of loss is
extremely high. However, due to
specifically identifiable pending factors,

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Risk Letter Numeric

Definition
Grade Grade Grade

(non- such as litigation, liquidation procedures or

0performin capital injection, the asset is not yet
g) classified as Loss. Assets should be
downgraded to 7 if loan payments remain
past due in excess of 90 days, and interest
income should be taken into suspense (non-
accrual). Loan loss provisions must be
raised against the estimated unrealizable
amount of all facilities. The adequacy of
provisions must be reviewed at least
quarterly on all non-performing loans, and
the bank should pursue legal options to
enforce security to obtain repayment or
negotiate an appropriate loan rescheduling.
In all cases, the requirements of
Bangladesh Bank in CIB reporting, loan
rescheduling and provisioning must be
followed. An Aggregate Score of 35-44
based on the Risk Grade Scorecard

Loss E 8 Assets graded 8 are long outstanding with

no progress in obtaining repayment (in
(non-
excess of 180 days past due) or in the late
performing
stages of wind up/liquidation. The prospect
)
of recovery is poor and legal options have
been pursued. The proceeds expected from
the liquidation or realization of security may
be awaited. The continuance of the loan as
a bankable asset is not warranted, and the
anticipated loss should have been provided
for. This classification reflects that it is not
practical or desirable to defer writing off
this basically worthless asset even though
partial recovery may be effected in the
future. Bangladesh Bank guidelines for
timely write off of bad loans must be
adhered to. An Aggregate Score of 35 or
less based on the Risk Grade Scorecard

The Relationship Officer will insert the risk grade of the customer in the concerned

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field alongwith Risk Grading Score and forward the same through proper channel to
the Credit Risk Management Unit for approval.

Subjective Grading:
The more conservative risk grade (higher) should be applied if there is a difference
between the personal judgment and Risk Grading Scorecard result and Credit Risk
Grading Model. This will remain at the absolute discretion of the concerned
Relationship Officer(s) of the Branch or Corporate Banking Division, Head Office and
Credit Officer of the Branch or Credit Risk Management Unit, Head Office.

Downgrading:

The Relationship Officer of particular customer shall continuously monitor the

customer and bear the responsibility of rating/grading surveillance. If any
deterioration in risk, whatever may be the reason, is noted or adverse information is
received, the Relationship Officer will propose change(s) in the risk grading of the
customer and prepare Early Alert Report and forward the same to the Credit Risk
Management Unit, Credit Division for approval. Changes in the risk grade will be in
effect only when it is approved by the Credit Risk Management Unit, Credit Division.
Once a credit facility/customer is downgraded to a lower grade, it will not be
postponed until the next annual review process. In case of downgrading, credit
facility to the customer may be immediately changed/restructured, if possible.

Asset Migration:

Risk Grading Model will be used for assessing / measuring risk in the credit
exposure taken on a particular customer. It is the key measurement of Bank’s asset
quality. Therefore, all facilities will be assigned a risk grade. And, asset portfolio of
the Bank will be reviewed quarterly. At each quarter end, Credit Risk Management

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Unit, Credit Division will report summarizing the migration of the assets with respect
to risk grade and place before the management for review. The Management will
ensure non-concentration of assets in lower grades.

External Rating:

At least top twenty five clients/obligors of the Bank may preferably be rated by an
outside credit rating agency.

System Review:
Proper application of the Risk Grading Scorecard and Risk Grading Model in Credit
operation shall reviewed at least once in a year. And, if change is required, it will be
done at the year-end. Furthermore, accuracy and consistency of the concerned
officers/executives will be reviewed annually.

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Chapter - 4

Contribution of Sound Lending Policy in

Prime Bank

4.1 Significance of Sound Lending

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Credit operation of Prime Bank is of paramount importance as the greatest share of

total revenue of the bank is generated from credit operation, maximum risk is
centered in it and even the very existence of Bank depends on prudent management
of its credit port-folio. The failure of a commercial Bank is usually associated with the
problem in credit port-folio and is less often the result of shrinkage in the value of
other assets. As such, credit port-folio not only features dominant in the assets
structure of the Bank, it is critically important to the success of the Bank also. The
following graph shows the constituents of Assets of Prime Bank Limited:

From the above graph, it is evident that loans and advances rules the asset structure
of the Bank and managing these loans & advances has a crucial impact on the
overall success of the Bank. In doing so, it is mandatory to follow an effective lending
policy to grab the success. In the following sub sections, focus will be given on the
management of the credit portfolio of PBL, the impact of following a sound lending
policy etc to give an idea of the contribution of following sound lending policy in the
Banks.

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4.2 Management of Credit

Portfolio of Prime Bank
Portfolio Management of Credit implies the deployment of loan able fund among
alternative opportunities through proper allocation. The objective of portfolio
management of credit is the best and efficient management of loan to ensure
profitability. Designing the size and pattern of loan portfolio with accuracy is a tough
job. Even then, a prudent loan portfolio management can be done by careful
consideration of the factors mentioned in the following:

• Bank’s Capital position

• Deposit Mix (Tenure of Deposit)
• Credit Environment
• Influence for monetary and fiscal policies
• Credit needs of the respective commanding area
• Ability & experience of the bank personnel to handle the loan portfolio

In designing a loan portfolio, PBL always keeps three things in mind – first, the type
of customers the bank wants to serve. Second, involvement of risks with various
kinds of loans and finally, the relative profitability of various kinds of loans.

With each and every coin of loan, there is an involvement of risk. So the quantum of
risk should be spread over the various types of loan through diversification.
Diversification of credit can be made by extending credit to different sectors, to
different geographical areas, to different lines of product or business and allocating
the loanable fund into different types of credit.

4.3 Financial Analysis 2009

Consolidated Loans and advances/investments (credit under Islamic Shariah) of the
Bank grew strongly by 18.97 percent and stood at Tk 89,946 million in 2009. Loans
and advances of PBL increased by Tk 14,096 million showing a growth of 18.76
percent during 2009. Investment of Islamic Banking Branches increased by 1,653
million and the growth rate was 21.25 percent during 2009. Outstanding loans and
advances of Off Shore Banking Unit was Tk 694 million showing a growth of 55.61
percent. Yield on loans and advances of PBL decreased to 13.18 percent from the
level of 13.49 percent of previuos year due to reduction of lending rates on corporate

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and medium scale financing as imposed by Bangladesh Bank. Concentrattion of

loans and advances was well managed. Ratio of non performing loan of PBL

improved to 1.29 percent to 1.76 percent of previous year and the ratio is much
below the industry average of 10.8 percent.

From the Financial analysis of year 2009, some important findings are pointed
below:

• Loans & Advances were well spread. Retail ans SME sector showed
significant growth during 2009.

• The pressure from Bangladesh Bank to keep the interest spread to 5 percent
continued. In addition to indierect restrictions, Bangladesh Bank imposed the
ceiling of maximum 13 percent interest on lending except for small and retail
finacne. Later on maximum interest rate of 13 percent was ijmposed on
housign loans. But the spread did not reduced that much as the Bank
successfully improved its deposit mix along with reduction of interest rates on
deposits.

• Non-performing laon decreased during the year by Tk. 184 million and stood
at 1.29 percent. The ratio is much below the market average os 10.8 percent.
As such the asset quality may be termed as strong.

• PBL made adequate provision against bad and doubtful debt as per
Bangladesh Bank requirement. Despite the Bank could register significant
grwoth of net profit.

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Chapter 5

FINDINGS & ANALYSIS

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5.1 FINDINGS:

A/ Executive and officer working and various levels in the bank to be groomed
with clear understanding of the entire range of products and banking services
ensuring quality of services help accomplished set target of customer
satisfaction. The techniques those to be pursued for transforming of strategies
into action through “Mode Marketing Plan – (MMP)” to achieve the goal of
higher customer satisfaction along with sustained growth of profitability for the
bank are :-

• Proper grooming of employees through classroom and hands of

training.

• Receive the customers with smile.

• Improve office atmosphere to give customer friendly feeling.

• Provide intimate attention to your customers need.

• Customer’s convenience will receive priority.

• Evaluate customers needs in proper perspective and

shortcoming be explained logically.

• Time consumed in servicing customers is minimized.

• Deeply familiarize customers with benefits of offered financial

services.

• Use modern tools and techniques and evaluate customers credit

needs professionally.

• Decision making process should be free of ambiguity and be

time conscious.

• Alternative solutions should be explored and evaluate.

• Develop communication skills.

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• Develop effective management system (MIS).

• Diagnose macro and micro environment niches and explore the

prospects.

• Help new entrepreneurs to formulate business plans.

• Fresh entrepreneurs should be providing with counseling.

• Understand customers funding needs and create “Total solution”.

• Monitoring of disbursement and need based use of loans.

• Recycling of credit ensuring recovery as per repayment

schedule.

• Ensure reasonable spread and return on assets.

• Build good value for sponsors and shareholders.

B/ In managing the credit operation, PBL, Satmasjid Road Branch face the
following problem:

• Loan processing time is little bit lengthy because of shortage of

skilled people.

• Interest rate is high from the borrower’s perspective.

• Legal advisers take so much time before giving their legal

opinion.

• Shortage of skilled man power in the branch and credit division.

• Rules and regulations are not so much flexible in case of lending

money

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Chapter 6

Recommendations & Conclusion

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6.1 Recommendation

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 Prime Bank Limited has
been able to manage its credit portfolio skillfully and kept the classified loan at a very
lower rate ---thanks goes 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 Prime bank limited has a
robust credit risk management policies and procedures that are sensitive to these
changes. To improve the risk management culture further, Prime Bank limited should
adopt some of the industry best practices that are not practiced currently. These are

• The lending guideline should include Industry and Business Segment Focus,
Types of loan facilities, Single Borrower and group limit, Lending caps,
Discouraged Business Types, Loan Facility Parameters and Cross boarder
Risk.

• It should adopt a credit grading system All facilities should be assigned a risk
grade. And the borrowers risk grades should be clearly stated on credit
application.

• Approval authority should be delegated to individual executives rather than

Executive Committee/ Board to ensure accountability. This system will not
only ensure accountability of individual executives but also expedite the
approval process.

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 Prime Bank

• The organization structure should have to be changed to put in place the

segregation of the Marketing/ Relationship Management function from
Approval / Risk Management / Administration function.

• An Early Alert Account system should be introduced to have adequate

monitoring, supervision or close attention by management

• There should be a Recovery Unit to manage directly accounts with sustained

deterioration. To encourage Recovery Unit incentive program may also
introduced.

6.2 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.

We hope that PBL will lead by example by continuing its efficient lending
policy in keeping the bank’s financial performance indicators at above
industrial average and contribute to country’s economic development-
thus attaining a middle income status in the world.

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APPENDIX

Performance of PBL:

Performance at a glance

Taka in Million

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Particulars 2005 2006 2007 2008 2009

Income Statement

519
Interest Income 3446 7170 9096 10831
9

Interest Expense 2271 3698 5267 7126 8426

Net Interest Income 1175 1500 1903 1970 2405

Non-interest Income 1232 1732 2913 3808 5790

Non-interest Expense 886 1101 1559 1931 2907

Net Non-interest Income 346 631 1354 1877 2883

Profit before provision and tax 1520 2131 3257 3847 5289

Provision for loans and assets 320 390 910 1384 700

Profit after provision before tax 1201 1741 2347 2463 4589

Tax including deferred tax 633 689 946 1232 1805

Profit after tax 568 1052 1401 1232 2784

Balance Sheet

Authorized Capital 4000 4000 4000 4000 4000

Paid-up Capital 1400 1750 2275 2844 3555

Total Shareholder's equity 2808 3860 5273 6697 11745

5472
Deposits 36022 70512 88021 106956
4

Long-term liabilities 11406 16877 15267 31044 38209

Loans and advances 31916 45010 57683 75156 89252

Investments 3940 7844 12698 23103 19934

66
Property, Plant and Equipment 372 412 1375 1573
0

Earning Assets 37439 55458 72798 100261 109905

Net current assets 31 5286 1338 9962 3435

41506 60899 79588 110437 124806

Total assets
Current ratio 1.00 .88 .97 0.88 0.96

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Comparison of Profit of Different Banks Main Office (source

Manager’s conference 2009)
Area 2008 2009 Growth

Dhaka Bank 47.11 54.45 16

Southeast 42.01 43.85 4

Bank

Exim Bank 40.35 43.66 8

Mercantile 42.40 52.00 23

Bank

Dutch Bangla 34.01 36.39 7

Bank

Prime Bank 33.46 42.29 26

Deposits VS Advances of Different Banks-2009 (Source Manager’s

conference 2009)

Banks Crore Taka

Deposits 2009 Advances 2009
DBL 4958 3997

SEB 5547 4816

PBL 7054 5761

DBBL 4211 2940

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EXIM 4159 4020

MBL 3933 3140

EBL 3170 2910

Deposits & Advances 2009 of Different Banks

8000
7054
7000
6000 5547 5761
4958
5000 4816
4211 41594020
3997 3933
Crore Taka 4000 Deposits 2008
2940 3140 3170
2910 Advances 2008
3000
2000
1000
0
DBL SEB PBL DBBL EXIM MBL EBL

Deposit Advance GAP-2009 of Different Banks (source Manager’s

conference 2009)

Banks Crore Taka

DBL 956

SEB 731

DBL 1293

DBBL 1271

EXIM 139

MBL 793

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EBL 260

Deposits Advances Gap 2009

EBL 260

MBL 793

EXIM 139

DBBL 1271

PBL 1293

SEB 731

DBL 956

0 200 400 600 800 1000 1200 1400

CRORE TAKA

Profit 2009 of Different Banks (Source Manager’s conference 2009)

Banks Crore Taka

DBL 205

SEB 294

EXIM 205

PBL 351

EBL 190

MBL 157

DBBL 151

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 Prime Bank

Profit 2009

400
351
350
294
300

250
205 205
190
200
Crore Taka 157 151
150

100

50

0
DBL SEB EXIM PBL EBL MBL DBBL

Import 2009 Of Different Banks (Source Manager’s conference

2009)

Banks Crore Taka

DBL 4950

EXIM 7026

PBL 9645

MBL 4038

EBL 3782

SEB 3847

DBBL 3567

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 Prime Bank

Import 2009

10000
9645
7000 6140
6000
4950
5000 4038
3782 3847 3567
Crore Taka 4000
3000
2000
1000
0
EXIM PBL MBL EBL SEB DBBL DBL

Export 2009 Of Different Banks (Source Manager’s conference

2009)

Banks Crore Taka

EXIM 5579

DBL 3108

DBBL 3406

MBL 3267

PBL 5132

SEB 2877

EBL 3357

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 Prime Bank

Export 2009

6000 5579
5132
5000

4000 3406 3357

3108 3267
2877
Crore Taka 3000

2000

1000

0
EXIM DBL DBBL MBL PBL SEB EBL

Rate of Return on Advance 2009 of Different Banks (Source Manager’s

conference 2009)

Banks Crore Taka

DBBL 3406

DBL 3108

EBL 3322

EXIM 5579

MBL 3267

PBL 5132

SEB 2877

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 Prime Bank

Rate of Return on Advance 2009

6000 5579
5132
5000

4000 3406
3108 3322 3267
2877
Rate(%) 3000

2000

1000

0
DBBL DBL EBL EXIM MBL PBL SEB

Cost of Deposits 2009 of Different banks (Source Manager’s conference

2009)

Banks Crore taka

DBBL 3406

DBL 3108

EXIM 5579

MBL 3267

PBL 5132

SEB 2877

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 Prime Bank

Cost of Deposits 2009

6000 5579
5132
5000

4000 3406 3267

3108
Rate(%) 2877
3000 t

2000

1000

0
DBBL DBL EXIM MBL PBL SEB

Bibliography

1.Ahmed Nasiruddin. (1989), Banking And Finance Compendium: 1st edn. Standard
Printing and Packages: Dhaka

2.Hill, Charles, W. & Jones, Gareth, R. (2007), Strategic Management: An Integrated

Approach. 7th edn. Houghton Mifflin Company: Boston

3. Karajewski, Lee, J. & Ritzman, Larry, P... (2005), Operations Management:

Process and Value Chain. 7th edn. Pearson Education Inc.: India

4. Wheelen, Thomas, L. & Hunger, J., David.(1995), Strategic Management and

Business Policy. 5th edn. Addison-Wesley Publishing Company Inc: United States of
America

5. Credit Rating Information and Services Limited. Retrieved August 5, 2008, from
CRISL Official Web site: http://www.crislbd.org/

6. Star Business News. (2008). Prime Bank Launches Training Programme

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 Prime Bank

7. Prospectus of Prime Bank Ltd.

8. Leaflet, Booklet and department published documents.
9. Bangladesh Institute of Bank Management. “Appraisal of Customers Services
of Scheduled Banks of Bangladesh”. Bank Parikrama, 2005.
10. Report on “Banker – Customer Relationship”, of National Bank Training
Institute.
11. Ahmed, Fariuquddin. “Nationalized Commercial Banks in Bangladesh – An
analysis of their Operational and Functional Performance”. Bank PariKrama,
Vol. XV & XVI (1990-91).
12. Internet
Web site –www.prime-bank.com

Other Reference
Brochures of products of Prime Bank Ltd
Annual Report 2005-2009, Prime Bank Ltd

67