Professional Documents
Culture Documents
Introduction
In today’s world, a bank performs several general banking activities in line with its different
internal departments. All the departments which are providing credit management are very
much important while dealing with customers. Credit risk management activities do mean a
lot for a bank. If a bank con figure out its condition of credit risk performance in loans &
advances banking through satisfying its customer then it is possible for that particular bank to
gain competitive advantage from the market.
National Bank Limited performs several general banking activities through its existing
branches throughout the country. In most of the branches there are deposit section, loan and
advances section, accounts section, foreign exchange section cash section and foreign
remittance section. NBL performs its different types of day to day general banking activities
with the help of these sections. I tried my best to learn several activities while doing my
internship in National Bank Limited by working in.
This study is done to evaluate the credit management activities of NBL. Findings of this
study may benefit the organization itself to take strategic decision on its future plan to
enhance the credit management performance of the bank. This study contains a lot of learning
materials that I have gained through my internship, thus I think that the result and
recommendation of this study will be very much helpful for the maintenance of operational
activities under credit management division.
The course practical orientation in Banks is an indispensable part of the BBA program. Under
this course the students are sent to gather practical knowledge National out banks and others
organization environment and activities. This practical knowledge and environment build up
a working attitude, responsibility, sincerity and norms to build up a future career to the
Present world is changing rapidly to face the challenge of competitive free market students.
The students also have to submit a report on practical orientation in institution. Mrs.
1
Shammi Akter, The Lecturer of BBA Department, Dhaka City College authorized and
supervised me to do the practical orientation at origin of the report. I am continuing my
practical orientation course at National Bank Ltd. in New Eskaton Road Branch and
submitted this report to BBA program office on March 20, 2011.
The basic objective of the report is to be acquainted with the practical aspects of the dealings
of the National Bank Ltd. Thus the report has been prepared for serving the academic
purposes only, and not for taking decisions by the National Bank's Management or any other
organization. However, I have an objective regarding why I started my work on such topic.
The main objective is to evaluate and analysis of National Bank Ltd.
Private Banks have of course a vital role in promoting and accelerating the economic
development process as per the demand of time through the implementation of finance for
industrial and agricultural project, domestic and foreign trade and allocating the fund to
various off-farm employment and self-employment generation projects. Focusing the light
and considering the every pros and cons on available statistical data it has been apparently
accepted that National Bank continued to register its steady progress in the field of deposits,
loans, advances. In view of the sluggish nature of the economic activities over the years the
deposit performance of National Bank Ltd. is more or less satisfactory. The National Bank
analyze & Evaluate the risk & return under the CR management, the National Bank policy is
aimed at the integrated operation of all it outlet at home and abroad.
2
The low rate of economic growth, high rate of unemployment, illiteracy, growth rate of
population, low rate of recovery etc. are the impediment factor of economic development of a
country.
Inspired of the above obligations rather in a most favorable situation National Bank Ltd. have
been flourishing efficient and endeavoring to the maximum of efficiency of its capacity to
catch up with slow growing development of our country.
National Bank Ltd. is one of the largest private commercial bank, which provides its services
through almost 145 branches all over in Bangladesh. This bank is a reputed and leading one
in our banking sector for its performance. I am assigned to learn practical knowledge from
National Bank Lid, New Eskaton Branch. I covered all departments during the period in
my practical orientation and I try to portrait the area of organizational overview, performance
of general banking, foreign remittance activities and finance, credit management, conclusion
and recommendation.
The report has been prepared mainly based on secondary data, famishing by the National
Bank officials have also been incorporated in the report wherever it was considered necessary
to maintain the singleness and lucidity of the report. This report has been prepared on the
basis of experience gathered during the period of three months internship. Personal
experience gained by visiting different desks during internship period. The collected data are
taken from various sources which are mentioned in the below
3
1.5.1 Data Collection Method
Secondary Sources:
The major parts of information are collected from the secondary such as:
4
1.6 Limitations of the Study
It may agree to by the readers of the report that of such a report especially to enrich
with empirical findings, wherever necessary, is a time to consuming matter. As the report
prepared with a short span of time, the report could not be made comprehensive and
conclusive. Mainly the report could be made descriptive. Some usual constraints I did face
during the course of my investigation.
The main limitation of the study is availability of literature and data and in many
cases the up-to date information is not yet published. Even the Annual Report of 2010
in not yet published.
Time constraints impede me to make in depth study.
Entrance to every corner of the bank was not available sufficiently which can my
writing this paper.
I had to base on secondary data for preparing this report.
5
Chapter:2
Bangladesh economy has been experiencing a rapid growth since the 90s. Industrial and
agricultural development, international trade, inflow of expatriate Bangladeshi workers'
remittance local and foreign investments in construction, communication, power, food
processing and service enterprises ushered in an era of economic activities. Urbanization and
lifestyle changes concurrent with the economic development created a demand for banking
products and services to support the new initiatives as well as to canalize consumer
investments in a profitable manner. A group of highly acclaimed businessmen of the country
grouped together to responded to his need and established National Bank Limited in the year
1983.
National Bank Limited was established on 23rd March 1983 with authorized capital, TK. 100
million and paid up capital of TK, 80 million was subscribed by the sponsors/directors and
TK- 4 million was subscribed to the government. Remaining, TK. 36 million has been fully
subscribed by the public. The management of the Bank is vested in a board of directors
consisting of 21 members including the managing director of the Bank. Managing directors is
the chief executive of the Bank. The Bank carries of deposits, investment of funds, financing
of trades, businessmen, industrialists, Importers and exporters etc. The National Bank
Limited opened new branches eight during 1983, raising the total number branches 122 in
2009, total number of employees of the Bank was 242 in 1983 and increased to 2960 in 2009,
and during the short periods of its operation the Bank has made notable progress in various
activities.
NBL determined to bring back the long forgotten taste of banking services and flavors. NBL
want to serve each one promptly and with a sense of dedication and dignity. The then
President of the People's Republic of Bangladesh Justice Ahsanuddin Chowdhury in
angulated the bank formally on March 28, 19S3 but the first branch at 48, Dilkusha
Commercial Area, Dhaka started commercial operation on March 23, 1983. The 2nd Branch
was opened on 11th May 1983 at Khatungonj, Chittagong. At present; NBL has been carrying
6
on business through its 145 branches spread all over the country. Besides, the Bank has
drawing arrangement with 415 correspondents in 75 countries of the world as well as with 32
overseas Exchange Companies. NBL was the first domestic bank to established agency
arrangement with the world famous Western Union in order to facilitate quick and safe
remittance of the valuable foreign exchanges earned by the expatriate Bangladeshi nationals.
NBL was also the first among domestic banks to introduce international Master Card in
Bangladesh. In the meantime, NBL has also introduced the Visa Card and Power Card. The
Bank has in its use the latest information technology services of SWIFT and REUTERS.
NBL has been continuing its small credit programmed for disbursement of collateral free
agricultural loans among the poor farmers of Barindra area in Rajshahi district for improving
their lot. Alongside banking activities, NBL is actively involved in sports and games as well
as in various Socio-Cultural activities.
The Bank established extensive drawing arrangement network with Banks and Exchange
Companies located in important countries of the world. Expatriates Bangladeshi wage earners
residing in those countries can now easily remit their hard- earned money to the country with
confidence, safety and speed. The number of workforce of NBL stood at 2239, which include
1689 officers and executives' and 550 staff. Now NBL is on line to established trade and
communication with the NBL International banking companies of the world.
As a result NBL will be able to build a strong root in international banking horizon. Bank has
been drawing arrangement with well conversant money transfer service agency "Western
Union". It has a full time arrangement for speedy transfer of money all over the world.
Transparency and accountability of a financial institution is reflected in its Annual Report
containing its Balance Sheet and Profit and Loss Account. In recognition of this, NBL was
awarded Crest in 1999 and 2000, and Certificate of Appreciation by the Institute of Chartered
Accountants of Bangladesh.
With a strong sense in all business areas commercial banking, NBL could foresee tremendous
growth in home in homebound remittance form Bangladesh expatriates in USA and UK,
Middle East and different countries of the world. Consecutively NBL established a unique
money remittance system with Western Union of USA for inbound and outbound remittance.
7
National Bank Limited is one of the leading private commercial bank having a spread
network of 145 branches across Bangladesh and plans to open few more branches to cover
the important commercial areas in Dhaka, Chittagong, Sylhet and other areas in 2010.
National Bank Limited has been licensed by the Government of Bangladesh as a Scheduled
commercial bank in the private sector in pursuance of the policy of liberalization of banking
and financial services and facilities in Bangladesh. In view of the above, the Bank within a
period of 26 years of its operation achieved a remarkable success and met up capital
adequacy requirement of Bangladesh Bank.
National Bank Ltd is one of the leading banks which introduced first Credit Card in
Bangladesh. Our technology has been upgraded to manage the growth of the bank and meet
the demands of our customers. ATMs now allow customers to retrieve 24/7 hours cash
withdrawals. National Bank Limited is a customer oriented financial institution. It remains
dedicated to meet up with the ever growing expectations of the customer because at National
Bank, customer is always at the center.
National Bank Limited has its prosperous past, glorious present, prospective future and under
processing projects and activities. Established as the first private sector Bank fully owned by
Bangladeshi entrepreneurs, NBL has been flourishing as the largest private sector Bank with
the passage of time after facing many stress and Strain. The member of the board of directors
is creative businessman and leading industrialist of the country. To keep pace with time and
in harmony with national and international economic activities and for rendering all modem
services, NBL, as financial branches with computer network in accordance with the
competitive commercial demand of time. Moreover, considering its forth-coming future the
institution automated ail its infrastructure of the Bank has been rearranging Keeping the
target in mind NBL has taken preparation to open new branches by the year 2007. The
emergence of National Bank Limited in the private sector is an important event in the
Banking arena of Bangladesh. When the nation was in the grip of severe recession, Govt.
took the farsighted decision to allow in the private sector to revive the economy of the
country.
8
2.2 Corporate Information
9
Ensuring highest standard of clientele services through best application of latest information
technology making due contribution to the national economy and establishing ourselves
firmly at home and abroad as a front ranking bank of the country are our cherished vision.
Efforts for expansion of our activities at home and abroad by adding new dimensions to our
banking services are being continued unrelated Alongside, we are also putting highest
priority in ensuring transparency, accountability improved clientele service as well as to our
commitment to serve the society through which we want to get closer and closer to the people
of all strata. Winning an everlasting seat in the hearts of the people as a caring companion in
uplifting the national economic standard through continuous up gradation and diversification
of our clientele services in line with national and international requirements is the desired
goal we want to reach.
10
Ensuring highest use of the professional workforce through enhancement of their
aptitude and competence.
Responding to the need of the lime by participating in syndicated large loan financing
with like-minded Bank's of the country, thereby expanding the area of investment of
the Bank.
Elevating the image of the Bank at home and abroad by sustained expansion of its
activities.
To patronize, sponsor and encourage games and sports, entertainment and other socio-
economic activities, alongside providing the best services to the clients.
11
2.8 Branches of NBL
NBL which was started at Dilkusha Branch on March 23rd, 1983 was the first and major
private commercial Bank in Bangladesh operating throughout the country as well as the age
of The Bank is only 29 years. During tills period it has established total 145 branches over the
country and made a smooth network in side the country as well as throughout the world. My
working Branch, that is Elephant Road Branch is established in 1985. Recently the bank
establish its new branch named Rifles Square Branch in Rifles Square market, 80 Pilkhana,
Dhanmondi, Dhaka in June, 2010. And I physically present there in the branch opening day.
Financial
Administration Division Human Resource Division
International Division
Law & Recovery Division
13
Resident Foreign Currency Deposit (RECD).
14
CORPORATE SOCIAL RESPONSIBILITIES
Education:
National Bank Limited Foundation was established in 1983 for fulfilling responsibilities of
social welfare. It has been running the National Bank Public School and collage in
Moghbazar, Dhaka. In 2008, 53 students appeared at the SSC Examination and among them,
25 students achieved Golden A+ while 32 students appeared at the H.S.C examination out of
which 4 students achieved Golden A+. The bank has been accommodating prospective
graduates of recognized universities for completing their internship. NBL also awarded
stipend and scholarship to the brilliant children of the employees of the bank.
Other:
National Bank Limited has always maintained their corporate social
responsibilities in various ways. It has always appreciated various kinds of
fair, festivals and other gathering organized by different private or public
sectors. It also provides aid for the
development of sports in country
15
Chapter:3
3.1.1 For the purpose of these guidelines financial risk in banking organization is possibility
that the outcome of an action or event could bring up adverse impacts. Such outcomes could
either result in a direct loss of earnings / capital or may result in imposition of constraints on
bank’s ability to meet its business objectives. Such constraints pose a risk as these could
hinder a bank's ability to conduct its ongoing business or to take benefit of opportunities to
enhance its business.
3.1.2 Regardless of the sophistication of the measures, banks often distinguish between
expected and unexpected losses. Expected losses are those that the bank knows with
reasonable certainty will occur (e.g., the expected default rate of corporate loan portfolio or
credit card portfolio) and are typically reserved for in some manner. Unexpected losses are
those associated with unforeseen events (e.g. losses experienced by banks in the aftermath of
nuclear tests, Losses due to a sudden down turn in economy or falling interest rates). Banks
rely on their capital as a buffer to absorb such losses.
3.1.3 Risks are usually defined by the adverse impact on profitability of several distinct
sources of uncertainty. While the types and degree of risks an organization may be exposed to
depend upon a number of factors such as its size, complexity business activities, volume etc,
it is believed that generally the banks face Credit, Market, Liquidity, Operational,
Compliance / legal / regulatory and reputation risks. Before overarching these risk categories,
given below are some basics about risk Management and some guiding principles to manage
risks in banking organization.
16
3.2 Risk Management:
3.2.1 Risk Management is a discipline at the core of every financial institution and
encompasses all the activities that affect its risk profile. It involves identification,
measurement, monitoring and controlling risks to ensure that
3.2.2 The acceptance and management of financial risk is inherent to the business of banking
and banks’ roles as financial intermediaries. Risk management as commonly perceived does
not mean minimizing risk; rather the goal of risk management is to optimize risk-reward trade
-off. Notwithstanding the fact that banks are in the business of taking risk, it should be
recognized that an institution need not engage in business in a manner that unnecessarily
imposes risk upon it: nor it should absorb risk that can be transferred to other participants.
Rather it should accept those risks that are uniquely part of the array of bank’s services.
3.2.3 In every financial institution, risk management activities broadly take place
simultaneously at following different hierarchy levels.
b) Macro Level: It encompasses risk management within a business area or across business
lines. Generally the risk management activities performed by middle management or units
devoted to risk reviews fall into this category.
17
c) Micro Level: It involves ‘On-the-line’ risk management where risks are actually created.
This is the risk management activities performed by individuals who take risk on
organization’s behalf such as front office and loan origination functions. The risk
management in those areas is confined to following operational procedures and guidelines set
by management.
3.3.1 A risk management framework encompasses the scope of risks to be managed, the
process/systems and procedures to manage risk and the roles and responsibilities of
individuals involved in risk management. The framework should be comprehensive enough
to capture all risks a bank is exposed to and have flexibility to accommodate any change in
business activities. An effective risk management framework includes
a) Clearly defined risk management policies and procedures covering risk identification,
acceptance, measurement, monitoring, reporting and control.
18
individuals responsible for review function (Risk review, internal audit, compliance etc)
should be independent from risk taking units and report directly to board or senior
management who are also not involved in risk taking.
d) The framework should have a mechanism to ensure an ongoing review of systems, policies
and procedures for risk management and procedure to adopt changes.
Risks must not be viewed and assessed in isolation, not only because a single transaction
might have a number of risks but also one type of risk can trigger other risks. Since
interaction of various risks could result in diminution or increase in risk, the risk management
process should recognize and reflect risk interactions in all business activities as appropriate.
While assessing and managing risk the management should have an overall view of risks the
institution is exposed to. This requires having a structure in place to look at risk
interrelationships across the organization.
Until and unless risks are not assessed and measured it will not be possible to control risks.
Further a true assessment of risk gives management a clear view of institution’s standing and
helps in deciding future action plan. To adequately capture institutions risk exposure, risk
measurement should represent aggregate exposure of institution both risk type and business
line and encompass short run as well as long run impact on institution. To the maximum
possible extent institutions should establish systems / models that quantify their risk profile,
however, in some risk categories such as operational risk, quantification is quite difficult and
complex. Wherever it is not possible to quantify risks, qualitative measures should be
adopted to capture those risks. Whilst quantitative measurement systems support effective
19
decision-making, better measurement does not obviate the need for well-informed, qualitative
judgment. Consequently the importance of staff having relevant knowledge and expertise
cannot be undermined. Finally any risk measurement framework, especially those which
employ quantitative techniques/model, is only as good as its underlying assumptions, the
rigor and robustness of its analytical methodologies, the controls surrounding data inputs and
its appropriate application
CREDIT RISK
3.4.1 In a bank’s portfolio, losses stem from outright default due to inability or unwillingness
Compliance of
of a customer or counter
Profitability party to meet
Team Work commitments
Size of Business in relation to lending, trading,
Covenants/Condi settlement
Support
tion
and other financial transactions. Alternatively losses may result from reduction in portfolio
value due to actual or perceived deterioration in credit quality. Credit risk emanates from a
Personal
Coverage Industry Growth
bank’s dealing with individuals, corporate, financial institutions
Deposits or a sovereign. For most
banks, loans are the largest and most obvious source of credit risk; however, credit risk could
stem from activities both on and off balance sheet.
Market
Competition
20
Barriers to
Business
3.4.2 In addition to direct accounting loss, credit risk should be viewed in the context of
economic exposures. This encompasses opportunity costs, transaction costs and expenses
associated with a non-performing asset over and above the accounting loss.
3.4.3 Credit risk can be further sub-categorized on the basis of reasons of default.
For instance the default could be due to country in which there is exposure or problems in
settlement of a transaction.
3.4.4 Credit risk not necessarily occurs in isolation. The same source that endangers credit
risk for the institution may also expose it to other risk. For instance a bad portfolio may
attract liquidity problem.
3.6.1Credit Origination
Banks must operate within a sound and well-defined criteria for new credits as well as
the expansion of existing credits. Credits should be extended within the target markets
and lending strategy of the institution. Before allowing a credit facility, the bank must
make an assessment of risk profile of the customer/transaction. This may include,
21
e) The Proposed terms and conditions and covenants.
f) Adequacy and enforceability of collaterals.
g) Approval from appropriate authority.
In case of new relationships consideration should be given to the integrity and repute
of the borrowers or counter party as well as its legal capacity to assume the liability.
Prior to entering into any new credit relationship the banks must become familiar with
the borrower or counter party and be confident that they are dealing with individual or
organization of sound repute and credit worthiness. However, a bank must not grant
credit simply on the basis of the fact that the borrower is perceived to be highly
reputable i.e. name lending should be discouraged.
While structuring credit facilities institutions should appraise the amount and timing
of the cash flows as well as the financial position of the borrower and intended
Purpose of the funds. It is utmost important that due consideration should be given to
the risk reward trade –off in granting a credit facility and credit should be priced to
cover all embedded costs. Relevant terms and conditions should be laid down to
protect the institution’s interest.
Institutions have to make sure that the credit is used for the purpose it was borrowed.
Where the obligor has utilized funds for purposes not shown in the original proposal,
institutions should take steps to determine the implications on creditworthiness. In
case of corporate loans where borrower own group of companies such diligence
becomes more important. Institutions should classify such connected companies and
conduct credit assessment on consolidated/group basis.
In loan syndication, generally the lead institution does most of the credit assessment
and analysis. While such information is important, institutions should not over rely on
that. All syndicate participants should perform their own independent analysis and
review of syndicate terms.
Institution should not over rely on collaterals / covenant. Although the importance of
collaterals held against loan is beyond any doubt, yet these should be considered as a
22
buffer providing protection in case of default, primary focus should be on obligor’s
debt servicing ability and reputation in the market.
3.6.2Limit setting
Ongoing administration of the credit portfolio is an essential part of the credit process. Credit
administration function is basically a back office activity that support and control extension
and maintenance of credit. A typical credit administration unit performs following functions:
a. Documentation. It is the responsibility of credit administration to ensure completeness of
documentation (loan agreements, guarantees, transfer of title of collaterals etc) in accordance
with approved terms and conditions. Outstanding documents should be tracked and followed
up to ensure execution and receipt.
b. Credit Disbursement. The credit administration function should ensure that the loan
application has proper approval before entering facility limits into computer systems.
Disbursement should be effected only after completion of covenants, and receipt of collateral
holdings. In case of exceptions necessary approval should be obtained from competent
authorities.
23
c. Credit monitoring. After the loan is approved and draw down allowed, the loan should be
continuously watched over. These include keeping track of borrowers’ compliance with
credit terms, identifying early signs of irregularity, conducting periodic valuation of collateral
and monitoring timely repayments.
d. Loan Repayment. The obligors should be communicated ahead of time as and when the
principal/markup installment becomes due. Any exceptions such as non-payment or late
payment should be tagged and communicated to the management. Proper records and updates
should also be made after receipt.
e. Maintenance of Credit Files. Institutions should devise procedural guidelines and
standards for maintenance of credit files. The credit files not only include all correspondence
with the borrower but should also contain sufficient information necessary to assess financial
health of the borrower and its repayment performance. It need not mention that information
should be filed in organized way so that external / internal auditors or SBP inspector could
review it easily.
f. Collateral and Security Documents. Institutions should ensure that all security documents
are kept in a fireproof safe under dual control. Registers for documents should be maintained
to keep track of their movement. Procedures should also be established to track and review
relevant insurance coverage for certain facilities/collateral. Physical checks on security
documents should be conducted on a regular basis.
While in small Institutions it may not be cost effective to institute a separate credit
administrative set-up, it is important that in such institutions individuals performing sensitive
functions such as custody of key documents, wiring out funds, entering limits into system,
etc., should report to managers who are independent of business origination and credit
approval process.
24
Business Risk
Industry Characteristics
Competitive Position (e.g. marketing/technological edge)
Management
Financial Risk
Financial condition
Profitability
Capital Structure
Present and future Cash flows
25
xxiii) Cold storage finance Discouraged
xxiv) Financing Cement industries Discouraged
National Bank can financed any other activity under any credit nature, which will meet the
institution’s basic principles of safety, liquidity and spread, upholding, credit norms and
complying with the guideline/directives of the Central Bank/regulatory body.
26
3.6.5.3. Single Borrower/Group limits/Syndication:
National Bank Ltd. Peruses/will continue to peruse the policy of avoiding too much loan
concentration to a single borrower/ group in order to by pass possible threat in the event of
such advances turning sticky. In a bid to keep credit risk at the minimum level in respect of
large but prospective advance, National Bank Ltd. will prefer syndicated financing after
proper feasibility study.
National Bank Limited has been following strictly and will continue its lending operation, in
complete obedience to the guidelines circulated by Bangladesh Bank on single party exposure
limit to a borrower/group. National Bank Limited will not extend credit (Funded + non-
funded) for more than the percentage on capital of the bank, permitted by Bangladesh Bank
and will follow all modification, amendments, additions alterations that may be made by
Bangladesh Bank from time to time.
However, National Bank follows the following Guidelines of Bangladesh Bank on lending to
single borrower/group under one obligor.
27
Retail/Consumer(CCS) 10%
Agro Credit 5%
Work/Supply order (Contractual Finance) 5%
Others 5%
Total 100%
*The caps will be revised from time to time depending on the market conditions, shift in
Government Policy and National Bank’s credit focus.
3.6.5.5 Discouraged Business Types
While National Bank follows the policy of financing prospective, feasible & rewarding areas,
it has identified some areas as discouraged. Generally the following areas are discouraged for
financing:-
Military Equipment/Weapon Finance
High leveraged Transactions
Finance of speculative business
Logging, Mineral Extraction/Mining or other activity that is ethically or
environmentally sensitive.
Lending to companies listed on CIB black list or known defaulters
Counter parties in countries subject to UN sanctions
Share lending
Taking an equity stake in borrowers
Lending to holding companies
Bridge Loans relying on equity/ debt issuance as a source of repayment
New cold storage finance
Finance cements industries.
Nature of Advances:
Each advance made, has to be categorized under one of the arranged types and will be
governed under the terms & conditions related thereto.
28
Purpose:
NBL’s lending is guided by legitimate purpose. Financing for hoarding, speculative purpose
and which are utilized for degrading the character of the people is avoided. Credit which will
contribute to production, trade, commerce, import, export, development of Industry,
development activities/Economic growth, infrastructural development, employment
generation, poverty alleviation etc will be stressed.
Margin/Equity:
It is the general policy of the bank to judiciously ensure stake of the borrower in any
financing plan. Margin will however be subject to institutional policy in this regard and
central bank policy where applicable.
Mode of disbursement:
In disbursing credit the bank ensures for the purpose the loan has been sanctioned. Where
required visit of the business/site etc are suggested and all subsequent disbursements are
29
made conditional to full utilization of disbursed money in the preceding phase. In case of
disbursement of loan, money for acquisition of assets, payment is suggested after receipt of
the assets by the borrower. For commercial lending, storage of merchandise against which
facilities have been sanctioned is either in shop/show room or in go down. Against
LIM/pledge, go downsizing required stock is ensured.
Mode of Adjustment/Repayment:
For the borrower to exhibit capability to periodically adjust the drawing taken and as such to
have idea regarding the rationale for continuation of the facility, adjustment mode is given. In
term of lending, where revolving transaction is not allowed, adherence to adjustment
stipulation (month, quarterly, half yearly, yearly or other wise) is suggested to ensure
recovery of the loan disbursed. By perusing adherence/ non-adherence to the stipulated
adjustment mode, status of the advances, capability of the borrower, how the account to be
treated and course of action to be taken, etc are decided.
Security:
NBL mostly relies/will continue to rely on security based lending, taking into consideration,
the character of the borrower, nature of business cash flow, environmental, economic,
business and other influencing factors. In obtaining security primary and collateral security
are suggested. Primary securities are valued on the basis of landed cost in case on imported
goods/ex-mill or factory price/ whole sale market price for the local goods.
Validity/Expiry/Maximum tenor:
30
Validity/Expiry date for continuous credit is set at a period not exceeding 1 year, Short term
loan mostly is allowed for trade/ commerce. This expiry date is virtually the date for
adjustment/review of the facility, subject to periodical and satisfactory turn over of the limit.
Conduct of the business during the whole of validity period determines the fate of
continuation of the facility for the next period. Loan for short/medium/long term are also
sanctioned depending upon the requirement thereof and also on cash flow generation,
repayment capability and over all lending feasibility. Such loans are allowed for adjustment
in installments.
31
vii) Shipping documents as the lien against LC.
viii) Trust receipt (for LTR).
ix) Export documents-under lien (for LDBP/FDBP).
x) Export LC/ Contract under lien (for BTBL/C).
xi) Packing credit letter (for PC).
xii) Personal guarantee/corporate guarantee/cross-corporate guarantee.
xiii) Post dated cheques.
xiv) 1st /2nd charge/1st ranking pari passu charge on fixed and floating assets of the
limited companies financed.
xv) Bank obtains authorization to debit client’s account in order to keep policy in
force.
Quality of Security:
32
accepted as collateral, with out compromising with proper valuation proper title,
non-encumbrance sale possibility in requirement etc.
ix) RAJUK/KDA/CDA/other govt. authority owned property is mortgaged after
getting NOC of the owning authority for the allotee-mortgagor to mortgage the
property against advance is also obtained.
x) In syndicated financing mortgage is executed on the first ranking pari passu basis.
Valuation of collateral:
Insurance:
33
NBL having insurable interest on a property/ an asset obtains insurance policy as per norms
against credit facilities extended in order to protect the banks’ interest. Insurance policy is
taken covering all possible risks. Branches shall ensure that insurance policy is current and
renewed on a timely basis. Insurance shall be obtained from a reputed company.
a) Continuous monitoring by those who assigned the rating. The Relationship Managers
(RMs) generally have a close contact with the borrower and are expected to keep an eye on
the financial stability of the borrower. In the event of any deterioration the ratings are
immediately revised /reviewed.
b) Secondly the risk review functions of the bank or business lines also conduct periodical
review of ratings at the time of risk review of credit portfolio.
Risk ratings should be assigned at the inception of lending, and updated at least
annually. Institutions should, however, review ratings as and when adverse events
occur. A separate function independent of loan origination should review Risk ratings.
As part of portfolio monitoring, institutions should generate reports on credit
exposure by risk grade. Adequate trend and migration analysis should also be
conducted to identify any deterioration in credit quality. Institutions may establish
limits for risk grades to highlight concentration in particular rating bands. It is
important that the consistency and accuracy of ratings is examined periodically by a
function such as an independent credit review group.
For consumer lending, institutions may adopt credit-scoring models for processing
loan applications and monitoring credit quality. Institutions should apply the above
principles in the management of scoring models. Where the model is relatively new,
34
institutions should continue to subject credit applications to rigorous review until the
model has stabilized.
Credit risk monitoring refers to incessant monitoring of individual credits inclusive of Off-
Balance sheet exposures to obligors as well as overall credit portfolio of the bank. Banks
need to enunciate a system that enables them to monitor quality of the credit portfolio on day-
to-day basis and take remedial measures as and when any deterioration occurs. Such a system
would enable a bank to ascertain whether loans are being serviced as per facility terms, the
adequacy of provisions, the overall risk profile is within limits established by management
and compliance of regulatory limits. Establishing an efficient and effective credit monitoring
system would help senior management to monitor the overall quality of the total credit
portfolio and its trends. Consequently the management could fine tune or reassess its credit
strategy policy accordingly before encountering any major setback. The banks credit policy
should explicitly provide procedural guideline relating to credit risk monitoring. At the
minimum it should lay down procedure relating to,
a) The roles and responsibilities of individuals responsible for credit risk monitoring
b) The assessment procedures and analysis techniques (for individual loans & overall
portfolio).
c) The frequency of monitoring.
d) The periodic examination of collaterals and loan covenants.
e) The frequency of site visits.
f) The identification of any deterioration in any loan.
Given below are some key indicators that depict the credit quality of a loan:
a. Financial Position and Business Conditions. The most important aspect about an obligor
is its financial health, as it would determine its repayment capacity. Consequently institutions
need carefully watch financial standing of obligor. The Key financial performance indicators
on profitability, equity, leverage and liquidity should be analyzed. While making such
analysis due consideration should be given to business/industry risk, borrower’s position
within the industry and external factors such as economic condition, government policies, and
35
regulations. For companies whose financial position is dependent on key management
personnel and/or shareholders, for example, in small and medium enterprises, institutions
would need to pay particular attention to the assessment of the capability and capacity of the
management/shareholder(s).
b. Conduct of Accounts. In case of existing obligor the operation in the account would give
a fair idea about the quality of credit facility. Institutions should monitor the obligor’s
account activity, repayment history and instances of excesses over credit limits. For trade
financing, institutions should monitor cases of repeat extensions of due dates for trust receipts
and bills.
c. Loan Covenants. The obligor’s ability to adhere to negative pledges and financial
covenants stated in the loan agreement should be assessed, and any breach detected should be
addressed promptly.
d. Collateral valuation. Since the value of collateral could deteriorate resulting in unsecured
lending, banks need to reassess value of collaterals on periodic basis. The frequency of such
valuation is very subjective and depends upon nature of collaterals. For instance loan granted
against shares need revaluation on almost daily basis whereas if there is mortgage of a
residential property the revaluation may not be necessary as frequently. In case of credit
facilities secured against inventory or goods at the obligor’s premises, appropriate inspection
should be conducted to verify the existence and valuation of the collateral. And if such goods
are perishable or such that there value diminish rapidly (e.g. electronic parts/equipments),
additional precautionary measures should be taken.
External Rating and Market Price of securities such as TFCs purchased as a form of lending
or long-term investment should be monitored for any deterioration in credit rating of the
issuer, as well as large decline in market price. Adverse changes should trigger additional
effort to review the creditworthiness of the issuer.
36
reviews is to assess the credit administration process, the accuracy of credit rating and
overall quality of loan portfolio independent of relationship with the obligor.
Institutions should conduct credit review with updated information on the obligor’s
financial and business conditions, as well as conduct of account. Exceptions noted in
the credit monitoring process should also be evaluated for impact on the obligor’s
creditworthiness. Credit review should also be conducted on a consolidated group
basis to factor in the business connections among entities in a borrowing group.
For consumer loans, institutions may dispense with the need to perform credit review
for certain products. However, they should monitor and report credit exceptions and
deterioration.
The institution should establish a system that helps identify problem loan ahead of
time when there may be more options available for remedial measures. Once the loan
is identified as problem, it should be managed under a dedicated remedial process.
A bank’s credit risk policies should clearly set out how the bank will manage problem
credits. Banks differ on the methods and organization they use to manage problem
credits. Responsibility for such credits may be assigned to the originating business
function, a specialized workout section, or a combination of the two, depending upon
the size and nature of the credit and the reason for its problems. When a bank has
significant credit-related problems, it is important to segregate the workout function
from the credit origination function. The additional resources, expertise and more
concentrated focus of a specialized workout section normally improve collection
results
A problem loan management process encompass following basic elements:
37
a. Negotiation and follow-up. Proactive effort should be taken in dealing with obligors to
implement remedial plans, by maintaining frequent contact and internal records of follow-up
actions. Often rigorous efforts made at an early stage prevent institutions from litigations and
loan losses
c. Review of collateral and security document. Institutions have to ascertain the loan
recoverable amount by updating the values of available collateral with formal valuation.
Security documents should also be reviewed to ensure the completeness and enforceability of
contracts and collateral/guarantee.
d. Status Report and Review. Problem credits should be subject to more frequent review
and monitoring. The review should update the status and development of the loan accounts
and progress of the remedial plans. Progress made on problem loan should be reported to the
senior management.
38
Chapter: 4
4.1 Introduction:
Credit extension or lending is the principal business of a bank. Credit Constitute more than
60% of a banks asset and remain the main source of its income. But credit is also the most
risk bearing asset and if not managed prudently, it may cause server financial losses to the
bank. This conflicting characteristic of credit provides all the significance to credit
management. Strong and effective credit management is essential to ensure the financial
health of a bank. The dominant objective of credit management is to maximize profit within a
consistent framework of risk and credit discipline. Credit management involves credit
planning, credit policies, credit producer, credit administration, credit monitoring and credit
recovery.
The management of credit risk is central to a sound credit management process. The basic
principles a bank has to follow in its credit risk management are:
Selection.
Limitation.
Diversification.
4.2.1 Selection:
Selection of borrower is the most important aspects of credit risk management. The quality of
the credit portfolio of bank depends to a large extent on the quality of its borrowers. To judge
the quality of borrower the bank takes into a borrower the bank takes into consideration the
following.
Character (borrowers’ honesty, willingness and commitment to pay debts).
39
Capacity (the success of business).
Capital (financial condition).
Collateral.
Condition (economic).
4.2.2 Limitation:
A system of limits for different types and categories of lending have to be set. The essential
requirement is to establish maximization amount that may be loaned to any borrower or a
group of connected borrowers and to any one industry or type of industries. Lending limits
have been set taking the banks capital and resources into account.
4.3 Credit policy:
Lending guidelines should clearly outline the senior management’s view of business
development priorities and the term and condition that should be followed for loans to be
approved. The lending guidelines should provide the key foundations to formulate
recommendations for loan approval and should include the following:
The bank must undertake through credit and risk assessment before taking decision on loan
approval. For credit assessment the following should be taken into consideration.
40
Amount types of loan proposed
Purposed of loans
Loan structure (Tenor, repayment schedule, interest)
Security
Borrower analysis
Supplier/buyer analysis
Financial analysis
Financial performance
Account conduct
For the assessment the risk-grading manual of Bangladesh Bank should be followed.
The authority to sanction approves loans must be clearly delegated to senior executives by the
Chief Executive or the Board of Directors. Approval authority should preferably be delegated
to individual executives and not to committees to ensure accountability in approval process.
To minimize credit losses, monitoring procedures and systems should be in place that should
be in place that should provide an early indication of the deteriorating financial health of a
41
borrower. Strong credit monitoring system helps in identifying potential weakness of material
nature requiring closes supervision and attention of the management.
The bank should have a separate credit recovery unit, the primary functions of which including the
following:
Determine action plan/recovery strategy
Pursue all options to maximize recovery
Ensure adequate and timely loan loss provision based and expected losses.
Regular review of classified loans.
4.8.1 Safety:
Safety first is the main slogan of principle of good lending. While lending a banker must feel
certain that the money will definitely come back. The banker is to ensure that the money
advanced by him will be employed in a productive field and repaid with interest.
4.8.2 Liquidity:
Money will come back is not all? That must come back within a reasonable time or on
demand. Employment of funds for shirt-term requirements and not locked up in long term
schemes is desirable. The repayment through definite, but slow in coming back does not
serve the purpose of liquidity. Recovery of mortgage money of much higher value than
advance money through court process involving few years is safe but not liquid.
4.8.3Purpose:
The banker should ensure practicably that the borrower applies the money borrowed for a
particular purpose accordingly. Advances for personal expense, say, marriages, pleasure tours
42
or repayment of a previous outstanding debt are ordinarily refused by banks. Banks also
4.8.4 Profitability:
Banks must make profit to meet up the expenses of deposit interest, establishment, staff
salary, rent, stationery etc. and then make reserve or pay dividend to shareholders. After
considering all these factors a bank decides upon its lending rates. A particulars transaction
may not appear profitable in itself. But borrowers some ancillary business may be highly
remunerative to the lending bank. In this way, the transaction may on the whole be profitable
for the bank.
4.8.5 Security:
Banks lend out of borrowed money against security. Security serves as a safety valve for an
emergency. Apart from this character, capacity, and capital of the borrower are well looked
into when an advance is granted.
4.8.6 Spread:
Risk is always inherent in every advance. A successful banker is an expert in assessing such
risk. He is keen on spreading/ dispersing lending risks over a large number of borrowers,
industries, areas and different types of securities. For example, advancing against only one
industries and export-oriented industries are assuming greater importance than security.
43
4.9 Credit Processing With Special Reference to Credit Risk Management:
Credit Processing covers the tasks from receipt of application for credit along with all
required Papers/documents/information to evaluation/analysis of the application and
Preparation of the proposal for ultimate approval.
For banks, extension of credit basically is full of risks; Such as risks are to be managed
properly, in course of the whole process of credit approval. Credit risks are virtually, the
possibility that a borrower will fail to repay the debt within the maturity date of the loans/as
per terms of sanction. Credit risks arise from banks lending operation. Expansion of banks
lending operations today has increased the sphere of risks; addressing devices of risks are
therefore to be taken care of at every stage of credit decision.
Credit risks are so exhaustive that a single device cannot encompass all the risk. Moreover
lending to day has assumed such diverse nature, that newer techniques are to be applied to
effectively contain risks. With this end in view credit risks management has to be done in
order to enable the bank to manage loan portfolio in order to minimize losses. In the present
scenario of fast changing, dynamic global economy and the increasing pressure of
globalization, liberalization, consolidation and disintermediation, it is essential to under take
robust credit risks management policies and procedures, sensitive and responsive to these
changes.
In the initiation of credit processing the prospective borrower has to initially pass the
selection process/various steps-
44
4.10 Credit assessment:
A through credit and risk assessment is to be conducted before granting of loans, and once
approved all facilities are to be reviewed at least annually. Credit assessment should be
presented in a credit application duly singed/approved by the official of the branch.
In case an account deviates from the guidelines the same should be identified in credit
applications and the originating officials of the branch should provide justification for
approval. Bank will conduct financial analysis on a regular basis and monitor changes in the
financial condition.
The proposals are in proposal format that originates in the credit department of the branch
and is processed and approved by the head of branch/Regional Head/Head office
Management/Executive committee as per delegated authority. At the time of originating a
proposal accuracy of all information to be ensured. Originating officers shall follow credit
principles, credit policy and guidelines and conduct due diligence on new borrowers,
principals and guarantors. They will also adhere to the NBL, s established Know Your
Customer (KYC), Money Laundering guidelines, and Bangladesh Banks regulations. For
initiating credit relationship credit officer will call on the client, visit factory/business center
to see. Production facility/stock/storage pattern/business transaction/reputation etc and
through these, to assess possibilities of establishing a remunerative relationship. He/She will
also conduct due diligence to get market information on the borrower from industry sources,
competitors, local area. Branch Manager may also be part of this process. In this regard, if
required, the BM/Credit officer will also take help of head Office Engineer/HO personnel for
initial assessing credit needs of large borrowers.
Based on findings of such calls/visit/inspection, Credit Officer, along with the Branch
Manager, will initiate proposal, containing information on client’s background, business,
market share, integrity, credit exposure/existing banking relationships, and credit needs along
with pricing etc.
45
Before sending proposal to the approving authority, the originating official of the branch shall
ensure that the following step/formalities have been taken/completed properly and
incorporated in the credit proposal appropriately:
46
4.11 Risk assessment areas:
Full particulars of the proprietor, partners, Directors etc to be examined, their management
capacity to be ascertained. Overall performance and credit status of the allied concern of the
client i.e. group will be assessed. Lack of management capacity of the co. concentration of
the whole affairs of business is one hand and lack of initiative to create subsequent
management line, complicated ownership structures of inter group transactions shall be
addressed and related risks to be mitigated.
Before extending credit in an area, overall business conditions of that areas/sector will be
critically examined, prospects and problems to be accurately learnt. Demand and supply of
the concerned goods/services. Demand and supply gap contribution of the borrower in
meeting the gap, strength and weakness of the borrower and their competitors to be
accurately ascertained.
Sales concentration of the borrower, borrowers rating with competitors in terms of market
share, prevalence of substitute of the produced items in the market and barriers to entry into
the product line of the borrower to be properly identified.
47
4.11.5 Projected Financial Performance:
Where terms facilities (tenor more than 1 year) are proposed, borrower future/projected
financial performance should be provided, indicating an analysis of the sufficiency of cash
flow to service debt repayments. Loans should not be granted if projected cash flow is
insufficient to repay debts.
48
4.11.10 Security:
Our banks’ lending will generally be adequately securities. Securities to be obtained will be
acceptable, valuable, and easily marketable and defect less (in title). Valuation of security
will be properly assessed. Security will comprise primarily and collateral and will be
adequately insured (where applicable).
Credit proposals are generally originated at branch. However proposals may also be received
at head Office for syndication And also from big clients, Financial Institutions.
At the branch level, the officers/executives of credit department will have full knowledge of
the policy & procedures of credit operations. The credit officers/executives after obtaining
credit applications through Branch Manager along with all required papers/documents
ensures sufficiency and consistency of the papers/documents. They will originate credit
Proposals, prepare detailed credit memorandum after undertaking a through credit check and
conducting credit risk assessment of the clients in light of credit policy Guidelines of the
Bank. The fully documented Credit Memorandum (CM) will be placed to the Branch Credit
Committee by the in charge credit. Credit committee after thoroughly & critically examining
the proposal will recommend it to the Branch Manager who will approve credit under his
delegated authority. When the proposal falls beyond the power of the Branch Manager, the
Branch Manager will send it to the Regional Manager with his recommendation. Regional
Manager will get the proposal critically examined by the credit officers and recommended by
49
credit committee at Regional Office and will approve under his delegation of business power,
if the proposal is found approval worthy.
When the proposal falls beyond Regional Manager’s power he will send it to Head Office,
Credit Division. Division head, Credit will get credit and risk assessed by Credit officials.
The proposal being found acceptable will be placed to Head Office credit committee if the
proposal falls under the delegated authority of the Executive Committee, the proposal, having
been assessed by the credit Officers/Executives will be placed to the EC, through Divisional
Head, Credit DMD (credit) and the Managing Director, where the approval will be accorded.
If the proposal is not met the basic criteria as per CRM guidelines and banking norms, it will
be declined and Credit Operations Division will inform the decision to the branch
accordingly. Head Office credits Operations Division keep credits files under proper control
and use is restricted to authorized officials
50
Any declined credit will be represented to the next higher authority for re-
assessment/approval.
Branch Manager
Regional Office
Regional head
Managing Director
51
Credit Administration function will be critical in ensuring that proper documentation and
approval are in place in respect of disbursement of loan facilities. Credit Administration
functions will comprise the following:
4.13.1 Disbursement:
Getting approval.
Ensuring Completion of security documentation.
Ensuring adherence to the approved terms and other requirements before
disbursement by the Branch.
Ensuring Limit Creation and Complying with Disbursement Check List by Branch.
In order to administer credit in a proper manner under the present institutional and operation
set up, task of credit administration will be done in the following manner:
A copy of sanction letter will be sent by the credit sanctioning authority to HO Credit
Administration Division/Branch and Regional Office (as the case may be). Branch
credit Administration on receipt of the sanction letter will complete full
documentation and formalities as per terms of sanction and send compliance to HO
credit administration with a copy to Regional office along with a list of documents
obtained. For exception of full documentation, branch will mention in the compliance
certificate about the documentation, which could not be complete for genuine reasons
and request credit administration for allowing them to disburse, pending completion
of those documents with specific mention about time within which incomplete
documentation will be completed.
Head office credit administration will examine the sufficiency of the documentation.
If documentation is found to have not been properly done, HO credit administration
will advise the branch to complete full documentation and confirm and disburse credit
after completion of documentation. Where branch seeks permission for disbursement
keeping some documents incomplete. HO Credit Administration Division if considers
Such exception acceptable, will issue authorization to disburse with the condition to
complete incomplete documentation within specific time limit.
52
Branch credit administration will keep the documentations under their strict
preferably in locked fireproof storage and will that all the term of approval has been
complied where against drawing will be allowed.
Before disbursement of the approved facilities, branch Credit Administration shall ensure that
the following steps has been properly followed:
4.13.3 Custodian:
53
Release of collateral of debt obligation instruments has been made under appropriate
approval.
Insurance requirements are detailed in the credit proposal and policy kept in the vault.
Insurance policy is current and renewed on a timely basis.
All 3rd party service providers like values, lawyers, CPA’s etc shall be approved and
their performance reviewed on annual basis.
To minimize credit losses, monitoring procedures and system should be reinforced and more
system should be developed in view of varied complexities involved in various types of
credit. The procedures and system must provide early indication of deteriorating financial
health of a borrower.
At a minimum, report on the following to be generated and submitted to management and
branch to be instructed regularize the same.
54
Non-payment and late payment.
Non-Receipt of Financial Statements in time (Annually).
Objections of internal/external or regulator Inspection/Audit and advice corrective
measures timely.
Details of Early Alert Accounts and preparation of list of delinquent account and
special mention account (SMA). (Monthly).
Identification of early alert accounts, delinquent account and special mention account
(SMA). (Monthly).
Identification of the account, which shall be SMA status due to non-renewal.
(Monthly).
Listing of the accounts, which shall be SMA if not renewed with in 3 month and
taking necessary measures.(Monthly).
Ensuring renewal of limits 2 months ahead of expiry dates.
Entering all credit facility amount into MIS database.
The main function of a Commercial Bank are two,(1) to take deposits and(2) to make
advance. Making of advance is the most important function of a Bank as upon it depends the
profitability of the bank. Moreover, Bank make advance out of deposit of the public which
are payable on demand. A Commercial Bank makes advance to different sectors for different
purposes. I.e. financing of Trade and Commerce, imports and exports, Industries, Agriculture,
Transport, and House-Building etc. Advance by Commercial Banks are made in different
forms such as Loans, Overdrafts, Cash Credits.
55
4.14.1 LOAN:
When an advance is made in a lump sum repayable either in fixed monthly installments or in
lump sum and subsequent debit is ordinarily allowed expected by way in interest and
incidental charges, etc.it is called a loan.
Loan is allowed for a single purpose where the entire amount may be required
at a time or in a number of installments within a period of short span.
After disbursement of the entire loan amount, there will be only repayment by
the borrower. A Loan, once repaid in full or in part, cannot be drawn again by
the borrower.
Entire amount of loan is debited to the loan A/c in the name of the of the
customer and is paid to him through his SB/CD/A/c. Some times loan amount
is disbursed in cash.
Commercial Banks generally make loans for the following purpose:
For purchasing Bus, Trucks, Launches and ships, for construction of house
and building for capital financing of Industrial projects etc.
Depending upon the purpose, loans may be repayable within a few months or
the repayment period may extend up to a few years.
56
mortgage of real estate and hypothecation of crops, vehicles, machineries etc,
depending upon the nature and purpose of the loan.
4.14.2 Overdraft:
The overdrafts are always allowed on a Current A/c operated upon by cheques. The customer
may be allowed a certain limit up to which he can overdraw within a stipulated period of
time. In an overdraft A/c withdrawals and deposits can be made any number of times within
the limit and prescribed period. Interest is calculated and charged only on the actual debit
balances on a daily product basis.
SOD: When Overdrafts are allowed against securities they are called secured Overdrafts.
Overdrafts are generally to contractors and supplier for carrying on construction works and
supply orders and to businessmen for their business
.
Cash Credit is allowed to the businessmen, traders and industrialists etc. For meeting their
working capital requirements, Cash Credit is always allowed against hypothecation or pledge
of goods. Hence, Cash Credit is two types:
57
4.12.3.1 Cash Credit (HYPO):
Cash Credit allowed against hypothecation of goods is known as Cash Credit (HYPO) limit.
In case of hypothecation, the borrower retains the ownership and possession of goods on
which charge of the lending bank is created. Holden says, Hypothecation is a legal
transaction, whereby goods may be made available as security for debit without transferring
either the property or the possession to the lender. The documents, which creates charge of
the lending Bank on the hypothecated goods, is called letter of hypothecation. By singing this
letter of hypothecation, the borrower binds him to give possession of the hypothecated goods
to the lending Bank when called upon to do so. As the hypothecated goods remain under the
possession of the borrower, such advance is more or less clean.
As such the banker should taken the following precautions:
The Banker should carefully verify the stocks of hypothecated goods and their market
price.
Periodical statement of stock duly signed by the borrower should be obtained.
Stock should be duly insured against fire burglary R.S.D with Bank clause.
Banker should try to obtain sufficient collateral security.
The borrower should be trustworthy and prudent customer.
The goods are readily saleable and have good demand in the market.
The price of the goods, offered as security, is to be calculated as per following
principle-Purchase price or market price whichever is lower.
The price of the goods is steady.
Cash Credit Allowed against pledge of goods is known as cash credit (pledge) limit. In case
of cash credit (pledge) limit, the borrower pledges his goods to the Bankers as a security
against the credit facility; pledge has been defined as “ a bailment of goods as security for
payment of a debt or performance of a promise”. The ownership of the pledge goods remains
with the pledged.
58
Banks retain the effective control of the pledge goods. Pledged goods may be stored in
godown of the borrower but under lock and key of the bank. Bank’s guards are posted round
the clock to protect the godown. Sometimes, pledge goods are stored in Bank’s godown.
Banks makes delivery of the pledge goods to the party against payment.
Following points should be taken into consideration while allowing Cash Credit (pledge)
limit.
The quantity of the goods is ascertained.
The goods are readily salable and have a constant and effective demand in the market.
The quantity of the goods is ensured, the goods are not perishable and will not
deteriorate and quality as a result for long or short duration.
Goods are stored in pucca godown to save them from deterioration and to guard them
against risks of pilferage.
The borrower has an absolute title to the goods.
The prices of the goods should be steady and are not subject to violent changes.
The valuation of the goods should be made very carefully. “Purchase price or market
price whichever is lower”-is the general principle for assessing the valuation of the
goods.
The goods should be stored in the presence of a responsible bank official.
The goods are insured against all risks, such as fire, theft R.S.D. etc and the insurance
policy bears “Bank Mortgage Clause”.
The stocks report is obtained duly singed by the borrower.
Stocks must be inspected regularly by the branch- in-charge.
59
4.16 Introduction and preparation of credit risk grading (CRG):
60
charge and document it as per Credit Risk Grading Form as, which shall then be
concurred by the authorized approving official of the branch.
All credit proposals whether new; renewal, Enhancement, Rescheduling cases or
specific facility should consist of a) Data Collection Checklist, b) Limit Utilization
Form. c) Credit Risk Grading Score Sheet and d) Credit Risk Grading Form.
The credit officers then would pass the approved Credit Risk Grading Form to Credit
Administration Department for updating their MIS/record.
The following is the proposed Credit Risk Grade matrix based on the total score
obtained by an obligor.
61
Number Risk Grading Short Name Review frequency(at least)
1 Superior SUP Annually
2 Good GD Annually
3 Acceptable ACCPT Annually
4 Marginal/Watch list MG/WL Half yearly
5 Special Mention SM Quarterly
6 Sub-standard SS Quarterly
7 Doubtful DF Quarterly
8 Bad-Debt BL Quarterly
CRG helps:
Promote banks safety and soundness.
Measure credit risks.
Management monitor change and trend in risk level.
Management manages risk to optimize return.
Use of Credit Risk Grading:
CRG allows application of Uniform Standards to Credits.
Obligor-Level Analysis (CRG output is used)
Credit selection and pricing.
Monitoring and internal MIS and assessing the aggregate risk profile of a Bank.
62
Major document deficiency prevails (such deficiencies include but not limited to;
board resolution for borrowing not obtained, sanction letter not accepted by client,
charges/hypothecation over assets favoring bank not filed with Register of Joint Stock
Companies, mortgage not in place, guarantees not obtained, etc.)
A significant petition or claim is lodged against the borrower.
Reporting of EWS accounts: The Credit Risk Grading Form of accounts having
Early Warning Signals should be completely by the credit officer of the branch and
sent to the branch approving authority. The Credit Risk Grade should be updated as
soon as possible and no delay should be there in referring Early Warning Signal
accounts or any problem accounts to the Credit Administration Division, Head Office.
Branch hall report also Credit Administration Division, HO, and Particulars of Early
Warning Accounts HO Credit Administration Division will also identify accounts
with Early Warning Signals, report to the higher authority, monitor such accounts,
advise the branch suitability to improve status of such accounts.
63
Ensure completion of CRG Form for all the accounts having Early Warning Signals.
Prepare financials preferably form audited Accounts.
Ensure calculation of financial ratios correctly.
Compute parameters of different components of business/Industry risk.
Assess grading Score objectively (where applicable).
Ensure that Risk Grading is shown in the first page of proposal.
Ensure matching of security risk with sanction advice and documentation.
Ensure proper understanding by the originating officer of relationship Risk.
Prepare financials on the basis of latest financial statements.
Complete prescribed format in preparing comprehensive MIS on risk grading.
Data Collection Checklist & Limit Utilization Form should be used uniformly.
For considering proposal of a client under any group CRG shall have to be done on the group
instead of the concerned unit only. In case a borrower has sister concern than sister concern’s
CRG shall have to be done also.
Monitoring should be in place to ensure that risk factors are evaluated and weighted very
carefully, on the basis of most up-to-sate and reliable data and complete objectivity must be
ensured to assign the correct grading. Careful assessment should be done after receiving all
the required information and actual parameters that deserves by the account should be
inputted in the Credit Risk Grading Score Sheet.
64
Quality of management based on total # of years of experience of the senior
management in the Industry, but how many management?
Lack of data bank to ascertain the Industry growth, Business outlook, market
competition accurately.
Security Risk is not a Credit risk.
CRG does not fully cover the security risk parameter for all cases.
Camouflage/Windedness of Financial Statement.
Most of the entrepreneurs are not aware about financial statement.
Although some problems have been occurred in CRG but also CRG is a best key
measurement process of a bank’s assets quality.
65
4.22 Comparative study among loan (G), cash credit and over-draft
66
Chapter: 5
Money at Call & Short decreased to Tk. 1359.80 million as at December 2009 as against Tk.
3089.90 million reported as on 2008.
Investment increased by 34.50 percent to Tk. 12315.20 million as at December 2009 over the
previous year. The growth is due to mainly purchase of Government Treasury Bills,
Debentures, investment in secondary share portfolio.
67
Application of Fund (%)
1.88
2.4
1.48
10.14 Loan & advance
Investment
13.37 Cash & Bank balance
Call loan
Fixed asset
Other asset
70.73
Source of Fund (% )
5.2 3.09
1.68 6.59
Paid up Capital
Reserve & Surplus
Deposits & Other Account
Borrow ings
Other Liabilities
83.44
Capital:
NBL has a consistent dividend policy. In line with that Stock Dividend of 52 percent was
declared for the ear 2008 which strengthened paid-up capital base and it stood at Tk.
2,846.53 million 2009 against authorized capital of 7450.00 million. The statutory reserve
enhanced by 35.95 percent to Tk. 2418.37 million in 2009 after transferring 20 percent on
pre-tax profit while it was Tk. 1778.87 million in 2008. at the end of 2009 shareholder’s
equity increased by 45.55 percent to Tk. 8916.76 million from Tk. 6126.27 million of
2008.
68
Capital (Taka in million)
7450
6070
4208.5
3360.2
2846.5
2463.8
Authorised capital
2115
1872.7
2450
2450
2450
Paid up capital
1280.2
619.59
805.47
1000
Deposit:
The deposit base of the bank registered a growth of 27.66 percent in the reporting year over
the last year and stood at Tk. 76838.64 million. Expanded branch network, innovative deposit
products including NMS and NDS attracted a huge number of customers, which contributed
to the growth of deposit. The main customers include individuals, government and
autonomous bodies, etc
69
Deposit Mix
Term deposits,
17023.62, 22%
Fixed deposits,
31621.55, 41%
Investment:
The bank’s investment grew by 34.50 percent and stood at Tk.12315.20 million in 2009
against Tk.9156.61 million in the previous year. It mostly invested in high yield long-
term government securities to cover the increased statuary liquidity ratio (SLR)
requirement arising from the growth of deposit liabilities
NBL Designed appropriate credit risk management criteria and strategies for balance leading
mix commensurate with sound capacity to finance in the short and the long-term credit.
Deposit of slower growth in business s during 2009 due to global crisis significant
70
improvement has made second half of the year. Loans and advances grew by 28.55 percent
and stood at Tk. 65129.29 million in 2009 compared to Tk. 50.665.07 million of 2008. The
growth was due to injecting significant amount of fund in new ventures of Syndication loan,
Project loan, and Lease finance specially, SME and Agri loan.
65129.29
49665.51
36475.74
32709.68
27020.21
110.94
10317.93 Agriculture
Export Credit
265.09 5028.79
Trade f inance
58.88
Consumer credit
22558.9 Credit Card
Others
71
NBL generated profit before provision of Tk. 3397.70 million in 2009 which was Tk.
3123.82 million in 2008 registering a growth of 8.77 percent. Net profit after tax grew by
36.45 percent to Tk. 2070.47 million in 2009 after making provision for loan loss and income
tax for Tk. 200.00 million and Tk. 1150.00 million respectively.
2070.47
1517.43
1238.11
507.49
271.67
Liabilities:
Sources of Fund %
6.59
3.09
5.2
1.68 Deposits
Borrow ings
Other liabilities
Paid up capital
Reserve & surplus
83.44
72
Five years Financial Summary Of NBL:
2005 2006 2007 2008 2009
Income Statement
Interest Income 2512.17 3674.32 4288.80 5786.71 6821.40
Interest Expense 1897.83 2449.76 2833.45 3594.84 4490.34
Non-Interest Income 1690.32 2054.48 2893.83 3106.36 4184.75
Non-Interest Expense 1453.34 2132.26 2134.08 2174.40 3118.11
Profit Before Tax and Provision 851.32 1146.78 2215.10 3123.83 3397.70
Profit After Tax 271.67 507.49 1238.11 1517.43 2070.47
Balance Sheet
Authorized Capital 1000.00 2450.00 2450.00 2450.00 7450.00
Paid-up Capital 619.59 805.47 1208.20 1872.72 2846.54
Reserve Fund & Surplus 2115.02 2468.78 3360.19 4253.55 6070.22
Total Shareholders Equity 2734.61 3274.25 4568.39 6129.27 8916.76
Deposits 32984.06 40350.87 47961.22 60187.89 76838.64
Loan & Advances 27020.21 32709.68 36475.74 50665.07 65129.29
Investments 3564.82 6239.83 7760.38 9156.61 12315.20
Fixed Assets 1431.23 1627.29 1842.28 1981.61 2200.86
Total Assets 38400.37 46796.04 56526.96 72205.50 92084.79
Off Balance Sheet Exposure 16645.75 19737.75 26801.07 22305.07 30089.0
3
Foreign Exchange Business
Import 31648.20 42458.50 62759.00 78226.32 77539.77
Export 21344.10 28019.20 31824.00 36284.44 38398.85
Remittance 13618.20 21353.90 27560.80 39877.80 44381.50
Regulatory Capital Measures
Total Risk Weighted Assets 25598.13 32055.71 35940.79 48562.76 67281.91
Core Capital (Tire I) 1996.41 2503.90 3742.01 5259.45 7329.92
Supplementary Capital (Tire II) 661.61 733.91 969.46 1259.69 1794.70
Total Capital
Tire I Capital Ratio 7.87% 7.81% 10.41% 10.83% 10.89%
Tire II Capital Ratio 2.58% 2.29% 2.70% 2.59% 2.67%
Total Capital Adequacy Ratio 10.45% 10.10% 13.11% 13.42% 13.56%
Credit Quality
Provision for Unclassified Loans 251.13 307.43 514.91 784.91 959.91
Provision for Classified loans 716.07 854.18 947.74 1121.76 1195.86
Share Information
No of Shareholders 9568 10248 14003 24296 36467
No of Shares Outstanding (million) 6.20 8.05 12.08 18.73 28.47
Earning Per Share
Basic 43.85 63.01 66.11 53.31 72.74
Diluted - - - - -
Dividend per Share - - - - -
Cash - - - - -
Stock 30% 50% 55% 52% 55%
Effective Dividend Ratio 26.56% 56.50% 48.08% 29.46% 42.81%
Market Price Per Share (Taka) 746.50 760.50 1494.00 1014.25 646.25
Market Capitalization 4625.24 6125.60 18050.51 18994.06 18395.76
Price earning ration (Times) 17.02 12.07 22.60 19.03 8.88
Net Assets Value Per Share (Taka) 441.36 406.50 378.12 327.13 131.25
Other Information
Number of Branches (Including SME 76 91 101 106 131
Centers)
Number of Employees 2183 2270 2432 2737 2960
Number of Foreign Correspondents 391 400 405 405 415
Ratings:
Long Term N/A A2 A1 A1 A1
Short Term N/A ST-2 ST-2 ST-2 ST-2
73
Ratio Analysis:
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated
quotient of two mathematical impressions and as the relationship between two or more
things. In financial analysis, a ratio is used as benchmark for evaluating the financial position
and performance of a firm. We are describing some ratios for the measurement of the
performance of the bank.
Profitability Ratio:
Profitability ratios are used to assess a business' ability to generate earnings as compared
to expenses over a specified time period. These tutorials define the ratios and walk you
through the calculations, including where on the financial statements the numbers can be
found.
The rate of return on equity is a good condition last five years. ROE indicates the rate of
return on equity capital. Generally bank stockholders prefer ROE to be high. Here, ROE is
increased last four years, but last year’s ROE indicates lower than previous year. It is
possible, however, that an increase in ROE indicates increased bank’s equity ratio.
74
ROE of NBL were Changes in the year, 2006, 2007, 2008 & 2009 respectively. ROE has
been increased as Net Income of the Bank has been increased over the years.
Return on Asset
The rate of return on assets (ROA) measures the ability of management to utilize the real and
financial resources of the bank to generate returns. ROA is most commonly used to evaluate
bank management.
From the table we can see that ROA of NBL has been increased over the year from
2005 to 2009. Both ROA and TA of NBL over the last five years.
Net profit margin ratio establishes a relationship between net income and operating income
that indicates management efficiency in providing services, administrating and selling the
75
product. It reminds us that bank can increase their earnings and their returns to their
stockholders by successfully controlling expenses and maximizing revenues.
Cost of Deposit has been increased due to the tough competition between private banks.
76
2005 1690.32-1453.34 38400.3 0.62% -------
7
2006 2054.48-2132.26 46796.0 (0.17%) (0.45%)
4
2007 2893.83-2134.08 56526.9 1.34% 1.17%
6
2008 3106.36-2174.40 72205.5 1.29% (0.05%)
0
2009 4184.75-3118.11 92084.0 1.16% (0.13%)
3
The net non-interest income margin (NOM) as the difference between non-interest income
received (OR) and non-interest income paid
EPS (Earning per share) = Net Income after tax/ No. Of shares outstanding
77
Year Net Income No. of EPS Change
After Tax Share s (%)
Outstandin
g
2005 271.67 6.20 43.82 -------
2006 507.49 8.05 63.04 19.22
We can see from the table that EPS of NBL has increasing since 2006 and. EPS indicates
profit of the bank.
Asset Utilization:
The asset utilization ratio represents the ability of management to employ asset effectively to
generate revenue. The more income generated per Taka of assets, the more profitable is the
bank.
Asset Utilization = Total Operating Income/ Total Asset*100
The bank has shown a very slight decrease in its ability to use its assets for generating
income. The decrease is too small to influence tha bank's financial performance
Liquidity Ratio:
78
A liquid asset is one that can be easily converted to cash without significant loss of its
original value. Converting assets, especially current assets such as inventory and receivables,
to cash is the primary means by which a firm obtains the funds needed to pay its current bills.
Therefore, a firms “liquid position” deals with the question of how well the firm is able to
meet its current obligation.
Liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the
market to prevent a loss (or make the required profit).
Current Ratio:
The formula of current ratio is:
Current Ratio =Current Assets/Current Liability
80
2006 32709.68 40350.87 81.06% (0.86%)
2007 36475.74 47961.22 76.05% (5.01%)
From the table we can see that Loans and Advances Ratio of the bank has been increasing
and decreasing. As bank generate its major portion of income from interest income. So, bank
generates its major portion of income from interest income.
Deposit to capital ratio of NBL has been decreasing over the years. It was 19.97 times in the
year 2004 and 11.37 times in the year 2008. That means the deposit of the bank has been
decreasing much more than its equity capital.
81
6.1 Analysis and Interpretation:
In this section, I would like to show some important factors that I consider as Part-I:
Performance of loan of National Bank Limited, Part-II: Provision for Loan and advances,
Part-III: Geo-graphical location wise Loan & Advances inside Bangladesh.
The aim of this section is to find out loan position among them. To achieve my objectives I
would like to present the Loan Disbursement amount, amount of Performing and non-
performing loan along with their percentage. I used historical data from 2006 to 2010(up to
Sep) from the statements of the Bank provided to Bangladesh Bank monthly and half yearly.
Here I also try to present the different % of provision of loan and advances which are almost
fixed every time. In the 3rd part, there are the amount of loan and advances based on the geo-
graphical location inside the country.
82
Comment
The overall loan performance of National Bank Limited can be easily viewed from the above
chart. From the chart we can see that, the amount of disbursed loan is increasing significantly
from year to year. We can also see that the amount of non-performing loan is quite lower than
the amount of performing loan. That means the bank is performing well.
83
Part-II: Provision for Loan and advances:
Business Unit Rates of Provisions
UC SME SS DF BL
House Building & Professional 2% 5% 20% 50% 100%
Other than House Building & Professional 1% 5% 20% 50% 100%
Small & Medium Enterprise 1% 5% 20% 50% 100%
All Others 1% 5% 20% 50% 100%
Comment:
Provision against the classified loan and advances is made on the basis of periodical review
by the management and instruction contained in BCD Circular No.12.
4000
3500
3000
Dhaka Division
2500 Chittagong Division
2000 Khulna Division
500
0
2006 2007 2008 2009
Comment
The above graph represents the amount of loans and advances disbursed inside the country.
Here we can see that the amount of disbursed loans and advances is increasing in all districts
over the year. This represents the enhanced activity of the bank.
Part-IV: Loan Loss Provision
(Amount in Crore Tk)
year Loan loss provision
Required Available Shortfall/Excess
84
amount in hand
2005 89.33 96.40 7.07
2006 80.90 107.83 26.93
2007 103.24 135.63 32.39
2008 144.36 151.37 7.01
2009 187.09 196.66 9.57
Comment
In the year 2007, the amount of loan loss provision is highest than other years. The highest
amount indicates that the amount is the part of profit and they are more capable to face the
probable risks in 2007. Even this reserve is idle money for the bank; this amount should be
kept as the recommendation of Bangladesh Bank.
85
6.2 CAMEL rating and composite analysis
Assessment of NBL performance by calculating camel rating from hypnotically information
of a bank.
Capital & reserved Amount TK in million
Provision shortfall 514.91
Adjusted capital 2450.0
Total deposit 47961.22
Classified loan 947.74
Total loan 36475.74
Total asset 56526.96
Net income 1238.11
Liquid asset 4469.57
Total RWA 123890
86
Basically sound in every respect
Resistant to external economic and financial disturbances.
No causes of supervisory concern.
• Composite 2 Rating
Fundamentally sound.
Finding of minor nature can be handled routinely.
Resist business fluctuation.
Supervisory concerns are limited.
• Composite 3 Rating
• Composite 4 Rating
• Composite 5 Rating
Immediate or near term probability of failure.
Severity of weakness is so critical that urgent aid from stockholder or other financial
source is necessary.
Without immediate corrective action will likely require liquidation
Chapter: 6
87
SWOT Analysis of The National Bank Limited
6.1 Strengths:
National Bank Limited has already established a favorable reputation in the banking
industry of the country. It is one of the leading private sector commercial banks in
Bangladesh. The bank has already shown a tremendous growth in the profits and
deposits sector.
National Bank Limited has already achieved a high growth rate accompanied by an
impressive profit growth rate in 2008. The number of deposits and the loans and
advances are also increasing rapidly.
National Bank has the reputation of being the provider of good quality services too
its, potential customers.
6.2 Weakness:
The main important thing is that the bank has no clear mission statement and strategic
plan. The banks not have any long-term strategies of whether it wants to focus on
retail banking or become a corporate bank. The path of the future should be
determined now with a strong feasible strategic plan.
The bank failed to provide a strong quality-recruitment policy in the lower and some
mid level position. As a result the services of the bank seem to be Deus in the present
days.
88
The poor service quality has become a major problem for the bank. The quality of the
service at National Bank is not higher than the Dhaka Bank, Prime Bank or Dutch
Bangla Bank etc. So the bank has to compete with the multinational Bank located
here.
Some of the job in National Bank has no growth or advisement path. So lack of
motivation exists in persons filling those positions. This is a weakness of National
Bank that it is having a group of unsatisfied employees.
In terms of promotional sector, National Bank has to more emphasize on that. They
have to follow aggressive marketing campaign.
6.3 Opportunity:
In order to reduce the business risk, National Bank has to expand their business
portfolio. The management can consider options of starting merchant banking or
diversify into leasing and insurance sector.
The activity in the secondary financial market has direct impact on the primary
financial market. Banks operate in the primary financial market. Investment in the
secondary market governs the national economic activity. Activity in the national
economy controls the business of the bank.
Opportunity in retail banking lies in the fact that the countries increased population is
gradually learning to adopt consumer finance. The bulk of our population is middle
class. Deferent types of retail lending products have great appeal to this class. So a
wide variety of retail lending products has a very large and easily pregnable market.
A large number of private banks coming into the market in the recent time. In this
competitive environment National Bank must expand its product line to enhance its
sustainable competitive advantage. In that product line, they can introduce the ATM
to compete with the local and the foreign bank. They can introduce credit card and
debit card system for their potential customer.
89
In addition of those things, National Bank can introduce special corporate scheme for
the corporate customer or officer who have an income level higher form the service
holed. At the same time, they can introduce scheme or loan for various service
holders. And the scheme should be separate according to the professions, such as
engineers, lawyers, doctors, etc.
6.4 Threats:
All sustain multinational banks and upcoming foreign, private banks posse's
enormous threats to National Bank Limited. If that happens the intensity of
competition will rise further and banks will have to develop strategies to compete
against an on slough of foreign the banks.
The default risks of all terms of loan have to be minimizing in order to sustain in the
financial market. Because default risk leads the organization towards to bankrupt.
National Bank has to remain vigilant about this problem so that proactive strategies
are talent to minimize this problem if not elimination.
The low compensation package of the employees from mid level to lower level
position threats the employee motivation. As a result, good quality employees leave
the organization and it effects the organization as a whole.
Chapter: 7
90
Findings & Recommendation
National Bank Limited is committed to extend high quality services to its clients through
different financial products and profitable utilization of fund by undertaking various lending
operations including financing trade, commerce and industry etc. In conducting lending
operations NBL always bears in mind the essence of proper risk identification and their
effective management. It is also recognized that failure in proper identification and
management of risks may result in a large quantum of bank advances turning into non-
performing.
In the back drop, National Bank Limited underscoring the need of an effective credit risk
management process which is going to provide effective policy guidelines for Credit Risk
Management. I have found that the credit policy is being reviewed annually by the Board of
Directors and it is distributed to the concerned officials, all divisional Heads, Branches,
Regional Offices and top management formally. NBL also ensured that the policy is being
implemented by all levels with strict rigidity. Any deviation from the guidelines to be clearly
identified and justification for approval would have to be provided with detail clarification.
91
Bank provide loan are- Trade Finance, Overdrafts, Consumer Loan, SME Loan and Lease
Financing. Through out my study I found that Branches have power to disburse any loan to
the applicants within the sanction provided by the branch itself or the regional office or the
head office. Branches can disburse loan to the applicant at any time after the approval of
sanction. Most of the loans and advances are provided for trading and commerce. About 45
percent of the total loan is disbursed to this sector.
92
interest. Goods and machinery (for industry) taken as primary security are also insured. It
also provides loans against collateral security. I found that most of the loan in Dhaka city and
adjacent area to Dhaka is distributed as cash credit (CC) and security overdraft (SOD) by
taking primary and collateral security.
93
National Bank has achieved many awards for positive performance, still now it is doing some
laudable tasks for the society as well as for its own. But it is not out of limitation. There are
some limitations I found to remark which are as follows:
Inclusion of Independent Director in the audit committee has not been done yet.
Intensify of recovery of past due loan and initiate early warning reports for loan
shows deteriorating condition.
In the Head Office I found, the environment is not suitable for working in long time.
Credit risk management division is designed to restructure at regular time. I heard the
present structure is of this division newly built up. So much information is not readily
available and data is not online based processing system.
The sanction procedure is well enough but Head Office most of the cases depends on
the branches for evaluating of borrowers in sanctioning of loan.
The system of getting loan for the small borrowers very rigid and interest rate is high.
These are the limitations for National Bank, but I think these are the minor drawbacks. I think
these will not hamper its image but by solving these minor limitations it can be the number
one Private Bank in the country. By removing these more competitive advantages are easily
possible to get for the bank.
Recommendations:
94
The existing credit policy is good enough to run the bank. But as the competition is
increasing day by day the bank should take some measures so that they can distinguish it
from the others. To attain its goals more successfully the credit management of NBL Bank
Ltd. can follow the following suggestion to improve their performance and distinguish from
others.
Branches may give suggestion regarding the features of lending products and regular
revision for its products with more competitive advantage and local demand.
The bank management can give permission to its branches to design or change
lending products on the basis of local demand.
The bank management can reduce the interest rate. Because of high interest rate, the
net profit of NBL is increasing over the years. Though the net profit is increasing but
some good loan may turn to bad loan. So if the interest rate decreases then the default
loan may decrease.
To grade the credit risk, the bank can follow other appropriate models besides the
credit risk grading model, because the credit risk grading models yardsticks are static
which do not take into account the flexibility in economic or business or financial
condition.
The bank management should follow the changes in policy, system, procedure,
product, technology and compliance in the banking industry, so that NBL can take
appropriate measure to adapt her with the changes.
Sanction procedure should be evaluated more effectively. Loan recovery system
should be monitored more strictly.
Interest rate for loan providing to marginal farmer should be in somewhat lower rate.
Sometimes loan can be provided as collateral free.
The credit management of National Bank Limited can follow the above mentioned suggestion
to improve their performance so that they can be competitive in the market and can gain some
competitive advantage.
Although the bank is making a huge amount of profit and gencratil1g a large volume of
deposit, based on my working experience at Nationa1 Bank limited, Credit card division, I
would like to put up the following recommendations.
95
Chapter: 8
Conclusion
96
National Bank Limited has been flourishing as the largest private sector Bank with the
passage of time after facing many stress and strain. The members of the board of directors are
creative businessmen and leading industrialists of the country. To keep pace with time and in
harmony with national and international economic activities and for rendering all modern
services, NBL, as a financial institution automated all its branches with computer network in
accordance with the competitive commercial demand of time. Moreover, considering its
forth-coming expanding future the infrastructure of the Bank has been rearranging. The
exception of all entrepreneurs and general public is much more to NBL. Keeping the target in
mind NBL has taken preparation to open new branches by the year 2000-2001. The
emergence of National Bank Limited in the private sector is an important event in the
Banking arena of Bangladesh. When the nation was in the grip of severe recession, Govt.
took the farsighted decision to allow in the private sector to revive the economy of the
country. Several dynamic entrepreneurs came forward for establishing a bank with a motto to
revitalize the economy of the country. From the above description it is clear that the National
Bank Limited has emerged as a slogan ‘A Bank for Performance with Potential’. Their main
objective is wealth maximization for the Shareholders at the same time by providing social
welfare. So in conventional banking practice it provides loans and advances to the prior
sectors of the economy against collateral security and strict conditions to recover the money.
I find really exciting to have an opportunity to go there and have some practical experiences.
As this engagement is part of my internship program, I prepare the report in Credit
Performance Analysis—Study for National bank Limited over Five years. Actually, the study
covers two parts. The first part covers the detail description of methodology of credit policy
and credit performance analysis and second part covers the changes in credit performance
operation over five years. Ultimate aim is to find out about the credit performance efficiency
in the light of loan disbursement, loan recovery, loan expiration and classified loan and thus
to identify credit performance of NBL. It is found that National Bank Limited has some
social development objectives and programs though it is largely a profit seeking organization.
It provides loan to the people for being self reliant. Without this it contributes to the
education for poor students. It donates the people in case of natural disaster or calamity like
flood and cyclone. An inadequate supply of credit is the one of the important constraints in
the production and the development in the under developing countries. National Bank
Limited is making credit available particularly to the people who want to improve their
condition by hard working. Thus it is considered as essential to alleviate poverty and
economic development. National Bank Limited can provide credit facility to a wide range
97
through its 145 branches all over the country. Echoing with the national policy direction for
growth of rural economy, the bank has been providing collateral free loan to landless and
marginal farmers to acquire seeds, fertilizer, irrigation facility, agricultural equipments etc for
better crop cultivation. Apart, bank has also been financing in fish, poultry and livestock
farming sectors. Furthermore, NBL always got involved with innovative activities. The bank
is financing in growing potato seeds through tissue culture and cultivation of strawberry,
which would not only develop financial condition of farmers, but also open a new horizon for
economy of Bangladesh by creating scope to save and earn foreign exchange. The bank
financed an amount of Tk.338.00 million in 2009 to 64,127 borrowers while it was Tk.325.00
million to 61,862 borrowers in 2008. For maintaining steady growth of the bank and for
economic development of the country, National Bank Limited manages credit risk
meticulously. National Bank Limited extends credit facilities to different clients in different
sectors after doing due diligence and mitigating risk factors properly as per guidelines set by
Bangladesh Bank, Executive Committee of the Board of Directors and Management Credit
Committee of the bank. The bank has segregated duties of the executives/officers involved in
credit related activates. A separate marketing division has been formed at Head Office which
is entrusted with the duties of maintaining effective relationship with the customers,
marketing of credit products, exploring of new business opportunities etc. Moreover, credit
approval, administration, monitoring and recovery functions have been segregated. For this
purpose, three separate units have been formed namely Credit Risk management Division,
Credit Administration Division and Law & Recovery Division. Credit Risk Management
Division is entrusted with the duties of maintaining assets quality, assessing risk in lending,
sanctioning credit, formulating strategy/policy for lending operation. Credit Risk Grading is
also made for individual borrower. A separate desk has been created in Law & Recovery
Division to handle top 10 defaulters.
ANNEXURE
98
CCS = Consumer credit scheme
HBL = House building loan
LIM = Loan against imported merchandised
LRA = Lending risk analysis
LTR = Lending trust receive
PO = Pay order
PC = Packing credit
SOD = Security over draft
SDS = Special deposit scheme
TT = Telegraphic transfer
Appendix
Credit memorandum (CM)/Credit Proposal:
99
Correct name of the borrower.
Borrowers office, business, show room and factory adders with phone number.
Account number and date of account opening.
Nature of business.
Date of establishment of business/Date of incorporation.
Date of commencement of business.
Business Net worth.
Banking relationship History.
Name of individual borrower/proprietor/partners/Directors, status in the Co., % of
share holding of the director in the co/firm. Age present (residential) and permanent
address with phone number.
Personal Net worth of the individual/proprietor/partners/directors.
Name, present (residential), permanent address. Personal Net worth, A/C number,
Business particulars, status of liability/allied liability etc of the guarantor.
Liability of the client/allied concern with our and other banks.
Recycling/periodical adjustment of the existing credit facility during last 3 years.
CIB status.
Assigned Risk Grade.
Amount of facility (Existing + proposed)-on one obligor basis.
Credit allowing capacity of our bank (as per Bangladesh bank single Exposure limit).
Facility Structure: -
1. Nature of Advance
2. Amount of Limit
3. Purpose
4. Margin/Equity
5. Interest, Commission, Other charges
6. Mode of repayment
7. Validity/Expiry
Security
1. Primary
2. Collateral
3. Others
100
4. Cost of project (where applicable): -
5. Land
6. Building
7. Other structures
8. Machineries etc
101
Credit Risk Grading:
Before sanctioning a Credit Risk content of each proposal are assessed. CRG is a detailed risk
gradation technique whereby all proposals are categorized as under:
Risks intensity number in ascending order. Higher is the number assigned to a credit higher is
the risk based on which lesser be bank’s intention to lend.
Credit Analysis:
5Cs 5Ms 5 Ps 5 Rs
102
Bibliography
Relevant Websites:
1. National Bank Limited:htt//www.nblbd.com
2. Bangladesh Bank: http://www.bangladeshbank.org.bd/
3. Bangladesh Bureau of Statistics (BBS):http://www.bbs.gov.bd
4. Chittagong Stock Exchange (CSE): http://csebd.com/
5. Dhaka chamber of Commerce and Industries (MCCI):
http://www.dhakachamber.com/
6. Dhaka stock Exchange (DSE):http://www.dsebd.org/
7. Federation of Bangladesh Chamber of Commerce (FBCC):http://www.fbcci-
bd.org/
8. Finance Ministry (MOF):http://www.mof.gov.bd/
9. Micro credit Regulatory Authority (MRA):http://www.mra.gov.bd
10. National Bank Limited:http//www.nblbd.com
11. National Data Bank (NDB):http://www.bangladeshgov.org/mop/ndb/
103
Organization web Link
Bangladesh Bureau of Statistics (BBS)
http://www.bbs.gov.bd
Bangladesh Export Promotion Zones Authority (BEPZA)
http://www.epzbangladesh.org.bd/
Bangladesh Government Official Forms
http://www.forms.gov.bd/
National Data Bank (NDB)
http://www.bangladeshgov.org/mop/ndb/
Securities and Exchange Commission (SEC)
104