qCHAPTER ONE

1.1) Background of the Study:

The MBA program is designed to focus on theoretical and professional development of people open to take up business as a profession a well as service as a career. The program is two months duration. This internship provides the students to link up their theoretical knowledge into practical fields. In this purpose, I was assigned to National Bank Ltd, Muradpur Branch, Chittagong for my practical orientation. Students are required to prepare an internship report under the guidance of supervising teachers on a selected subject matter to highlighting his experience and to conduct an in depth analysis on the subject matter. Banking is one of the most heavily regulated businesses in the world. Banks are the most important financial institutions in an economy. They are the principal source of credit for millions of individuals and families and for many units of Government. The credit is the kings pin of trade and commerce and the cause of progress of economy as a whole, because without it the economy either stops totally or moves very slowly. Bank acts as a financial intermediary between actual lenders and actual borrowers. For doing lending business, a bank has to face lots of uncertainties or risk. In short, lending is a risky business but profitable also. Actually, the profit or income of the bank directly related to the loans and advance sector of bank. And this sector has the opportunity to do more diversified and creative task than other areas or sectors of the bank. I have tried my level best to highlight the credit management in the perspective of National Bank Ltd. which has also fulfilled my thirst to know about the most risky business of banking i.e. Lending.

1.2) Objectives of the study:

The main objective of the study is to know about the credit Management of National Bank Ltd. Some other specific objectives of the study may are shown bellow: 1) To know the rules & regulations of credit management. 2) To know the policy of credit management of National Bank Ltd. 3) To know the investment structure 4) To know the liquidity performance 5) To know the credit appraisal process 6)To identify the risk related with lending. 7) To evaluate the steps relating to recovery of defaulting loan. 8) To find out the lacking of the loans and advance procedure.

1.3) Scope of the Study:

Banking Sector is a robust and sensitive area. A Bank has different products, different services and different customers. Different departments of a Bank perform different activities. However, scope of the study is limited within a specific area of an organization that is National Bank Limited. This study covers only Credit management of National Bank Limited.

1.4) Methodology of the study:

1.4.1) All data and information by which this report is prepared, are collected mainly from two sourcesPrimary sources and Secondary sources Primary sources are --Face- to- face conversation with employees and clients of the bank. Observing the banking activities. Practical working experience.

Secondary sources are -- Different financial records of the bank. Different files and leaflets of the bank. Annual reports of the bank. Different books on banking.

1.4.2) Analysis of Data

Collected data and information have been analyzed and examined critically in order to make the study more analytical and useful. For that purpose regression analysis and ratio analysis have been done.

1.5) Rationale of the Study:

In this 21st century Banks are the life-blood of modern economy irrespective of its size & pattern. Banks are established to earn profit and help economic and financial activities so as to help economic development of a county. In such a context, the main business of Banking is to take deposits from customers and sanction credit to the borrowers. In performing multidimensional activities like borrowing and lending of money, the world of banking is under going a transformation. Beside banks are direct agents to create opportunities for the development of a country and also provide large scale of employment opportunities. Banks are the most important functionary of financial system of a country and National Bank Limited is one of them. It plays a dynamic role in the economic development of a nation through of saving and allocation of credit to privates and industrial sectors. It diverts and employs the funds in such avenues which are aimed to develop a countrys economy.

1.6) Limitation of the Study:

During the study, I have faced the following limitations: Two months time is not enough for arranging an internship in a well recognized organization and preparing a Report on specific topic is very difficult. Due to some legal obligation and business secrecy banks are reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of formal and informal interview. The bankers are very busy with their jobs, which lead a little time to consult with them. Inadequate data sources.

CHAPTER TWO
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An Overview of NBL
2.1 History of NBL:
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 business and leading industrialist 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 forthcoming future the infrastructure of the Bank has been rearranging. The expectation of all class businessman, entrepreneurs and general public is much more to NBL. The emergence of National Bank Ltd., in the private sector in 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. National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the private sector. From the very inception it is the firm determination of National Bank Limited to play a vital role in the national economy. We are determined to bring back the long forgotten taste of banking services and flavors. We want to serve each one promptly and with a sense of dedication and dignity. The then President of the Peoples Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated the bank formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area, Dhaka started functioning on March 23, 1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong. Today we have total 106 Branches all over Bangladesh. Since the very beginning, the Bank exerted much emphasis on overseas operation and handled a sizeable quantum of homebound foreign remittance. The Bank established extensive drawing 4

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. In the year 2000, the Bank managed to procure foreign remittance business to the turn of US$88.44 million dollar equivalent to Tk. 662.10 million compared to Tk. 3,986.20 million in the previous year indicating a growth of 16.96%. Our Bank invested 25% equity of Gulf Overseas Exchange Company LLC, a joint venture Exchange Company in Oman, operating since November, 1985 under the management of four Banks. The Bank received Riyal Omani 12,450 equivalent to Tk. 1.74 million a dividend for the year 2000. A Representative Office was established in Yangon, Myanmar in October, 1996 by our Bank and obtained permission from the Government of Bangladesh to handle border trade with Myanmar. Opportunities are being explored for further business avenues there. Now NBL is on lie to establish trade and communication with the Prime 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. Banking is not only a profit-oriented commercial institution but it has a public base and social commitment. Admitting this true NBL is going on with its diversified banking activities. NBL introduced Monthly saving scheme, Special Deposit Scheme, Consumers Credit Scheme and Savings Insurance Scheme etc. to combine the people of lower and middle-income group. A term of highly qualified and experienced professionals headed by the Managing Director of the Bank who vast banking experience operates bank and at the top there is an efficient Board of Directors of making policies.

2.2) National Bank Ltd. at a Glance:

National Bank Limited (NBL) has a long proud history. Bangladesh entrepreneurs established it in Bangladesh in 1983 as the first private sector Bank fully owned. The member of the Board of Directors is refuted business personalities and leading industries of the Country. NBL extended and diversified its activities to include a full range of commercial banking services with computer technology in all branches. The Bank took equity in Nepal Arab Bank Ltd. Nepal in 1985 and provided management support to this bank a technical services agreement. The bank has opened its representative officer Yangon in Myanmar in 1997. NBL is the first Bangladesh private bank licensed by Master Card International to issue and acquire both domestic and international card. The bank has made an arrangement with Western Union, which has experience for speedy remittance of money all over the world. This bank is run by a group of people who are well educated, experienced and energetic. Ana a management director is leader of them who has a lot experience about banking. Total branches of NBL are now 81, which are Operating all over the country. NBL got the Certificate of Appreciation the Review Committee for Published Accounts and reports from the Institute of Chartered Accounts of Bangladesh in 2004.

2.3) Vision Statement:

Ensuring information highest standard of clientele services through best application of late test technology , making due contribution to national economy & establishing

ourselves firmly at home & abroad as front ranking bank of the country are cherished vision .

2.4) Mission Statement:

To provide high quality services to the customers and to participate in the growth and expansion of our national economy. To set high standard of integrity and bring total satisfaction to the clients, shareholders and employees.

2.5) Five-year activities of NBL:

(Million Tk.) Particulars Authorized Capital Paid up capital Reserved Fund Deposit Loan Investment Import Export Remittance Total Income Expenditure Net Profit Before Tex Net Profit After Tex Fixed Asset Total Asset 2004 1000.00 516.33 1345.99 28973.39 23129.65 4374.17 22028.30 17105.30 9035.50 2988.90 2064.75 484.21 170.02 895.35 35127.30 2005 1000.00 619.59 2115.03 32984.05 27020.21 3564.82 31648.20 21344.10 13618.20 3.288.00 2271.36 581.13 271.67 1431.23 38400.37 2006 2450.00 805.47 2468.79 40350.87 32709.68 6239.83 42458.50 280193.20 21353.90 3343.55 2473.23 1058.73 507.49 1627.29 6796.04 2007 2450.00 1208.20 3360.18 47961.22 36475.74 7760.38 62759.00 31824.00 27560.80 3622.31 2677.22 2035.10 1238.11 1842.28 56526.96 2008 2450.00 1872.72 4253.55 60195.25 49665.07 10162.18 78226.32 36284.44 39877.80 3715.21 2980.06 2828.82 1517.43 1981.60 72212.86

Graphically presented the net profit before tax trend for the 5 years of National Bank Ltd Like as. Net Profit before tax in million
3000 2500 2000 1500 1000 500 0 2004 2005 2006 2007 2008 484.21 581.13 1058.73 2035.1 Net profit before tax 2828.82

Profit after tax in million

Net profit after tax

1517.43 1238.11

507.49 170.02 Net profit after tax 271.67

The trend of Net Profit after Taxes highest in 2008and lowest in 2004 but increasing in 2004. So, this graph indicates in consistency earning of net profit. Tk. Particulars Book Value of Share Marke value of share Earning Per share Dividend 2004 361.47 475.25 27.44 20.23% 2005 365.52 746.50 43.85 26.56% 2006 378.59 760.50 63.01 56.50% 2007 395.31 1494 66.11 48.08% 2008 360.68 1014.25 81.03 29.46%

Market value per share (taka in a million)

Net Profit After Tax 8

1494

1014.25 746.5 760.5 475.25 Market value of per share ( taka in a million)

2004 2005 2006 2007 2008

The market price of share lowest in 2004 and highest in 2007 which reveal current market price per share is high. Particulars Foreign Correspondent Officers/Staff No. of Shareholders No. of Branch 2004 410 2025 8960 76 2005 391 2073 9052 86 2006 400 2171 9521 91 2007 405 2185 9276 101 2008 405 2133 9491 106

2 .6) Ownership and Management:

Board can delegate its power and authority to the management, mainly consisting of professionals but can in no way delegate or relinquish or avoid its responsibility and accountability. Therefore, it goes without saying that the directors have an inherent obligation to all concerned to ensure that the company operates properly and sound basis. They are duty bound and morally obligated to exercise utmost care and effective prudence without bias without any fear or favor to secure a clean and well-founded administration for the company.

2.7) Board of Directors and Responsibility of the Board:

In NBL the Boards has been conceived as the source of all powers. It is the legislative body of the bank. The directors acting in a body will exercise the powers. A commercial bank such as NBL depends for its success on the reputation, business acumen and integrity of its directors and executives. Directorship is not simply an honor. A director has his obligation, duties and responsibilities to shareholders, depositors, society, regulatory agencies, Government authority and clients alike. Mozzam Hossain Mr.Zainul Hauqe Director Sikder Mrs. Parven Hauqe Sikder Mr.Zakaria Thaher Mr. Shahadat Hossain Mr.M.G.Murtuza Lt.Col (Rtd)Md.Aziz Asraf PSC Mr.A.M.Nurul Islam Mr. Salim Rahman Mr.S.M.Shamim Iqbal Prof. Mahabub Ahamad Captain. Abu Sayed Monir Mr.AKM. Enamul Hoque Mr.A.B.Tajul Ialam : : : : : : : : : : : : : : Chairperson Director Director Director Director Director Director Director Director Director Director Director Director Director

2.8) Power and Function of MD:

Managing director is the chief executive of the company as per article 129(1) of the Article of Association of the company. He is also an Ex-Officio member of the Board of directors and shall be a professional man in banking and management. He has to take the load of carrying out the guidelines, directors, rules and regulations framed by the board from time to time and provide all vital information to the board/ committee for their knowledge and effective decision.

Power and functions: The managing director of the company shall act and discharge his duties, responsibilities and obligations as per the powers delegated to him by the board and as envisaged hereinafter.

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(i) (ii)

To promote a healthy organizational climate for most effective utilization of the services of the companys employees in achieving the goal of the company. To run and manage the affairs of the company smoothly, efficiently within the framework of the rules and regulations of the company and guidelines given by the board and the committees.

(iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)

To ensure optimum clients service and satisfaction through appropriate marketing strategies and expansion. To prepare realistic budget including the fixation of half-yearly and or yearly business target and also to ensure that such targets are achieved. To ensure maintenance of proper accounts of every aspect of the company. To ensure timely submission of financial, administration and other informations to the regulatory agencies of the government as required by law. To evolve most economic system of managing the company to keep the expenditure of the company under control within budget. To ensure economic purchase of equipment, furniture, vehicle, stationary, other consumable stores. To explore investment opportunities in and outside the country. To avoid any and such business where company may run for unnecessary/ undesirable/ inevitable risk and bad debts. To prepare judicious plan for expansion of companys business through operating of branches. To evaluate the marketing strategies and policies with their effectiveness for achieving the objectives of the company.

(xiii)

To formulate policy guideline for recruitment of staff.

2 .9) Functional Aspects of NBL:

NBL, which a private commercial bank and registered under the Bangladesh Bank, abides by the rules and regulations prescribed by Bangladesh Bank for scheduled commercial banks. The 11

functions converted by the bank include a wide banking and financial activities to individual firms, corporate bodies and other multi national agencies. Sort descriptions of the following functions areas are given below: Deposit: Deposits of all kinds like the savings, current, short-term deposit, fixed deposit etc are expected from the resident and non-resident customers. Credit: Bank loans are a good source of the bank income and thus they are greatly hapteremphasized. Banks loans play a very important role in the economy since the level of the business activity, which is controlled by the expansion of the bank loan, affects the national money supply. Import finance The volume of import trade financed by NBL during 2005 amounted to US$485.0 million or Tk. 3,164.82 crore as compared to US$ 367.8 million or Tk. 2,202.83 crore in 2004. The rate of growth was 43.67%. The main sectors financed were: old ships, rice, wheat, sugar, capital machineries, petroleum, readymade garments and other consumer goods. Imports & Exports Business IMPORT& EXPOR BUSINESS IN MILLION: Import Export 22028.30 17105.30 31648.20 21344.10 42458.50 280193.20 62759.00 31824.00 78226.32 36284.44

Export Finance The Bank has been nursing the export fianc with a special attention since its inception .in 2008 it handle 16234 documents valuing $ 531.03 million of 14 percent with a growth of the last year Export fianc were made mainly readymade garments ,knitwear , frozen food and fish .tanned leather , handicraft . Import Finance The Bank opened a total numbers of 21210 LC S amounting USD 1130.96 million import trade in 2008 with a growth of 25 percent over the previous year . The main commodities were scrap vessel , rice , wheat edible oil , capital of machinery ., petroleum product fabrics & accocerioes and other consumer items .

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Export

Import

2004
Remittance

2005

2006

2007

2008

In 2008, foreign remittance brought into the country though the NBL was $ 582.47 million showing an increase of $ 179.90 million over the previous year,which registered and attractive growth of 45 percent . This growth was possible due the introduction of different instant payment of product and technology including extending SWIFT, online, EFT etc.and further efforts are being made of more speedy payment Foreign Remittance in the graphically for the 5 years
39877.8

27560.8 21353.9 13618.2 9035.5 Foreign remittane ( Taka in Million)

2004

2005

2006

2007

2008

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2.10) Products & Services of NBL:

Consumer Credit Scheme Special Deposit Scheme Monthly Savings Scheme Credit Card NBL ATM Service Western Union Money Transfer Saving Insurance Scheme

2.10.1) Consumer Credit Scheme:

National Banks Consumer Credit Scheme gives you a great opportunity to buy household and office items on easy installments. This scheme gives you the advantage of part payment to cope with the high price tags of many necessary home and office appliances. Television, Refrigerator, VCR, Personal Computer, Photocopier, Washing Machine, Furniture, Microwave Oven, Car, and a number of other expensive items are now within your buying range. With this scheme NBL makes better living possible for people living of fixed income. Customers can buy those home and office equipments without over taxing their budget.

2.10.2) Special Deposit Scheme:

For most of the people of fixed income the opportunity to supplement their monthly earning is a golden one. And NBL Special Deposit Scheme gives a customer just that. Under the scheme, customers can deposit, money for a term of 5 years. The deposited money is fully refundable at the expiry of the term. At the same time, during the term period they can enjoy a monthly profit corresponding to their deposited amount. As for instance, under this scheme a deposit of Tk. 55,000 gives a monthly income of tk. 500. Deposited Amount Tk. 55,000/= Tk. 1,10, 000/= Tk. 1,65,000/= Tk. 2,20, 000/= Monthly Benefit Tk. 500/= Tk. 1, 000/= Tk. 1,500/= Tk. 2, 000/=

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2.10.3) Monthly Savings Scheme:

This scheme is specially designed for the benefit of the limited income group members. This helps to accrue small monthly savings into a significant sum at the end of the term. So, after the expiry of the term period the depositor will have a sizeable amount to relish on. A monthly deposit of Tk. 500/- or Tk. 1000/- for 5 or 10 years period earns in the end Tk. 40,000/- or Tk. 2, 24,500/- respectively. Monthly installment Tk. 500/= Tk. 1,000/Return after 5 years Tk. 40,100/Tk. 80,100/Return after 10 years Tk. 1,12,500/= Tk. 2,24,500/=

2.10.4) Credit Card:

The most modern technology based facility for making hassle free financial transactions and drawing of each money all over the world is given by credit card. NBL introduced master card in 1997. Now, NBL are the issuer and acquire of two most popular brands of credit card of the world, namely master card and VISA card.

2.10.5) NBL ATM Service:

NBL has introduced ATM service to its customers. The card will enable to save our valued customers from any kind of predicament in emergency situation and time consuming formalities. NBL ATM Card will give our distinguished clients the opportunity to withdraw cash at any time, even in holidays, 24 hours a day, 7 days a week. NBL ATM card clients access to prompt cash.

2.10.6) Western Union Money Transfer:

Money transfer from anywhere in the World to Bangladesh in Minutes Joining with the worlds largest money transfer service Western Union NBL has introduced Bangladesh to the faster track of money remittance. Now money transfer between Bangladesh and any other part of the globe is safer and faster than ever before. This simple transfer system, being on line eliminates the complex process and makes it easy and convenient for both sender and the receiver. Through NBL Western Union Money Transfer Service, your money will reach its destination within a few minutes. NBL signed an agreement with the Western Union Financial Services, USA (or, Western Union in short) in 1993. NBL was the first authorized agent of Western Union in Bangladesh.

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Millions of people from different parts of the world have been sending money with confidence to their near and dear ones through the Western Union. Western Union has the most modern technology for remitting money within quickest possible time from any part of the world through their more than 2, 25,000 representatives in 195 countries and regions. Western Union earns more than 3.0 billion US dollar as revenue every year. With the help of online connection with the central computer system of the Western Union, NBL delivers the money remitted by expatriate Bangladeshis safely and quickly to the recipients through its 76 branches. National Bank has won the international award styled as Most Outstanding Performance Among Banks in South Asia 2005. Managing Director and Chief Executive of NBL M. Aminuzzaman received this prestigious award on behalf of the Bank at the South Asia Representatives Conference convened by the Western Union and held at Kochin in India

2.10.7) Saving Insurance Scheme:

This is an uncertain world and the threatening silhouettes of future catastrophes are always looming around. This NBL scheme gives your family protection against the insecurities of the world. This scheme is the first of its kind in Bangladesh. It combines the benefits of regular savings and insurance scheme; so, you get the usual rate of interest on the deposited amount while you enjoy the protection of a comprehensive insurance coverage. Under this scheme, the beneficiary (ies) get equal the deposit in case of natural death of the account holder whereas in the event of accidental death of the account holder the beneficiary (ies) will receive twice the deposit. As for example, if a customer picks up Easy Class (Tk. 50,000) he/she will get tk. 50,000 for natural death and Tk. 1,00,000 for accidental death part from his /her deposited amount and inte Normal Death Benefit (Including Own Deposit) 1,00,000/= 2,00,000/= 4,00,000/= 10,00,000/= Accidental Death Benfit (Including Own Deposit) 1,50, ,000/= 3,00,000/= 6,00,000/= 15,00,000/=

Class Easy Convenient Classic Standard

Deposit 50,000/= 1,00,000/= 2,00,000/= 5,00,000/=

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CHAPTER THREE Credit Policy of National Bank Limited

3.1) Credit Policy of National Bank Limited:
The credit policy is a statement of basis principles that governs the extension of credit. It provides a framework in which to conduct business and also enables National Bank Limited to have a long-term business plan. It is a document through which the Board of Directors (BOD) communicates the lending strategy of the NBL and duties and authorities of management and lending officers. Policy guidelines have been established and to be developed from time to time taking into consideration economic condition and market requirement. This helps to shape and define the acceptable risk profile of NBL and to provide guidance in responding to business opportunities as they arise. Client Base: NBLs client base consist corporate, institutional and private clients to help them realize their terms goals and long-term aspiration. Credit Products and services of NBL The services include import/export finance, short-term credit, retail banking project financing through syndication with other co-lenders, corresponding banking. Each of these areas involves credit exposure to client or to a third party, providing both revenues as well as risk. Legal Considerations: NBL complies with all applicable Bangladesh laws and regulations. General Policy Guidelines: The general policy guidelines govern the implementation of the business strategy of NBL with respect credit risk are as follows: 1. NBL makes loan only to reputable clients who are involved in legitimate business activities and whose income and wealth are derived from legitimate sources. 17

2. NBL encourages lending to socially desirable, nationally important and financially important and financially viable sectors and not lend to unproductive purpose or socially undesired projects. 3. At all times a policy of Know your customer( KYC) must be exercised in the credit application processes. 4. NBL extends credit in its discretion, only to qualified borrowers where the where the amount and intended purpose or the use of precedes is clear and legitimate and where the amount and its use are reasonable. 5. NBL requires that borrowers have a source of repayment established at the inception of the credit, and that any exception must be specifically addressed the credit approval. There should be identified, whenever possible , a secondary source of repayment. As with any funds received any all repayment sources must be legitimate and consistent with what is known and documented about the client. Borrowers must provide, and the credit approval package must contain, sufficient information on the borrower to approve the extension of credit. Satisfactory security and collateral is required as appropriate NBLl main thrust is on Cash Flow Statement of the business rather than on collateral security. 6. NBL discourages the client with relatively low or no funds of their own and with a relative low or no funds of their own and with a relatively high ratio of borrowed to own funds tend to face liquidity problems. With adverse repercussions on their ability to service their obligations. 7. NBL does not engage in Name lending based only on the general reputation of the borrower. There are cases however; where certain financial information about private clients is highly confidential any may not be disseminated. Such situations are addressed individually at the discretion of management. (Note: Recently this practice is little bit relaxed and facility is provided if the client has good backup against the credit repayment capacity.

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8. NBL may consider term loans with maturates up to five years, or longer none except the Managing Director approves such loans. Management reviews the terms loan portfolio periodically. 9. NBL extends venture capital to start up business or to business, which are entirely dependent on new technologies, but is considered with extreme caution and also secured by First Class or other acceptable collateral. Exceptions: There will be occasions when exceptional circumstances exist which, in the opinion of NBL management, warrant the extension of credit as an exception to existing policy guidelines. Such policy exceptions, regardless of the size of the credit must have the prefect approval of the NBLs high officials. Maximum size of loan portfolio: The banking Companies Act 1991 restricts lending to any single obligor or a Group of companies up to 15% of the capital funds of the Bank without having any approval from Bangladesh Bank. With the permission of Bangladesh Bank, the Maximum limit can go up to 100% of the fund of the Bank. NBL complies with the ceiling set by Bangladesh Bank. Loan portfolio mix: After annual reviewing the performance of existing loan portfolio of NBL as well as market prospect of different sectors/sub-sectors of the country, the senior management prepares the annual budget at the beginning of the year giving guidelines for limiting exposure to different sectors/sub-sections and term which is approved by the Board of Directors. Terms of lending (liquidity) are determined based on the following factors: Deposit mix; The volatility and seasonal fluctuation of the deposit base; The amount of purchased funds; The composition of investment portfolio and Liquidity of banks assets.

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Credit budget will be prepared having a diversified loan portfolio spreading over a large number of obligors/sectors/purpose/location as well as different term. As a prudential norm. NBL will restrict large loan to maximum two-third of its total loan portfolio. Lending authority: NBLs organization structure has two levels-Branch and Corporate Office. The credit proposal moves through various management approval levels according to the amount of risk. There are three approval levels. Branch Manager Executive Vice President/Managing Director at Corporate Office; Board of Directors of the Bank. The approval limits for each of this sanctioning authority are defined in Business Discretionary power, which is also reviewed by senior management and approved by the Board of Directors. Each loan proposal will be examined properly and nature and scope of appraisal to be carried out will depend upon the amount, term, type of credit facility, obligors background and so on. Determining the rate: The interest rate on lending conforms to the prevailing rates offered by other financial institution. At the same time, the management has to keep in mind the following points while pricing a loan: Risk exposure (Obligor and industry); Cost of funds Terms of loan (maturity) Account balances and other relationship. There is a schedule of annual interest rates for different types of credit allowing latitude to the management than would be true under the more rigid Schedules. This is reviewed by senior management and approved by the Board of Directors annually. Documentations: Each credit exposure is to be supported by proper documentation and standard from of documentation should be used whenever possible.

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Monitoring of Credit: The control of credit operations fall into two parts: Monitoring and review of all accounts Monitoring of delinquent accounts. Control of credit operations is done at Branch and corporate Office levels. In case of delinquent accounts, Bangladesh Banks Procedures of loan classification and provisioning is to be strictly complied with by NBL. CREDIT PLAN OF NATIONAL BANK LTD. National Banks credit mission is to actively participate in the growth and expansion of national economy by providing credit to viable borrowers. The bank has also to extend more credit to increases its role in the growth of the economy. At the same time, Bangladesh Bank Guidelines have to be adhered to, Keeping in view all these factors and the Credit Policy of the Bank, a Credit Plan has been crafted limiting the exposure to different sectors/sub-sectors, term and large /retail. BASIC LENDING CRITRIA It should be clearly understood that the criteria/principles are not inflexible laws and are given as guidelines for protecting an advance. In a practical competitive world risks are identified, accepted, and an advance is often granted even though a proposal does not strictly with some of tile criteria described below The Basic Lending Criteria can be considered under six main headings as follows: Profitability; Source of repayment; Character and ability of the borrower Purpose of tile facility; Term of the facility; Safety

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Each of these headings will now be discussed further in the following paragraph: 1. Profitability All credit facilities granted to the Banks customer must produce profit, directly or indirectly. Spreads are normally associated with element of risk undertaken and the period and nature of the liabilities. 2.Source of repayment. After the branch manager has ensured that the advances will be a profitable propositioning for the Bank, he should then turn his attention to the cash flow Situation of the borrower. The Banks advances can be classified in to three main categories, as follows: 1) A very short-term advance which will be liquidated by funds received in the very near future, such as advances against foreign or local bills or bridge financing where evidence of credit sanction from another financial institutions is available: 2) Provision for current assets: this type of facility is needed for trading

And/or manufacturing activities. 3) Long-term advance, generally over 5 years; example of such facilities are investment in plant and machinery, building, a farm or a shop generally, a long-term loan is repaid out off profits generated by the business. C. Character and ability of borrower The primary responsibility of lending banker is Know your customer and his business While considering the character and ability of a borrower, tile following points must be kept in mind: Do you know the customer already? Was he respectably introduced? If he was previously customer of another bank, why has he come to National Bank Ltd.? Try to see previous bank statement. Have you made the account opening inquiries required by the bank? What are the business and its ownership? What is the customers history and financial track record? Customer integrity & honesty and personal stability age/health? How has the customer managed his financial circumstances in the past? The branch manager should have the answer of the above queries and should be able judge his ability to use the credit facilities to his advantage. Advance should be granted only to those borrowers in whom the branch manager has full confidence. Integrity of the borrower and his 22

ability to conduct business are of paramount important and take precedence over the value of securities offered. d. Purpose of the facility The purpose of advance should be studied with a view to understanding whether it is within the policy of the Bank. It is outside the Banks policy, the proposal Should not be given further consideration. Each proposal should be considered on its own merits. Consideration should or course be given to the nature business and certainty with which the business or tile project will yield results. e. Term of the facility As explained earlier, credit facilities are broadly divided under the following categories: Facilities needed for temporary/seasonal/short term requirements; Facilities needed for current assets requirements; Facilities needed for long term/Investment requirements Facilities covered under category (a) above are generally required for a short period of up to three to six months, which are self-liquidating transactions. Such facilities include packing credits, advances against salaries, advances against purchase/discount of bills, TODs etc. Facilities covered under category (b) are generally for a slightly longer period says Lip to one year. This type of facility is granted for financing working capital. The facilities under category (c) are for periods longer than one year. Which are often used to finance the Acquisition of capital assets. When considering a facility of this nature, a feasibility study of the project should be made and a repayment schedule should be agreed. f. Safety To safeguard Banks interest over the entire period of the credit me, a comprehensive view of the capital, capacity and integrity of the borrowers adequacy and nature of security, compliance with all legal formalities, completion of all documentation and finally a constant watch on the account are called for. All advances will be against adequate security of a third party, that party must be subject to the same credit assessment as made for the principal borrower.

3.2) Types of Credit Facilities:

NBLs lending practices will favor extension of Credit for short term. Self-liquidating transactions as well as property structured term loans.

23

For the convenience of reporting, the credit facilities granted by the bank are classified under different account heads appearing in the Statement of Affairs. Broadly, the credit facilities are classified as: Credit Facilities Funded credit facilities facilities Non-Funded credit

Term Loan Working capital L/C

Micro credit

L/C

L/G

Back to Back

SSI

MSI

Project loan Industrial Cash Credit LIM PAD LTR OD SOD CC (H) CC (P) TOD Commercial

A. Loan:

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Advance make in a lump either at a time or phrases repayable either on fixed installment basis or in lump sum having no subsequent debit except by way of interest, incidental charges, etc. is called a loan. After creation of loan, there will be only repayment by borrower. A loan once repaid in full or in part cannot be drawn again by the borrowers if the borrower desires further accommodation; it will be treated as separate transaction. The amount of loan is debited to the customers name on a loan account to be opened in the ledger and paid to the borrower either in cash or by way of credit to his current account or saving account. Loans are given to the parties who have specific source of income or who desire to pay in lump sum. Project loan (for small or large industries, agro based industries & technology development project and loan portfolio guarantee scheme) B. Over Draft: Advance in the form of overdraft are always allowed on a current on a current account operated upon by cheques. The customer may be sanctioned a certain limit within which he can overdraw his current account within a Stipulated period. Overdraft facility is generally granted to businessman for financing worked capital requirement and high net worth individual to overcome temporary liquidity crunch. C. Cash Credit: Cash credit as a form of advance, is a separate account by itself and is maintained in a separate ledger. It is operated upon like an overdraft account. The borrower may operate the account within stipulated limit as and when required. The drawing is subject to drawing power. Cash credit is generally given to trader, industrialists for meeting their working capital requirements. The primary security of cash credit facility is stock of goods, which may be hypothecated or pledged (Which is to be highly discouraged by NBL) to the Bank. D. Bills Portfolio Trade related credit facilities, such as bills portfolio E.G. PAD (it is an accounting step), LIM. This form of credit facilities may be used for financing important raw materials/capital machinery.

25

The above-mentioned loan facilities may be said of broader class: again these four broad categories can be illustrated through different segmentation: Terms Loan: Term loans are often used to financing the acquisition of capital assists. Loan agreements often contain restrictive covenants and loan is repayable in accordance to amortization schedule. Secured Over draft (SOD) Overdrafts for longer periods are normally granted against the Security of tangible assets such as pledge/lien of FDR, Bonds, ICB unit certificate etc. They are called Secured overdrafts/collateralized overdraft. Descriptions overdraft will depend upon the nature and type of security charged to tile Bank. Loan against Packing Credit (PC): A Credit under this head is granted to exporters to facilitate purchase of raw materials for the purpose of manufacturing and exporting goods. The credit is granted after the evidence of a letter of credit or firm contract in favor of the borrower and against the Security of inventory purchased by the borrowers, and in exportable package. Cash credit (C.C) An advance under this head is granted for financing inventory, which may be hypothecated or pledged, to the Bank as security limit is advised to the borrowers. This is also fluctuating form of lending. Payment against document (PAD): PAD is associated with import and export financing. The Bank opening L/C is bound to honor its Commitment to pay for import bills when these are presented for payment provided that it is drawn strictly in terms of letter of Credit. The foreign correspondent that negotiates the document, debits the amount thus advanced on behalf of the importer the a/c of the opening bank. The opening bank on receipt will lodge the shipping documents to their books and will respond to the documents. Loan against imported Merchandise (LIM): Parties, who are not in a position to retire the documents, they may be allowed to retire their PAD through LIM account for a maximum period of 90 days for industrial raw materials and 45 days for commercial items, on returning sufficient margin on the landed cost of the goods or as prescribed by the Bangladesh Bank.

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And if they are reluctant to provide the aforesaid margin, goods may be allowed to be cleared through LIM account to save the consignment. Under such circumstances goods are cleared only through clearing agents, Loan against trust receipt (LTR): It is a document that creates the bankers lien on the goods and practically amounts of hypothecation of the proceeds of sale in discharge of the lien. The customer on whose account the branch issued an L/C may wish to obtain documents of the title to goods received under the I/s so that he can obtain delivery of the goods and arrange to retire the bill out of the sale proceeds of goods. Advances against a Trust Receipt obtained from the customer are allowed (for a maximum period of 180 days) when the documents covering an import shipment are given without payment. The customer holds the goods or their sale proceeds in trust for the bank, till such time, the loan allowed against the trust receipt is fully paid of. Foreign Bills Purchased (Clean) Amounts advanced against three purchase of a negotiable instrument are classified under this head. Bills are sent for the collection. The bank acquires the ownership of the negotiable instrument and arranges to cover th3e exchange rise. Local Bills Purchased (clean): A bill drawn and payable within the country in which the branch operates and purchased by the branch is classified under is classified under this head. This bill is not accompanied by documents of title of goods. Foreign Bill Discounted Here the amount of the interest calculated at the rate from the date of purchase to the expected date of return remittance is decocted from the face value of the while granting the advance. Other Banks Acceptance Purchased an advance granted against a bill accepted another bank, for the remaining period of its tenure. Demand Loans (Dl) It is short-term loans, which may be called by the bank at any time. Usually they are made for periods of three months to one year to cover short term funding requirements. There is no principal reduction during the loan term; the entire balance becomes due on maturity.

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Staff Loan Advance to member of staff is granted according to the policies laid down by the bank. Advance is allowed to member to of staff who is in the banks permanent employee only. Loan and Advances for 5 years. Showing the following table total loan and advance and represent its graphically In million Particular Loan& Advance 2004 23129.65 2005 20200.64 2006 21677.96 2007 22257.1 2008 22844.4

loansn& advance ( taka in a million)

49665.07 36474.75

32709.68 23129.65 27020.21

2004

2005

2006

2007

2008

The Graph indicated upward trend of loan and advances over the last fiver years.

3.3) Advances against Security & Collateral:

Secured loans offer a greater of protection to the bank than unsecured loans. Repayment of a secured loan is by no means ensured simply by the existence of collateral. Proper 28

documentation and an effective monitoring system are vitally important. There is no hard and fast rule for establishing a proper monitoring system and each loan must be given action appropriate to the situation. Securities mainly may be in the following ways: Documents of Goods (Import L/C Documents along with bill of lading. Trust receipt form Hypothecation of good Personal guarantee of all direct loans RJSC on fixed assets All securities are not suitable for all types of loans and advances. Each Security has its own suitability. Specific securities to be obtained by the bank against the varies types of advances, such as: 1.Loans: Various kinds of Govt. bonds, share quoted in the stock exchange, debenture, fixed deposit, receipt, hypothecation of vehicles, immovable properties such as land & building, machinery, etc. 2. Overdraft: Varies kinds of Govt. bonds, shares quoted in the stock exchange debenture, fixed deposit receipt, life insurance, policies, work order, etc. 3. Cash Credit: Pledge or hypothecation of goods, produce and merchandise, etc. 4. Inland bills purchased: Bill it self 5. Pad: Shipping documents for imports. 6. LIM: Pledge of imported merchandise. 7. LTR: Trust Receipt obtained in lien of important documents. 8. Foreign Bills Purchased: Shipping documents for exports. The following is a discussion of some, but not all, types of collateral frequently used in secured lending, and some important considerations in the area of monitoring the collateral. A. Land&builddigs Land and buildings have become increasingly more acceptable securities in the recent years, mainly due to steady inflation. Land and buildings are accepted as collateral in high grade, in modern banking, to strengthen the bank security and reduce the risk factor considerably. It should always be remembered that the word Land denotes not only the ground but also any building or fixtures upon it. Consequently, if the borrower creates a mortgage of his land in the banks favor and then proceeds to build a factory on that lend, the building automatically becomes part of the banks security. 29

B) Stock bond, exchanger& other secretes Advances against stock and share certificate, bonds scripts and other stock exchange security will be allowed will be allowed in accordance with bank credit policy. These instruments are one of the very common terms of security offered to the bank, and possess many advantages. They are readily marketable: easily transferable and the market value can easily be determined accurately. C. The fixed deposit receipt: While allowing advance against fixed deposit receipt, the following points to be scrutinized by the branch: 1. The fixed Deposit receipt is not in the name of the minor. 2. The depositor on revenue stamp of adequate value duly discharges it and his signature is verified. 3. If the receipt is issued in joint names, all shall discharge it The depositors named in the receipt on revenue stamp of adequate Value. 4. If other branch of the Bank or other Bank has issued the deposit Receipt, the branch where the advance is being allowed shall Obtained under joint signature of two officers of the issuing Branch/bank, a confirmation that the lien has been duly registered With them. 5. The lien of the bank to be marked in red ink on the deposit receipt against which advance has been allowed. On adjustment of the advance, lien shall be released under signature of two officers on the back of the fixed deposit receipt.

D. Inventory A borrower should normally be granted credit facilities against hypothecation of goods in which he usually deals. The credit officer should check the price of the goods offered as security to establish the range of price fluctuation. If the range is wide, there will be

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reservations about accepting the goods as security for the advance unless the branch manager can take an adequate margin. When considering an advance secured by inventory it is important to verify that the borrower has the title to goods intends to hypothecate to the Bank. Title to the goods can be verified by reference to the original invoices.

3.4) Credit Process & Structure:

In order to fully understand NBLs procedures relating to sanctioning and control of advances, a necessary first step is to examine NBLs Organization structure. The Organization structure has two levels Branch and corporate office. The Credit Line Proposal Moves through various management approval levels according to its amount. There are three approval levels that are as under-. Branch Manager Credit Committee at Corporate Office Board of Directors of the Bank. The first level of Organization NBL is the Branch. Typical branch functions have been split into four main categorized: General Banking, credit, Foreign Exchange and Accounting. Size of the advance function depends on the number of borrowers and the size and complexity of their accounts. The branch credit officer is responsible for the following duties. Processing of Credit Line Proposals for approval and renewal by the Credit Committee/Board, whichever is applicable? Select the proposal to critical financial analysis using sophisticated tools to determine financial soundness and acceptability of risk. Ensuring that security is perfected for new Credit Line Proposals and review such Securities on a periodic basis, Monitoring of temporary loan payments on a monthly basis, Periodic visits to branches and client in order to understand the operations of Specific accounts first hand. After processing the credit line proposal, Credit Department will put up a memorandum to Credit Committee. It is the responsibility of the Credit Committee to review and approve or reject the credit line proposals above the branch managers discretionary powers. 31

There a Credit line proposal requiring Boards approval will pass through the other two sanctioning levels before being presented to the Board. Credit line proposals of lower values that do not need Boards approval will pass through one two approval levels listed above, dependent or their amount.

3.5) Credit Approval Process:

The Credit Approval Process of sanctioning a loan is as follows:
Getting loan proposal from party Collection Information
Evaluating project & proposal

About Project

About party

BR level evaluation

Legal assessment

Evaluating collateral Evaluation by agent Branch level

Usual Recovery

Recovery of the loan

Supervision of loans

Sanctioning & disbursing loan

Decision

Legal recovery

Principal Officer Level

Credit Line Proposals must be prepared for all credit facilities, except temporary overdrafts. For meeting urgent and lone financial requirements branch manager may consider temporary overdrafts in all account. Such facility must be fully temporary overdraft, he must ensure that: Banks lending criteria are satisfied The amount to be sanctioned is within his discretionary powers. Overdraft is adjusted within a very short period, not more than 7 days from the date overdraft is allowed. 32

The branch manager must follow the progress of adjustment of temporary overdraft on a daily basis. A loan application may be received only from an existing customer of the Bank who has established a reliable relationship. In all cases, the Bank Basic lending Criteria must be satisfied and its policy of Know your customer implemented to the full. Satisfactory track records with the Bank, but for the Bank to grow and prosper, new customer must be actively sought. This is the prime responsibility of branch manager. The Credit Line Proposal originated in the branch and is completed by officer dealing with advances after branch manager has interviewed the borrowers. The branch manager and creditsponsoring officer both sign the Credit Line Proposal when it has been completed to their satisfaction. Prescribed forms of Credit Line Proposal are then being completed. The Papers to be prepared at the time of initiating a loan are as follows: Credit line proposal Credit report Spread sheen Credit Risk Analysis Loan application form The branch manager must follow the instructions set out in the following sections when compelling credit Line Proposal:

A. Information Required: Although no list can be completed comprehensive to all situations, the following guide should be used for any corporate client: Last three annual financial statement and opinion of auditor; if available Last interim financial statement Amount of credit required and use of proceeds Sources of repayment

33

 Tangible collateral available with title searches and an independent valuation, if appropriate Tangible collateral available with title searches and an independent valuation, if appropriate Intangible security available Other existing bank lines and bank debt and nature of security/collateral offered. Detailed description and history of ownership, if a business borrower Background information about the owners and the experience and background of management Certificate of Incorporation and by laws or Memorandum and Articles of Incorporation (or equivalent documents )if a business borrower Certificate of good standing, where applicable Partnership Agreement (if applicable) Detailed knowledge of the business cash conversion cycle Management projections and forecasts Borrowers market and principal trade areas Information about the industry, tile borrowers position in tile industry, and tile competitive environment. Major Suppliers, reliability of supply, Majors customers, reliability of sales projections, and term of sale Detail about inters company transactions with affiliates. Details about transactions with owners or other member of management including amounts due to over due from principals Composition and aging of inventory Details about composition, aging, and concentration of receivables Recent credit agency report (such as CIB) if available Bank, trade and character references reference Regulatory constraints or licenses required. Any and all other license of the assists of the borrower or guarantor

B. Analysis of the customer The analysis should provide answer in the following major areas: 34

Borrowers Net Worth Working Capital Profitability Capital Gearing Cash Flow Credit Risk Analysis:

1. Borrowers Net Worth: Net worth is calculated by deducting total debt liabilities from total assets. Debt liabilities comprise all claims on the borrower by third parties such as banks, trade creditors and the government (for taxes assessed on the borrower but not yet paid). Total assets include all tangible current assists such as stock and debtors, all tangible fixed assets such as property, machinery and equipment. Intangible assists consist of preliminary expenses in connection with setting up the business, discounts in connection with issue of shares, goodwill and the cost of patents and trademark. 2. Working Capital: Whether the current assists as shown in the borrowers accounts are sufficient to meet the borrowers current commitments and liabilities. The type and nature of current assets should also be studied. For commutation of working capital current liabilities are deducted from the current assets. The day-to-day running cost of a business requires finance over and above. What is necessary for purchase of fixed assets? Therefore, the branch manager will ensure that the borrowers liquidity is sufficient to support his proposed activity level 3. Profitability: Whether there are sufficient earnings to repay the credit facilities requested by the borrower and sufficient balance will be left over to provide a sufficient return on equity as well as to provide funds for his future operations. The reason for deterring profitability is to know whether The borrowers capital is eroding The borrowers present cash flow may restrict future business growth The borrowers return on capital is adequate for this type of business.

4. Capital Gearing: How does the amount of equity in the business compare with the borrowed funds? Some borrower tends to trade with largely borrowed money and invest as little of there own capital as possible. This is not considered a good banking proposition. A high ratio may represent a high or low risk; where earnings banking proposition. A high ratio 35

may represent a high or low risk; where earnings are sufficiently high and stable. A higher level of gearing may be satisfactory. The Ability of a firm to continue service and repay its debts is more function of reliability of earnings and inevitably cash flows than that of debt itself. 5. Cash Flow: When assessing the borrowers liquidity and profitability, the timing of the borrowers commitments must be considered. His commitments must be placed in such a way that the business will not face a cash shortage in the foreseeable future. The following important ratios are analyzed at the time of considering a credit line proposal: Current Ratio Acid Test Ratio; Debt coverage Ratio Receivables to Sales Ratio Stock Turnover Ratio; Return on Investment (ROI) There are many other ratios, which may help in analyzing the Borrowers financial statement. 6. Credit Risk Analysis: The Risk Rating System is tool, which sets a uniform framework for assessing and monitoring risk in a credit portfolio. Tile risk rating system is used to indicate the perceived degree of risk. It is intended to provide a uniform, bank wide system to measure credit quality and provide early warning of deteriorating credits. The risks are mainly of two types: (i) (ii) Business Risk Security Risk.

Business Risk: It is mainly of two types: A. B. Industry risk Company risk

Industry risk: a. Supplies Risk: What is the risk of failure due to disruption in the supply of Inputs. In case of such risk the following items to be studied: Labor Raw Materials Power Others 36

 Equipment Premises b. Sales Risk: What is the risk failure due to disruption in sales? In case of such Risk the following items to be studied: Competitive Pressure Regulatory B. Company Risk: a. Performance risk: What is the risk that the company position is so weak that It cannot perform well enough to repay loan given external condition. In such case The following items to be observed: Quality, Price b. Resilience Risk: What is the risk of failure due to lack of resilience to unexpected external condition. In such case the following items to be observe: Leverage Consumptions Dependability Management Risk: The risk related to the management is of two categories: Management integrity risk Management Competence risks Liquidity Management honesty Strategies Cash flow forecasts Barriers to entry Customer concentration

Security risk: This type of risk is of two types: a. Security Control risk: What is the risk that the bank fails to realize the security; b. Security Covering Risk: What is the risk that the bank realize security value less than the expenses, Security Covering risk should be analyzed by considering the following items: Discount rate Discount factor P.V of Security Types of security 37

 Speed of liquidation Liquidation value Supporting documentation: When the relationship officer is preparing the Credit Line Proposal, he used to prepare supporting documentation, and those are as follows: Credit Report from the branch manager; Credit Report from third parties/banks CIB Report; Spread Sheet; Stock Inspection Report; Loan application form along with copies of relevant papers; Credit Risk Analysis. Some of the above supporting schedules may be omitted from certain Credit Line Proposal if considered not of much significance/relevance. Conveying offer to borrower The offer/facility letter is sent out to the borrower whenever the bank sanctions or renews a credit facility in his favor. I he precise format of the offer/facility letter is to be determined by Corporate Office covering the completion procedures for security documents. However, the Following requirements are common to all cases: Borrowers Name Subject; Amount of the facility Repayment schedule Interest Rates: Fees for the facility Security of the facility Availability facility by the Borrower

3.6) Documentation for Credit:

Loans or other Credit exposure must be supported by proper documentation. It is vitally important to the Banks credit quality to have and to maintain documentation, which will complete, correct and properly executed. Failure to obtained and maintains documentation may 38

not prevent the bank from informing its rights against a borrower, and every precaution must be taken to prevent such situations. Standard form documentation should be used whenever possible to reduce legal expenses and minimizes documentation errors; After the properly executed loan documentation has been collected and signed off for completeness by the concerning credit officer, the Credit Department is responsible for itemizing, filling, maintaining and safeguarding documents. For term facilities where there is no change in the terms and conditions of the facility, the documentation must reviewed and such review revered in writing at least annually by the sponsoring credit officer. Each advance or Credit Line proposal should be meticulously documented and retained in a separate folder divided into the following six sub-sections: Correspondence; Financial Statements Credit Reports/Information; Sanction/Survey Reports, List of charge Documents/ Certificate with validity Besides acquiring document from the borrower the credit department of the bank is to supply various statements to the office as well as the Bangladesh Bank. The reports to be sent are as follows: 1. Monthly CIB statement of Tk. I core and above 2. Monthly statement of Credit (Rescheduled /Increased/Newly sanctioned) 3. Monthly statement of Deposit held by Government Sector; 4. Monthly statement of Bank loans &Advances held by Government Sector; 5. Monthly statement of loan in Agro-based industry; 6. Quarterly statement of Industrial Credit; 7. Quarterly statement of loans disbursed irregularly; 8. Quarterly statement of Outstanding & Classification Status of Loans 9. Disbursed during last 5Years; 10Quarterly statement of SBS-3 39

11. Quarterly statement of Loans to the Banks Director 12. Monthly statement of loans to the Director of other Banks; 13. Quarterly Statement of Branch Summery of Loan Classification & Provision; 14. Quarterly CIB statement of Tk. lack below I crore; Quarterly statement regarding sanctioning of large loan; 15. Monthly statement of loan under Agricultural Credit; 16. Monthly statement of Recovery against Classified loans; 17. Quarterly statement regarding Write off 18. Half-yearly Statement regarding loans disbursed in Tannery Sector; 19. Half-yearly statement regarding suit filed and settled in Artha-Rin dalat and others; 20. Half yearly statement regarding suit filed and settled in two insolvency and three Artha Rin Adalat 21. Half yearly Statement regarding Loans disbursed in Jute Sector 22. Half yearly Statement of Sector wise Advance; 23. Half-yearly statement regarding loans & Advances of Tk 1 Crore and above.

3.7) Management of Delinquent Advances:

Loan Classification & provisioning: Bangladesh bank has introduced a system covering loan classification, the suspension of interest due, and the making of provisions against potential loan losses, which is to be followed by all scheduled banks operating in Bangladesh. Bangladesh bank will inspect the classification interest suspense, and provisioning carried out by the bank. Bank will maintain adequate records to enable the inspection team of Bangladesh Bank to verify the classification, interest suspense calculation and provisioning calculations on a loan basis. According to Bangladesh banks circular-No. 16 dated 06-12-198 and Circular No. 2 dated 1001-1999, all loans and advances have been classified into four categories as under Continuous loan (e.g. overdraft, cash credit, etc.) Demand loan (e.g. LIM PAD etc.) Fixed Term Loan Short Term Agricultural and micro Credit Assets quality ratings break down into two main categories: 40

 Satisfactory Delinquent/Classified Delinquent/Classified assets comprise of the following sections: Sub-Standard; Doubtful; Bad & Loss. Basis for loan Classification: Bank must be responsible for classification of its loan portfolio in accordance with the guidelines provided by Bangladesh Bank form time to time through circular/ Circular letter. Beside this usually the loans are classified on the basis of two fundamental criterions; 1. Qualitative Judgment: Basically it is the outcome of bankers experience and intelligence. The banker can estimate loan recovery possibility of the borrower. Here he uses the EWS (Early Warning Signals) method. 2. Overdue Criteria: If the borrower becomes irregular in refunding the loan then the loan could be classified he basis of time duration of irregularity such as: Unclassified: The loan which recovery is regular; Classified: The loan of which the recovery period matures before 6months Doubtful: The loan of which the recovery period mature before 9month Bad loan: The loan of which the recovery period matures before 12 months and about what the management decided that the loan be recoverable. Provision: Incase of continuous loan, demand loan and term loan, the rates to be applied to the base are: 1. 2. 3. Sub Standard 20% Doubtful Bad & Loss 100% 50%

The base for provisions on classified loans is the balance outstanding in the loan ledger for the loan less any interest taken in an interest suspense account which is also included in the loan ledge, lese the value of eligible security. A general privation of 1% to be makes against all unclassified loans The eligible securities are 1) Deposits on which lien is marked 2) Gold/ Gold ornaments physically held by the bank 41 100%

of present market value 3) Government Bond and sanchay patra on which lien is marked 4) Guarantee given by Government of Bangladesh Bank 100% 100% 50% 6) Mortgage land & building of market value In case of Short-Term agricultural and Micro Credit All other loans except bad loans ( i.e. Substandard , doubtful, Irregular & regular) 2) All bad & loss Treatment of interest: 100% 5% 50%

100%

5) Goods with a ready market that are held in the control of the bank of market value

Interest will continue to be charged on Substandard and doubtful loans of advances which will however not be credited to Income Account. If a loan advance is classified as bad and loss, then application of interest on that account to be suspended immediately. If the bank feels to file a suit in tile court for recovering of outstanding advance from a customer, then the interest to be applied up to suit filed dated and it is to be kept in Interest Suspense Account. Any recovery or payment received from classified loan is normally first applied as a reduction of interest (i.e. interest income) and then the principal amount to be adjusted. In all cases, Bangladesh Bank Procedure of loan Classified and provisioning is to be strictly complied with by all concern Rescheduling of Loan: If the loan Become classified then giving the chance to the borrower the rescheduling of the loan is make and here the borrower is to pay back first the 10% of the outstanding loan first and then the rest amount gets treated as the new loan and continued accordingly.

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Accounting Procedure for loan provisioning: After every maturity date the interest on loan (Income) is credited from the borrower account by debiting his account. And the treatment is as follows: Party a/c................................Debit Interest on loan ....................Credit

By an example the accounting procedure of provisioning can be shown an by such practical instance a brief idea can be generated over this concept: A borrower outstanding loan is tk 32000 of which the principal is 20000 and interest is tk 12000 at the time of provisioning the interest earlier debited from his account to be shifted to the interest Suspense account as Interest on loan a/c ................................Debit Interest Suspense a/c................................Credit Again if the loan is rescheduled or the borrower paid partial amount of his due then the amount again will be shifted to the income account by the reverse of the above entry.

3.8) Credit Performance: Liquidity & Profitability:

The bank disburses credit in different sectors of the economy considering the credit recover capability of the borrower. Besides they consider a number if factors at the time of offering credit line proposal such as: Customers reputation in the market; Net worth of the firm Demand of the credit Social cost of the credit; Opportunity & threat of the borrower in the market Competitive strength & weaknesses of the borrower in the market Necessity of the project in the society. 43

According to the policy of the bank it discouraged the credit against the security as pledge. They prefer authenticated documents fro disbursement of credit. At the time of evaluating performance of the credit operation of the bank regarding its liquidity and profitability a number of facts are to be considered such as: Total deposit of the bank in different category; Total liquid capital/working capital of the bank; Running profit of the bank; Investment opportunities of the bank; Economic condition of the state; Time duration of the banking operation; Fixed asset volume and the Depreciation rate etc. Here it is to be remembered that the bank has gone to the operation just before two and half years so it is very obvious that the bank may carry a huge idle deposit and the lazy liquid capital; 1.The bank is carrying a huge liquid capital. 2.The utilization of the deposit is satisfactory since a bank is to invest its 80% of the deposit whereas this bank invests its 96% of the deposit. 3.Return on paid up capital is to be increased as it indicates the operating effectiveness of the company. 4.On the basis of operating efficiency it can be said that the profitability of the bank is to some extent sound.

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CHAPTER FOUR Investment Structure

4.1 Introduction:
Commercial banks are known as lending institutions. Making loans to business houses and industrial enterprises has been their popular activity. Making loans can also be called one kind of investment. Bank is an institution which is engaged in the business of money and loan. The more loans a bank can provide the better and beneficial for the bank it will be. Loans can be of different types. National Bank Limited provides different types of loans which are briefly discussed in the below: a) Secured overdraft (SOD): Overdrafts for longer periods are normally granted against the Security of tangible assets such as pledge/lien of FDR, Bonds, ICB unit certificate etc. They are called Secured overdrafts/collateralized overdraft. Descriptions overdraft will depend upon the nature and type of security charged to tile Bank. b) Cash credit (C.C): An advance under this head is granted for financing inventory, which may be hypothecated or pledged, to the Bank as security limit is advised to the borrowers. This is also fluctuating form of lending. c) Loans (General): This type of loan is provided for general purpose. d) House Building Loans (HBL): This type of loan is given to the fixed or low income people for housing purposes. e) Loan against trust receipt (LTR): It is a document that creates the bankers lien on the goods and practically amounts of hypothecation of the proceeds of sale in discharge of the lien.

45

The customer on whose account the branch issued an L/C may wish to obtain documents of the title to goods received under the I/s so that he can obtain delivery of the goods and arrange to retire the bill out of the sale proceeds of goods. Advances against a Trust Receipt obtained from the customer are allowed (for a maximum period of 180 days) when the documents covering an import shipment are given without payment. The customer holds the goods or their sale proceeds in trust for the bank, till such time, the loan allowed against the trust receipt is fully paid of. f) Payment against document (PAD): PAD is associated with import and export financing. The Bank opening L/C is bound to honor its Commitment to pay for import bills when these are presented for payment provided that it is drawn strictly in terms of letter of Credit. The foreign correspondent that negotiates the document, debits the amount thus advanced on behalf of the importer the a/c of the opening bank. The opening bank on receipt will lodge the shipping documents to their books and will respond to the documents. g) Consumer Credit Scheme: National Banks Consumer Credit Scheme gives you a great opportunity to buy household and office items on easy installments. This scheme gives you the advantage of part payment to cope with the high price tags of many necessary home and office appliances. Television, Refrigerator, VCR, Personal Computer, Photocopier, Washing Machine, Furniture, Microwave Oven, Car, and a number of other expensive items are now within your buying range. With this scheme NBL makes better living possible for people living of fixed income. Customers can buy those home and office equipments without over taxing their budget. h) Credit Card: The most modern technology based facility for making hassle free financial transactions and drawing of each money all over the world is given by credit card. NBL introduced master card in 1997. Now, NBL are the issuer and acquire of two most popular brands of credit card of the world, namely master card and VISA card.

46

4.2 General Analysis:

Table: 1 Distribution of given loan amount for different loan products (TK. in Million) of NBL during the period 2005-2008 Year Secured Overdraft Cash Credit Loans (General) House Building Loans Loan Products Loans Payment Against Trust Receipts 2005 2006 2007 2008 Total Mean 5728.12 5054.20 4708.33 5757.55 21248.20 5312.05 7180.32 8144.07 9179.95 11204.56 35708.90 8927.225 4776.30 6816.39 8497.24 12643.02 32732.95 8183.2375 727.24 850.12 966.94 1640.05 4184.35 1046.0875 (LTR) 3102.82 4621.25 6066.19 10183.94 23974.20 5993.55 Against Documents (PAD) 1015.73 1488.55 1674.47 1761.33 5940.08 1485.02 88.94 55.53 48.20 55.42 248.09 62.0225 324.12 305.37 264.76 253.12 1147.37 286.8425 22943.59 27335.48 31406.08 43498.99 2867.95 3416.94 3925.76 5437.37 Consumer Credit Scheme Credit Card Total Mean

Comment: From the above table: 1 we can see different types of loan products and their given amount in different years. Mean loan amount of different types of loan products is increasing from 2005 to 2008.So it is better for the bank in the future.

47

Table: 2 Distribution of interest income for different loan products (TK. in Million) of NBL during the period 2005-2008 Year Secured Overdraft (SOD) Cash Credit (CC) Loans (General) Loan Products House Loans Building Loans (HBL) 2005 2006 2007 2008 Total 716.02 631.77 588.54 719.69 2656.02 1077.05 1221.61 1376.99 1680.68 5356.33 764.21 1090.62 1359.56 2022.88 5237.27 101.81 119.07 135.37 229.61 585.86 Against Trust Receipts (LTR) 496.45 739.40 970.59 1629.43 3835.87 Payment Against Documents (PAD) 162.52 238.17 267.92 281.81 950.42 Consumer Credit Scheme (CCS) 14.23 8.88 7.71 8.87 39.69 97.24 91.61 79.43 75.94 344.22 3429.53 4141.13 4786.11 6648.91 428.69 517.64 598.26 831.11 Credit Card Total Mean

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Table: 2.1.a 2005 (TK. in Million) 716.02

Interest income of Secured Overdraft 2006 (TK. in Million) 631.77 2007 (TK. in Million) 588.54 2008 (TK. in Million) 719.69

Table: 2.1.b 2005 (TK. in 2006 (TK. in

Growth rate of Secured Overdrafts interest income Growth (%) 2006 (TK. in 2007 (TK. in Growth (%) 2007 (TK. in 2008 (TK. in Growth (%)

Million) Million) 716.02 631.77 -11.77%

Million) Million) 631.77 588.54 -6.84%

Million) Million) 588.54 719.69 22.28%

Figure: 1 Showing Growth rate of Secured Overdrafts interest income & Year
25.00% 20.00% 15.00% Growth rate 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% Year 2005-2006 2006-2007 2007-2008 Series1

49

Table: 2.2.a 2005 (TK. in Million) 1077.05

Interest income of Cash Credit 2006 (TK. in Million) 1221.61 2007 (TK. in Million) 1376.99 2008 (TK. in Million) 1680.68

Table: 2.2.b 2005 (TK. in 2006 (TK. in

Growth rate of Cash Credits interest income Growth (%) 2006 (TK. in 2007 (TK. in Growth (%) 2007 (TK. in 2008 (TK. in Growth (%)

Million) Million) 1077.05 1221.61 13.42%

Million) Million) 1221.61 1376.99 12.72%

Million) Million) 1376.99 1680.68 22.05%

Figure: 2 Showing Growth rates of Cash Credits interest income & Year 25.00% Growth rate 20.00% 15.00% 10.00% 5.00% 0.00% 2005-2006 2006-2007 2007-2008 Year 13.42% 12.72% Series1 22.05%

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Table: 2.3.a 2005 (TK. in Million) 764.21

Interest income of Loans (General) 2006 (TK. in Million) 1090.62 2007 (TK. in Million) 1359.56 2008 (TK. in Million) 2022.88

Table: 2.3.b 2005 (TK. in 2006 (TK. in

Growth rate of Loans (General)s interest income Growth (%) 2006 (TK. in 2007 (TK. in Growth (%) 2007 (TK. in 2008 (TK. in Growth (%)

Million) Million) 764.21 1090.62 42.71%

Million) Million) 1090.62 1359.56 24.66%

Million) Million) 1359.56 2022.88 48.79%

Figure: 3 Showing Growth rates of Loans (General)s interest income & Year 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

Growth rate

42.71% 24.66%

48.79%

Series1

2005-2006

2006-2007 Year

2007-2008

Table: 2.4.a

Interest income of House Building Loans (HBL)

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2005 (TK. in Million) 101.81

2006 (TK. in Million) 119.07

2007 (TK. in Million) 135.37

2008 (TK. in Million) 229.61

Table: 2.4.b 2005 (TK. in 2006 (TK. in

Growth rate of House Building Loans (HBL)s interest income Growth (%) 2006 (TK. in 2007 (TK. in Growth (%) 2007 (TK. in 2008 (TK. in Growth (%)

Million) Million) 101.81 119.07 14.50%

Million) Million) 119.07 135.37 13.69%

Million) Million) 135.37 229.61 69.62%

Figure: 4 Showing Growth rates of House Building Loans (HBL)s interest income & Year 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 69.62%

Growth rate

Series1 14.50% 13.69%

2005-2006

2006-2007 Year

2007-2008

Table: 2.5.a 2005

Interest income of Loans against Trust Receipts (LTR) 2006 (TK. in Million) 2007 (TK. in Million) 2008 (TK. in Million)

(TK. in Million)

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496.45

739.40

970.59

1629.43

Table: 2.5.b 2005 (TK. in 2006

Growth rate of Loans against Trust Receipts (LTR)s interest income Growth (%) 2006 (TK. in 2007 (TK. in Growth (%) 2007 (TK. in 2008 (TK. in Growth (%)

(TK. in

Million) Million) 496.45 739.40 48.94%

Million) Million) 739.40 970.59 31.27%

Million) Million) 970.59 1629.43 67.88%

Figure: 5 Showing Growth rates of Loans against Trust Receipts (LTR)s interest income & Year 80.00% Growth rate 60.00% 40.00% 20.00% 0.00% 2005-2006 2006-2007 Year 2007-2008 48.94% 31.27% Series1 67.88%

Table: 2.6.a 2005

Interest income of Payment against Documents (PAD) 2006 (TK. in Million) 2007 (TK. in Million) 2008 (TK. in Million)

(TK. in Million)

53

162.52

238.17

267.92

281.81

Table: 2.6.b 2005 (TK. in 2006 (TK. in

Growth rate of Payment against Documents (PAD)s interest income Growth (%) 2006 (TK. in 2007 (TK. in Growth (%) 2007 (TK. in 2008 (TK. in Growth (%)

Million) Million) 162.52 238.17 46.55%

Million) Million) 238.17 267.92 12.49%

Million) Million) 267.92 281.81 5.18%

Figure: 6 Showing Growth rates of Payment against Documents (PAD)s interest income & Year 50.00% Growth rate 40.00% 30.00% 20.00% 10.00% 0.00% 2005-2006 2006-2007 Year 2007-2008 12.49% 5.18% Series1 46.55%

Table: 2.7.a 2005

Interest income of Consumer Credit Scheme (CCS) 2006 (TK. in Million) 8.88 2007 (TK. in Million) 7.71 2008 (TK. in Million) 8.87

(TK. in Million) 14.23

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Table: 2.7.b 2005 (TK. in 2006 (TK. in

Growth rate of Consumer Credit Scheme (CCS)s interest income Growth (%) 2006 (TK. in Millio n) 2007 (TK. in Million) Growth (%) 2007 (TK. in Millio n) 7.71 -13.18% 7.71 8.87 15.05% 2008 (TK. in Million) Growth (%)

Million) Million)

14.23

8.88

-37.60%

8.88

Figure: 7 Showing Growth rates of Consumer Credit Scheme (CCS)s interest income & Year 20.00% 10.00% Growth rate 0.00% -10.00% -20.00% -30.00% -40.00% -50.00% Year -37.60% 2005-2006 2005-2006 -13.18% 2007-2008 Series1 15.05%

Table: 2.8.a 2005 (TK. in Million) 97.24

Interest income of Credit Card 2006 (TK. in Million) 91.61 2007 (TK. in Million) 79.43 2008 (TK. in Million) 75.94

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Table: 2.8.b 2005 (TK. in 2006 (TK. in

Growth rate of Credit Cards interest income Growth (%) 2006 (TK. in 2007 (TK. in Growth (%) 2007 (TK. in 2008 (TK. in Growth (%)

Million) Million) 97.24 91.61 -5.79%

Million) Million) 91.61 79.43 -13.30%

Million) Million) 79.43 75.94 -4.39%

Figure: 8 Showing Growth rates of Credit Cards interest income interest income & Year 0.00% -2.00% Growth rate -4.00% -6.00% -8.00% -10.00% -12.00% -14.00% -13.30% Year -4.39% -5.79% Series1 2005-2006 2006-2007 2007-2008

Comment: From the above table: 2 we can see different types of loan products and their interest income in different years. Mean interest income of different types of loan products is increasing from 2005 to 2008.So it is better for the bank in the future. But from table: 2.1 to 2.8 we can observe that best growth rate of interest income in Loans (General), House Building Loans (HBL) & Loans against Trust Receipts (LTR) and worst growth rate of interest income in credit card. For the time being, it can be said that credit card sector is not

56

good. But for better comments, we should go for regression analysis which has been done in Table: 3 and 4.

4.3 Regression analysis:

We know that, Y=a+bX Where, Y= Interest income X= Loan amount a= Intercept b=Regression coefficient

Table: 3 Linear regression analysis between loan amount of different loan products and interest income of different loan products during period 2005-2008: Loan products Secured Overdraft(SOD) Cash Credit Intercept(a) -.017 .012 Regression coefficient(b) .125 .150 P- value .000 .000

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Loans (General) House Building Loans(HBL) Loans Against Trust Receipts (LTR) Payment Against Documents (PAD) Consumer Credit

.004 .028 -.001

.160 .140 .160

.000
.000

.000

.008

.160

.000

-.003

.160

.000

Scheme(CCS) Credit Card .006 .300 .000 (The above linear regression calculation table has been done by using the data of table: 1 and 2.) P***<0.001; P**<.01; P*<.05

Comment:
From the table: 3, it can be said that if we give 1 million loan in Secured Overdraft (SOD) then on an average the rate of interest during the given period(2005-2008) will increase by .125 million. So from this viewpoint it is seen that the best earning sector is credit card which shows regression coefficient is .300. Loans (General) Loans, Against Trust Receipts (LATR), Payment against Documents (PAD) and Consumer Credit Scheme (CCS) are showing better position. But Secured Overdraft (SOD) is showing worst position.

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Table: 4 Linear regression analysis between loan amount of different loan products and Year of different loan products during period 2005-2008: Loan products Secured Overdraft(SOD) Cash Credit Loans (General) House Building Loans(HBL) Loans Against Trust Receipts (LTR) Payment Against Documents (PAD) Consumer Credit 21710.151 -10.789 .238 -484633.748 242.272 .060 Intercept(a) 56995.477 -2621313.365 -5064451.419 -571859.825 -4546413.845 Regression coefficient(b) -25.758 1310.860 2528.101 285.525 2268.830 P- value .936 .018 .023 .096 .038

Scheme(CCS) Credit Card 51173.689 -25.361 .021 (The above linear regression calculation table has been done by using the data of table: 1) P***<0.001; P**<.01; P*<.05 Comment: From the table: 4 it is seen that on an average in Secured Overdraft (SOD) sector the decreasing rate per year is -25.758 million. From the table: 3, it can be said that if we give 1 million loan in Secured Overdraft (SOD) then on an average the rate of interest during the given period(2005-2008) will increase by .125 million. But it is also seen that among the above stated loan products, Secured Overdraft (SOD) gives less interest income to the bank. From the table: 4 we can see that on an average in Loans (General) sector the increasing rate per year is 2528.101 million significantly which is really better for the bank. Besides these, on an average in Credit Card sector the decreasing rate per year is -25.361 million significantly but from table: 3 it is observed that on an average in Credit Card, the rate of interest during the given period(2005-2008) will increase by .300

59

million which is the best interest income earning sector among all other sectors. So bank should emphasize this sector and give more loans by using Credit Card.

4.4 Conclusion:
In conclusion we can say that the overall loan products are good. But some loan products do not show good performance. The bank should give an extra effort to increase investment.

CHAPTER FIVE Liquidity Performance of NBL

5.1 Introduction:
One of the important tasks, the management of any bank faces, is ensuring adequate liquidity at all times. A bank is considered to be liquid if it has ready access to immediately spendable funds at reasonable costs at precisely the time those funds are needed. To meet current or short term obligations adequate liquidity is needed. In fact, liquidity is a precondition for the endurance of a firm. Liquidity ratios measure the ability of a firm to meet its short-term obligations and reflect the short-term financial strength of a firm. So measuring liquidity performance of NBL, some liquidity ratios have been used. These ratios are 60

a) b) c) d) e) f)

Current Ratio Working Capital Cash Position Indicators Liquid Securities Indicator Riskless Assets Position Net Treasury Fund Position

5.2 Evaluation of liquidity performance: Liquidity Ratio Analysis

a) Current Ratio:
current asset current liabilities Table: 1 showing current ratio at different years

Year Current Ratio

2005 1.68: 1.00

2006 1.76: 1.00

2007 1.83: 1.00

2008 1.87: 1.00

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Figure: 1 showing current ratio at different years

Series2 2009 2008 2007 2006 2005 2004 2003 Series2 Series1 1 2005 1.68 2 2006 1.76 3 2007 1.83 4 2008 1.87 Series1 1.9 1.85 1.8 1.75 1.7 1.65 1.6 1.55

Table: 2 2005 2006

showing growth rate of current ratio Growth (%) 2006 2007 Growth (%) 2007 2008 Growth (%) (Ratio) (Ratio) 1.76:1.00 1.83:1.00 3.98% (Ratio) (Ratio) 1.83:1.00 1.87:1.00 2.19%

(Ratio) (Ratio) 1.68 : 100 1.76:1.00 4.76%

Figure: 2 showing growth rate of current ratio

Series2 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 4.76% 3.98%

Growth

2.19%

2005-2006

2006-2007 Year

2007-2008

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Comments: From the above Table: 1 and figure: 1 we can see that current ratio is increasing. So it is better for the bank to maintain liquidity. Banks liquidity power is increasing. For that reason, customer will rely on bank. Current ratio is better in 2008 in respect of previous year. But from the above Table: 2 and figure: 2, it is seen that growth rate of current ratio is not so much satisfactory. In 2005-2006 growth rate of ratio is 4.76% but in 2006-2007 and 2007-2008, it is decreasing. So bank has to increase its growth rate of ratio. By analyzing the current ratio, it can be said that the liquidity position of NBL is satisfactory.
b) Working Capital: current asset - current liabilities Table: 3 Showing Working Capital at different years 2005 6966019150 2006 13294056812 2007 18014474306 2008 20012281423

Figure: 3 Showing Working Capital at different years

25000000000 20000000000 Taka 15000000000 10000000000 5000000000 0 Series1 1 2005 2 2006 Year 3 2007 4 2008 Series1 Series2

Series2 6966019150 1329405681 1801447430 2001228142

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Table: 4 showing growth rate of Working Capital

2005 (TK) 6966019150 2006 Growth (%) 2006 2007 Growth (%) 007 2 2008 Growth (%) (TK.) 13294056812 90.84% (TK.) (TK.) 1329405681218014474306 35.51% (TK.) (TK.) 1801447430620012281423 11.09%

Figure: 4 showing growth rate of Working Capital

Series2 100.00% 90.84% 80.00% Growth 60.00% 40.00% 20.00% 11.09% 0.00% Series2 2005-2006 90.84% 2006-2007 35.51% Year 2007-2008 11.09%

35.51%

Comments: From the above Table: 3 and figure: 3 we can see that working capital is increasing. So it is better for the bank to have more working capital so that it can help in maintaining proper liquidity as well as profitability. Banks liquidity power is increasing. Working capital is better in 2008 in respect of previous year. But from the above Table: 4 and figure: 4, it is seen that growth rate of working capital is not so much pleasing. In 2005-2006 growth rate of working capital is 90.84% but in 2006-2007 and 2007-2008, it is decreasing. So bank has to increase its growth rate of working capital. By analyzing the working capital, it can be said that the liquidity position of NBL is pleasing.

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c) Cash Position Indicators:

Cash + Deposit Total Assets

Table: 5 Showing cash position at different years Year Cash Position Ratio 2005 .92 : 1.00 2006 .85 : 1.00 2007 .82 : 1.00 2008 .82 : 1.00

Figure: 5 showing cash position at different years Series1 0.94 0.92 0.9 Ratio 0.88 0.86 0.84 0.82 0.8 2004 2005 2006 Year 0.85 0.82 2007 0.82 2008 2009 0.92

Table: 6 showing growth rate of cash position 2005 .92 : 1.00 2006 Growth (%) 2006 .85 : 1.00 -7.61% .85 : 1.00 2007 Growth (%) 2007 2008 Growth (%) .82 : 1.00 -3.53% .82 : 1.00 .82 : 1.00 0%

65

Figure: 6 showing growth rate of cash position

Series2 0.00% -1.00% -2.00% Growth -3.00% -4.00% -5.00% -6.00% -7.00% -8.00% Series2 -7.61% 2005-2006 -7.61% -3.53% 0%

2006-2007 -3.53% Year

2007-2008 0%

Comments: From the above Table: 5 and figure: 5 we can see that cash position is decreasing. So it is not good sign for the bank. Banks liquidity control is decreasing. Cash position is better in 2005 in respect of other years. But from the above Table: 6 and figure: 6, it is seen that growth rate of cash position is not so much pleasing. So bank has to increase its growth rate of cash position. By analyzing cash position, it can be said that the cash position of NBL should be increasing for better liquidity control. Govt.Securities Total Assets

d) Liquid Securities Indicator:

Table: 7 Showing Liquid Securities Ratio at different years Year 2005 Liquid Securities Ratio .04 : 1.00 2006 .03: 1.00 2007 .11 : 1.00 2008 .09 : 1.00

66

Figure: 7 Showing Liquid Securities Ratio at different years

Series2 0.12 0.1 0.08 Ratio 0.06 0.04 0.02 0 2004.5 0.04 0.03

0.11 0.09

2005

2005.5

2006

2006.5 Year

2007

2007.5

2008

2008.5

Table: 8 showing growth rate of Liquid Securities Ratio 2005 2006 Growth (%) 2006 2007 Growth (%) 2007 2008 Growth (%) .04 : 1.00 .03 : 1.00 -25% .03 : 1.00 .11 : 1.00 226% .11 : 1.00 .09 : 1.00 -18% Figure: 8 showing growth rate of Liquid Securities Ratio

Series2 250% 200% 150% Growth 100% 50% 0% -50% Series2 -25% 2005-2006 -25% -18% 2006-2007 226% Year 2007-2008 -18% 226%

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Comments: From the above Table: 7 and figure: 7 we can see that liquid securities ratio is increasing. So it is better for the bank to have more liquid securities in case of liquidity shortage. Liquid securities ratio is better in 2007 in respect of previous year. But in 2008 it has decreased. Again from the above Table: 8 and figure: 8, it is seen that growth rate of liquid securities ratio is not so much pleasing. In 2006-2007 growth rate of liquid securities ratio is really good but in 2007-2008, it has decreased. So bank has to increase its growth rate of liquid securities ratio. By analyzing the liquid securities ratio, it can be said that bank should keep attention about the liquid securities.

e) Riskless Assets Position:

Cash + Deposits + Govt.Securities Total Assets

Table: 9 Showing Riskless Assets Position at different years Year 2005 2006 2007 Riskless Assets Position .96 : 1.00 .94: 1.00 1.02 : 1.00 Figure: 9 Showing Riskless Assets Position at different years 2008 .98 : 1.00

Series1 1.04 1.02 Ratio 1 0.98 0.96 0.94 0.92 2004 2005 0.96 0.94 2006 Year 2007 2008 2009 0.98 1.02

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Table: 10 showing growth rate of Riskless Assets Position 2005 .96 : 1.00 2006 Growth (%) 2006 2007 .94 : 1.00 -2.08% .94 : 1.00 1.02 : 1.00 Growth (%) 2007 2008 Growth (%) 8.51% 1.02 : 1.00 .98 : 1.00-3.92%

Figure: 10 showing growth rate of Riskless Assets Position 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% 8.51%

Growth rate

Series1 2005-2006 -2.08% 2006-2007 2007-2008 -3.92% Year

Comments: From the above Table: 9 and figure: 9, we can see that Riskless Assets Position is not in steady position. So it does not seem to be good for bank in maintaining proper liquidity. Riskless Assets Position is better in 2007 in respect of other years. But from the above Table: 10 and figure: 10, it is seen that growth rate of riskless assets position is not so much pleasing. In 2006-2007 growth rate of riskless assets position is 8.51% but in 2007-2008, it has decreased. So bank has to increase its growth rate of riskless assets. Balance of the reserve with the central bank Total Assets

f) Net Treasury Fund Position:

Table: 11 Showing Net Treasury Fund Position at different years Year Net Treasury Fund Position 2005 .07 : 1.00 2006 .05 : 1.00 2007 .06 : 1.00 2008 .06 : 1.00

69

Figure: 11 Showing Net Treasury Fund Position at different years Series1 0.08 0.06 Ratio 0.04 0.02 0 2004 2005 2006 2007 Year Table: 12 showing growth rate of Net Treasury Fund Position 2005 2006 Growth (%) 2006 2007 Growth (%) 2007 .07: 1.00 .05: 1.00 -28.57% .05 : 1.00 .06 : 1.00 20% .06 : 1.00 Figure: 12 showing growth rate of Net Treasury Fund Position Series1 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% -40.00% 20% 0% 2005-2006 -28.57% Year Comments: From the above Table: 11 and figure: 11 we can see that Net Treasury Fund Position is more or less in good position. So it is better for the bank to have more Net Treasury Fund so that it can help in maintaining proper liquidity. Net Treasury Fund is better in 2005 in respect of other years. But from the above Table: 12 and figure: 12, it is seen that in 2005-2006 growth rate of Net Treasury Fund Position is -28.57%but in 2006-2007, it is 20% and in2007-2008, it is 0%.It is neither good nor bad. So bank has to increase its growth rate of Net Treasury Fund Position. 2006-2007 2007-2008 2008 .06: 1.00 Growth (%) 0% 2008 2009 0.07 0.05 0.06 0.06

Growth rate

70

Net liquidity gap: Table: 13 2006 3,274,259,431 Showing Net liquidity gap at different years 2007 4,568,391,288 2008 6,126,266,738

Figure: 13 Showing Net liquidity gap at different years

7000000000 6000000000 5000000000 Taka 4000000000 3000000000 2000000000 1000000000 0 Series2 Series1 2006 1 2006 3,274,259,431 2007 2 2007 4,568,391,288 Year 2008 3 2008 6,126,266,738 3,274,259,431 4,568,391,288 Series2 Series1 6,126,266,738

Table: 14 Showing growth rate of Net liquidity gap 2006 2007 3,274,259,431 4,568,391,288 Growth (%) 2007 39.52% 4,568,391,288 2008 6,126,266,738 Growth (%) 34.10%

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Figure: 14 Showing growth rate of Net liquidity gap

Series2 40.00% 39.00% 38.00% 37.00% Growth 36.00% 35.00% 34.00% 33.00% 32.00% 31.00% Series2 2006-2007 39.52% Year 2007-2008 34.10% 34.10% 39.52%

Comments: From the above graph it is seen that net liquidity gap has been increased from 2006 to 2008. It is actually good sign for the bank. Because bank can easily meet its short term obligation in case of financial crisis by maintaining more liquidity.

5.3 Conclusion:
In conclusion we can say that the overall liquidity performance of NBL is good. But in some cases corrective measure should be taken by the bank. So the bank should give an extra endeavor to increase the efficiency of liquidity management.

72

CHAPTER SIX Credit Appraisal Process

6.1 Credit Appraisal Process (Theoretical Part):

1) Application for Loan The prospective borrower has to apply to the Branch for by filling up of a specific Application form. The Application form (Request for credit Limit) contains following particulars a) Name of the Applicant------------Firm/company---------------------b) Address: i) ii) iii) Present --Permanent Factory /showroom

c) Nature of A/C and no d) Telephone /Fax no i) Office ii) Resident-e) Particular of proprietors /partners /directors name, Fathers /Husbands/Mothers Name, permanent Address, age, Designation. f) Name of Business /Industry. g) Date of Establishment /Incorporation h) Nature and amount of Limit I) Purpose j) Period K) Mode of Repayment j) Trade license number, date and expiry date (photocopy of trade license enclosed)

73

2) Credit worthiness, background and track record of the borrower. 3) Financial standing of the borrower supported by financial statement and other documentary evidences. 4) Legal jurisdiction and implication of applicable of laws. 5) Effect of any applicable regulations and laws. 6) Purpose of the loan. 7) Tenure of the loan. 8) Viability of the business concern. 9) Cash flow analysis and also projection thereof. 10) Quality, value and adequacy of security, if available. 11) Risk taking capacity of the borrower. 12) Entrepreneurship and managerial capabilities of the borrower. 13) Reliability of the sources of the borrower. 14) Volume of risk in relation to the taking capacity of the bank or company concern. 15) Profitability of the proposal to the bank or company concern. 16) Credit risk grading (CRG): Credit risk grading is an important tool for credit risk management as it helps the Banks & financial institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio of a bank or a branch. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the loan price, what should be the extent of exposure, what should be the appropriate credit facility, what are the various facilities, what are the various risk mitigation tools to put a cap on the risk level.

At the post-sanction stage, the bank can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken.

74

Having considered the significance of credit risk grading, it becomes imperative for the banking system to carefully develop a credit risk-grading model that meets the objective outlined above Definition of Credit Risk Grading: The Credit Risk Grading (CRG) is a collective definition based on the pre-specified scale and reflects the underlying credit-risk for a given exposure. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure. Credit Risk Grading is the basic module for developing a Credit Risk Management system. Functions of Credit Risk Grading: Well-managed credit risk grading systems promote bank safety and soundness by facilitating informed decision-making. Grading systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns. Use of Credit Risk Grading: The Credit Risk Grading matrix allows application of uniform standards to credits to ensure a common standardized approach to assess the quality of individual obligor, credit portfolio of a unit, line of business, the branch or the Bank as a whole. As evident, the CRG outputs would be relevant for individual credit selection, wherein either a borrower or a particular exposure/facility is rated. The other decisions would be related to pricing (credit-spread) and specific features of the credit facility. These would largely constitute obligor level analysis. Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level analysis.

75

Numbers and Short Name of Grades Used in the CRG: The proposed CRG scale consists of 8 categories with Short names and Numbers are provided as follows: GRADING Superior Good Acceptable Marginal/Watchlist Special Mention Sub standard Doubtful Bad & Loss Credit Risk Grading Definitions: A clear definition of the different categories of Credit Risk Grading is given as follows: Superior - (SUP) - 1 Credit facilities, which are fully secured i.e. fully cash covered. Credit facilities fully covered by government guarantee. Credit facilities fully covered by the guarantee of a top tier international Bank. Good - (GD) - 2 Strong repayment capacity of the borrower The borrower has excellent liquidity and low leverage. The company demonstrates consistently strong earnings and cash flow. Borrower has well established, strong market share. Very good management skill & expertise. All security documentation should be in place. Credit facilities fully covered by the guarantee of a top tier local Bank. Aggregate Score of 85 or greater based on the Risk Grade Score Sheet Acceptable - (ACCPT) - 3 These borrowers are not as strong as GOOD Grade borrowers, but still demonstrate consistent earnings, cash flow and have a good track record. Borrowers have adequate liquidity, cash flow and earnings. Credit in this grade would normally be secured by acceptable collateral (1st charge over inventory / receivables / equipment / property). Acceptable management 76 SHORT NAME SUP GD ACCPT MG/WL SM SS DF BL NUMBER 1 2 3 4 5 6 7 8

 Acceptable parent/sister company guarantee Aggregate Score of 75-84 based on the Risk Grade Score Sheet Marginal/Watch list - (MG/WL) - 4 This grade warrants greater attention due to conditions affecting the borrower, the industry or the economic environment. These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow and/or inconsistent earnings. Weaker business credit & early warning signals of emerging business credit detected. The borrower incurs a loss Loan repayments routinely fall past due Account conduct is poor, or other untoward factors are present. Credit requires attention Aggregate Score of 65-74 based on the Risk Grade Score Sheet Special Mention - (SM) - 5 This grade has potential weaknesses that deserve managements close attention. If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower. Severe management problems exist. Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted (consecutive losses, negative net worth, excessive leverage), An Aggregate Score of 55-64 based on the Risk Grade Score Sheet. Substandard - (SS) - 6 Financial condition is weak and capacity or inclination to repay is in doubt. These weaknesses jeopardize the full settlement of loans. Bangladesh Bank criteria for sub-standard credit shall apply. An Aggregate Score of 45-54 based on the Risk Grade Score Sheet.

Doubtful - (DF) - 7

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 Full repayment of principal and interest is unlikely and the possibility of loss is extremely high. However, due to specifically identifiable pending factors, such as litigation, liquidation procedures or capital injection, the asset is not yet classified as Bad & Loss. Bangladesh Bank criteria for doubtful credit shall apply. An Aggregate Score of 35-44 based on the Risk Grade Score Sheet. Bad & Loss - (BL) - 8 Credit of this grade has long outstanding with no progress in obtaining repayment or on the verge of wind up/liquidation. Prospect of recovery is poor and legal options have been pursued. Proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is not warranted, and the anticipated loss should have been provided for. This classification reflects that it is not practical or desirable to defer writing off this basically valueless asset even though partial recovery may be affected in the future. Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. Legal procedures/suit initiated. Bangladesh Bank criteria for bad & loss credit shall apply. An Aggregate Score of less than 35 based on the Risk Grade Score Sheet. How to Compute Credit Risk Grading: The following step-wise activities outline the process for arriving at credit risk grading. Step I Step II Step IV Step V Step VI : Identify all the Principal Risk Components : Allocate weight ages to Principal Risk Components : Assign weight ages to each of the key parameters. : Input data to arrive at the score on the key parameters : Arrive at the Credit Risk Grading based on total score obtained

Step III: Establish the Key Parameters

Credit Risk Grading Process: 78

Credit Risk Grading should be completed by a Bank for all exposures (irrespective of amount) other than those covered under Consumer and Small Enterprises Financing Prudential Guidelines and also under the Short-Term Agricultural and Micro - Credit. For Superior Risk Grading (SUP-1) the score sheet is not applicable. This will be guided by the criterion mentioned for superior grade account i.e. 100% cash covered, covered by government & bank guarantee. Credit risk grading matrix would be useful in analyzing credit proposal, new or renewal for regular limits or specific transactions, if basic information on a borrowing client to determine the degree of each factor is a) readily available, b) current, c) dependable, and d) parameters/risk factors are assessed judiciously and objectively. Relationship manager should ensure to correctly fill up the Limit Utilization Form in order to arrive at a realistic earning status for the borrower. Risk factors are to be evaluated and weighted very carefully, on the basis of most up-to-date and reliable data and complete objectivity must be ensured to assign the correct grading. Actual parameter should be inputted in the Credit Risk Grading Score Sheet. Credit risk grading exercise should be originated by Relationship Manager and should be an on-going and continuous process. Relationship Manager shall complete the Credit Risk Grading Score Sheet and shall arrive at a risk grading in consultation with a Senior Relationship Manager and document it as per Credit Risk Grading Form, which shall then be concurred by the Credit Officer in consultation with a Senior Credit Officer. All credit proposals whether new; renewal 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 and Corporate Banking/Line of Business/Recovery Unit for updating their MIS/record. The appropriate approving authority through the same Credit Risk Grading Form shall approve any subsequent change/revision i.e. upgrade or downgrade in credit risk grade.

79

Exceptions to Credit Risk Grading: Head of Credit Risk Management may also downgrade/classify an account in the normal course of inspection of a Branch or during the periodic portfolio review. In such event, the Credit Risk Grading Form will then be filled up by Credit Risk Management Department and will be referred to Corporate Banking/Line of Business/Credit Administration Department/Recovery Unit for updating their MIS/records. Recommendation for upgrading of an account has to be well justified by the recommending officers. Essentially complete removal of the reasons for downgrade should be the basis of any upgrading. In case an account is rated marginal, special mention or unacceptable credit risk as per the risk grading score sheet, this may be substantiated and credit risk may be accepted if the exposure is additionally collateralized through cash collateral, good tangible collaterals and strong guarantees. These are exceptions and should be exceptionally approved by the appropriate approving authority. Whenever required an independent assessment of the credit risk grading of an individual account may be conducted by the Head of Credit Risk Management or by the Internal Auditor documenting as to why the credit deteriorated and also pointing out the lapses. If a Bank has its own well-established risk grading system equivalent to the proposed credit risk grading or stricter, then they will have the option to continue with their own risk grading system. Credit Risk Grading Review: Credit Risk Grading for each borrower should be assigned at the inception of lending and should be periodically updated. Frequencies of the review of the credit risk grading are mentioned below:

Number 1 2 3 4 5 6 7

Risk Grading Superior Good Acceptable Marginal/Watch list Special Mention Sub-standard Doubtful

Short SUP GD ACCPT MG/WL SM SS DF

Review frequency (at least) Annually Annually Annually Half yearly Quarterly Quarterly Quarterly

80

Bad & Loss

BL

Quarterly

MIS on Credit Risk Grading: Bank should have comprehensive MIS reports on credit risk grading to evaluate entire credit portfolio of the Bank. MIS reports as should be prepared and circulated at least on a quarterly basis.

Financial Spread Sheet (FSS): A Financial Spread Sheet (FSS) has been developed which may be used by the Banks while analyzing the credit risk elements of a credit proposal from financial point of view. The FSS is well designed and programmed software having two parts. Input and Output Sheets. The financial numbers of borrowers need to be inputted in the Input Sheets, which will then automatically generate the Output Sheets. 17) Yield from the facility. 18) Market aspect. 19) Total global exposure of the borrower. 20) CIB status: There is possibility of hiding information about the current liability and transaction with other bank. So to get the appropriate information about the creditability of the customer. The branch office collects CIB report through the head office. It is known that all the banks have to send liability position of the client. The CIB authority provides the related information for which he is asked for.

21) Credit Approval Process

National Bank, conducts its banking operation under branch banking system. For administrative control and smoothening its day-to-day operation and extension of appropriate and quick services, quick credit delivery, some branches have been placed under some Regional offices. Responding to the requirement of customers in the state of lack of full computerization facilities of the branches and on line banking facilities some credit sanctioning powers have been delegated to the Branch Managers and the Regional Managers.

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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 ensure sufficiency and consistency of the papers/documents. They will originate credit proposals, prepare detailed credit memorandum after undertaking a thorough credit check and conducting credit risk assessment of the client 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, it will be sent by the branch Manager to the Regional Manager with his recommendation. Regional Manager will get the proposal critically examined by the credit officers and recommended by 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. Divisional 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 Management. When the proposal will be under the approval 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 a proposal does not meet the basic lending 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 Credit Operations Division will keep credit files under proper control number and its use will be restricted to the authorized officials only.

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Flow chart for approval Processor Loans & Advances Sanction/ Decline

Credit Application processed by credit officers and recommended by. Credit In Charge of the branch.

Branch Credit Committee

Sanction/ Decline

Branch Manager

Regional Officer

Regional Office Credit Committee

Sanction/ Decline

Regional Head

Head Office, Credit Division

Head Office Credit Committee

Deputy Managing Director (Credit)

Managing Director

Executive Committee (EC)

83

MANDATORY CHECKING: o Proposed Credit facilities are compliant of the existing banking regulations. o CRG has been done. o Other analysis and assessment has been done properly. o Competent authority as per Bank's policy approves facilities in writing. o All Credit approvals are given on a one-obligor basis. o Limit is approved as per authority delegated in the rule book. o Standard facilities are described using standard language. o Large loans are approved within the ceiling advised by Bangladesh Bank. o Fresh approvals, renewal, rescheduling, compromise agreement for large loan accounts are placed for approval by the Board as per Bangladesh Bank Guidelines. o Proposal incorporates that facilities are subject to banking regulation, which shall be mentioned in the sanction letter also. o Approval authorities check that pricing of the facilities are within the Bank's declared band. Appeal Process Any declined credit will be represented to the next higher authority for re-assessment/ approval. Credit Administration (For HO, Regional Office & Branch) Credit Administration function will be critical in ensuring that proper documentation and approvals are in place in respect of disbursement of loan facilities. Credit Administration functions will comprise the following: -(Refer to Flow Chart as Appendix-J) Disbursement: Before disbursement of the approved facilities, branch Credit Administration shall ensure that the following steps have been properly followed: 84

a) Approval has been obtained. b) Standard loan facility documentation including security documentation has been completed. c) Limit Creation & documentation Check List has been completed. d) Credit officer & Credit Administration officer of the branch has jointly signed documentation checklist before disbursement. e) The approved terms and other requirements have been adhered to by the branch. f) 0 Branch Credit Administration Unit/ (HO Credit Administration - if required) issues security-compliance certificate and Loan Disbursement /Limit Loading Checklist & Authorization Form before disbursement. g) Branch Credit Administration Unit/ (HO Credit Administration - if required) check collateral. h) Bank's legal adviser ensures that the Bank's security interests are perfected. i) Incomplete documentation receives a temporary waiver from approving authority. j) Branch Credit Administration Unit/ HO Credit Administration ensure that all disbursements are covered by approved credit lines. k) Authorized officers as per our bank's policy disburse facilities. l) Evidence of disbursements is properly documented. m) Unauthorized approvals are surfaced and proper actions are taken. n) Excess over limit are allowed under pre-fact credit approvals.

In order to administer credit in a proper manner under the present institutional & operational set up, tasks of credit administration will be done in the following manner: 1. 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 a 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 completed 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. 85

2.

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.

3.

Branch credit administration will keep the documents under their strict control preferably in locked fire proof storage and will ensure that all the terms of approval has been complied where against drawing will be allowed.

Custodian a) Obtaining Security Documentation as per approval b) Safely Storing Loan/Security Documents Cash collateral such as Fixed Deposit Receipt, Script, Bonds, Marketable Securities etc. are under dual control in fireproof vault and for this purpose two custodians and their alternates are to be identified in writing. c) Periodic Review of Documentation d) Ensuring insurance of the insurable objects. e) Ensuring maintenance of Safe in & safe out register properly to track their movement, f) Releasing of collateral of debt obligation instruments under appropriate approval. g) Ensuring keeping current Insurance policy in the vault and renewal of the policy on a timely basis. * Periodically Means: Risk Grade >6 4-5 1-3 Compliance requirements of credit administration: a) Credit administration shall submit all required Bangladesh Bank returns on credit in specific format in a timely manner. b) Credit Administration Division shall maintain Bangladesh Bank circulars/ regulations/guidelines relating to credit centrally, ensure issuance of corresponding Review Frequency Quarterly Semi-annuals Annually

86

circulars and advise all relevant departments to ensure compliance of the contents of the circular. c) All 3rd party service providers like, valuers, lawyers, CPA's etc shall be approved and their performance reviewed on annual basis. Credit Monitoring To minimize credit losses, monitoring procedures and system should be reinforced and more effective 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 instruct the branch to regularize the same. a) Overdue principal & interest (Monthly) b) Overdue trade bills (Monthly) c) Excess over limit/ Excess over facility approved (Monthly). Status reports on Excess over Limit and expired credit limit on a regular basis. d) Status reports on drawing power and Collateral shortfall on a regular basis. e) Breach of loan covenants/ terms and conditions/Documentations deficiencies (Fortnightly) f) Non payment and late payment g) Branch monitors OD/CC facilities on a regular basis to ensure accounts turn over. h) Non-Receipt of Financial Statements in time (Annually) i) Objections of internal/external or regulator Inspection/ Audit and advise corrective measures timely, j) Details of Early Alert Accounts and preparation of list of delinquent account Special Mention Account (SMA). (Monthly) k) Identification of early alert accounts, delinquent account (Monthly) l) Identification of the accounts, which have assumed SMA status due to non-renewal. (Monthly) m) Listing of the accounts, which shall be SMA if not renewed with in 2 months and taking necessary measures. (Monthly) 87 & Special mention account &

n) Status of timely renewal of limits and informing Branch, regional Office & Credit Division, Head Office 2 months ahead of expiry limit dates. Early Alert Process: An account that has risks or potential weakness of material nature, requiring monitoring, supervision or close attention by the Management will be brought under Early Alert Process; otherwise these weaknesses will result in deterioration of repayment prospects for the assets or in the bank's credit position at future date. In order to keep an account on track, early Identification, prompt reporting and pro-active management of Early Alert Accounts will be placed under the responsibility of dealing credit officials and must be undertaken on a continuous basis. An Early Alert Report shall be completed by the Branch credit officers and sent to the HO Credit Administration for any account showing signs of deterioration within 7 days from the identification of weakness. Early Identification and prompt reporting of deteriorating credit sign to be done to ensure quick action to protect banks interest. When an account will show breach of loan covenants or adverse market rumors an Early Alert report should be raised. An Early Alert Account, when shows that the symptoms causing Early Alert classification have been regularized, the account will be reclassified as a Regular account under the approval of Credit Administration.

As part of Early Alert Process the following takes will be performed: I. Control mechanism to be made more effective and where required to be devised, to ensure that calls/inspections are made regularly on the clients and documented. II. Regular inspections will be conducted to confirm that bank's security / collateral is secured. III. Call /Early Alert Reports to be analyzed by branch & Head office credit administration to ensure that affairs of the borrower are being run on expected lines and there are no material changes in the status of borrower, IV. Relationship Manager/ credit officer shall regularly monitor the performance of the clients business as well as repayment and shall prepare status report, V. Relationship Manager/ credit officer shall prepare Early Alert Report with in days after identification of weakness and signs or deterioration. Credit Recovery: 88

Recovery Unit (RU) will directly manage accounts with the status of Sub-standard /DF/BL. Exit accounts graded 4-5 may also be transferred to RU for efficient exit, based on recommendation of In-charge credit Recovery Unit (RU) shall: a) Determine Account Action plan/ Recovery strategy. b) Make all out efforts to maximize recovery including placing customers into receivership or liquidation as appropriate. c) Provide for adequate and timely loan loss provision, based on actual and expected losses. d) Reschedule accounts as per norms. e) Review classified accounts. f) Initiate legal action as per norms. g) Follow up Court cases regularly and ensure that necessary steps are taken for early resolution.

6.2 A practical case related to credit appraisal process of lease finance:

6.2.1) Lease Application Form

The Manager National Bank Limited Muradpur Branch Chittagong

Sub:

Photo

Application for Lease Financing facility of Tk 12,50,000/- for procurement of Vehicle.

Dear Sir, I / we intend to avail of Lease Finance facility from National Bank Ltd. ,Muradpur Branch, Chittagong. I / we furnish the following particulars and bind myself/ourselves to furnish you with any other information and comply with the required formalities which you may need any time.

A. General Information
89

1. Name of the applicant M/S.Rehab Steel Prop: Md.Azhar Uddin--------------------2. Name of the Group (if any)

------------------------------------------------------------------------------------------------------+ 3. Business Address ----------Telephone No. ----------------------------------------------Mobile no. Janata Iron Market, Sagorica Road, P.S-Pahartali, chittagong----------------------------------------------------------------------------------------------------

01815632724,01678063450
Fax No. 4. Permanent Address ---------5. Factory Address ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------6. Legal Status (tick mark) 1) Individual 4) Private Limited. 2) Proprietorship 5) Public Limited. 3) Partnership 6) Others ----------------------------- E-mail------------------------------------------------------------Bhatiary (Hajee Badshah Meah Bari),P.S-Sitakunda, Chittagong---------------------------------------------------------------------------------------------------

7. Date of establish /Date of incorporation / Date of commencement of business -2005--8. Nature of Business

Seller of Scrap items( MS Malting Scrap & MS Plate)

Proposal
1. Lease Finance amount required for Tk.12,50,000/-------------------------------------------2. Period (in months ) (Tick mark) 3. Purpose 1) 24 2) 36 3) 48 4) 60 5) Others 3. Medical Instruments 6. Others

1. Vehicle
4. Equipment

2. Capital Machinery 5. Consumer Durable

4. Description of the Equipment/ Vehicles (Tick Mark)

1. Quotation (attach)

2. Pro forma invoice (attach)

90

3. For sale and lease back arrangement (Original Documents) a) LC Copy d) Country of Origin b) Bill of Lading c) Bill of Entry

e)Comm. Invoice f) Packing list.

C. Company information (if the applicant is a company /firm)

01. A. B. C. D. (2)Registered address: .. Contact person/Phone/ Designation: Md.Azhar Uddin...... No. of employee : 03 (Three) E Mill/Factory address with phone no.: In case of Proprietor firm/ Partnership firm/ Limited Company: Name of Company / Firm: M/S.Rehab Steel (Memorandum and Articles of Association alongwith Certificate of Incorporation and copy of registered partnership deed are to be attached) (1) Office address with phone no/ Fax / Email: Janata Iron Market, Sagorica Road, P.S- Pahartali,Chittagong

F. each

Share capital

(i) Authorised Capital : Tk. ................................. divided into ...................... shares of Tk. .............

(ii) Paid up Capital : Tk............................................................................................................................ G. H. Trade License no 42714.......................... Date..18.09.2007................... Validity 30.06.08. TIN : 346-107-5121 ..... IRC /VAT Regd. no., if any .........................................

91

I. Particulars of Directors/Partners/Proprietor Name Position / Status Relationship with MD/ Chairman

Age

Residential Address and Permanent Address with Telephone number

Shareholding Amount %

Net worth as on (as per enclosed statement )

36 Md.Azhar Uddin

Chemon Ara House,Near Bahutala Colony,Agrabad C/A , Chittagong Permament Address: Bhatiry, P.S-Sitakunda Chittgong 100%

191.12 lac

Proprietor

years

(If required the particulars of directors/ partner/ proprietor may be furnished in separate sheet.)
(J) Educational qualification and business experience of Proprietor/all Partners/all the Directors and Share Holders: -(As per enclosed Annexure) S.S.C , 08 years

02.

In case of Individual :
Name Father's / Husband's Name Mother's Name Date of Birth Marital Status Residential Address
: ..................................................................................................................

: .............................................................................................................. : ................................................................................................................. : .................................................................................................................. : ..................................................... Sex: ................................................... : .................................................................................................................

Permanent Address

: .................................................................................................................

92

: Passport no. (if any) Income from other source Monthly expense

Occupation

: .............................................. Monthly Income

: ...................... Issued on: ...................... Issued by.................................. : Source ..................................... Monthly Income : ................................. :................... Monthly net income: ..............................

Telephone : Office: .............................. Residence : ............................ Mobile: ...............................

FaxEmail.. Trade License no............................. Date............................... Validity ........................................ TIN : .................................. IRC /VAT Regd. no., if any ...........................................

Net worth as on .... (as per enclosed statement)

D. Bank Information (maintaining the day to day transaction)

Name of the Bank:-National Bank Ltd.------------ Branch : Pahartali, Chittagong---Type of account (tick mark) 1) Current Deposit 2) Savings Deposit 3) Others

Account number and date of opening:..CD 33007131 DT-02.02.2006 .,CC-37000446 DT 31.12.06 Last 3 years transaction record Year 2007(cc h) No. of transactions Dr. Sum 2,31,84,940.00 Cr. Sum. 2,23,96,766.00

E. Brief description of existing business

Line of business: Whole seller of Scrap Iron. Name of the product:. Market details:.................. .

93

Others . .

F. (i) Financial Performance of the Firm/Company for last 3 years:

Particulars Sales Net Profit after Tax Year-1 Year-2 2,98,50,500.00 17,84,600.00 Year-3 4,26,00,373.00 22,97,176.00

(ii) Financial Performance of the sister concerns for last 3 years:

Particulars Sales Net Profit after Tax Year-1 N/a Year-2 Year-3

G. Description of Equipment proposed under this Lease (Pls. attach Indent/ Quotation/ Proforma Invoice)
Description of equipment with country of origin and year of manufacturing Totoyota Hiace ,Super GL Microbus No. of Unit 01 Unit Price Tk. 17,50,000/In FC Total Price In Taka 17,50,000/Remarks

H. Name and Address of Supplier and mode of delivery

Name and Address of supplier MAXIM car Centre Delivery Schedule Mode of Delivery 1 day after confirmed order ( Details in separate sheet may be furnished, if necessary) Remarks

I. Place of installation of Equipment/Capital Machinery:. ..

J. Procurement cost of Equipment

94

C&F Cost/Procurement Cost (as per quotation / Indent / Proforma Invoice) Less: Down Payment, if any Sub Total Add: Duty / VAT / Other Cost etc. Total Procurement Cost Acquisition Cost/Lease Finance

Tk. 17,50,000/-..................................

Tk. .............................................. Tk.17,50,000/-........................................ Tk. .............................................. Tk.17,50,000/-....................... Tk.12,50,000/-.

J. Expected Date of Lease Execution/ Disbursement : K. .............................. L. Financial projection from Lease Asset :
Particulars Year-1 Year-2 N/A Year-3 Year-4 Year-5

M.

Particulars of guarantor (s), if any :

Residential and Permanent Address Bhatiary, Sitakunda, Chittagong ---do--38 yrs Business 147.91 Lac Age Profession Net worth Relationship with Applicant Brother

Name, Father's/ Husband's Name and Mother's Md.Bazlur Rahman Fathers Name :Hajee Badshah Meah Mothers Name :Nurjahan Begum

(Details of Guarantor (s) to be furnished in separate sheet in above format along with Net worth Statement)

N.

Description and Type of security offered by the Applicant

Full Description of Securities Owner Value of Security Remarks

95

O. Liability Position of the Applicant with National Bank Ltd., all branches (Both funded & non funded) as on 31.12.2007
Name of the branch Nature of Limit Amount of Limit Validity of Limit Outstanding (in crore) Type and Value of Collateral Securities 88.82 lac Annual Turn Over (in crore) 223.97 lac Overdue Status as on.. Amt. Period Classifi cation Status Uc

NBL,Pahart ali, branch, Chittagong

CC(H)

30.00 lac

31.12.2008

7.88 lac

(If required the liability position may be furnished in separate sheet.)

P.

Liability Position of the sister concern / Group of the Applicant with National Bank Ltd., (Both funded & non funded) as on 10.06.2008

Name of the branch

Nature of Limit

Amount of Limit

Validity of Limit

Outstanding (in crore)

Type and Value of Collateral Securities

Annual Turn Over (in crore)

Overdue Status as on Amt. Period

Classifi cation Status

N/A

(If required the liability position may be furnished in separate sheet.)

Q.

Liability position of the Applicant and its sister concern/Group with other banks (Both funded & non funded) 10.06.2008

Name of the borrowing Concern / Group

Name of Bank Branch

Nature of Limit

Amount of Limit

Validity of Limit

Outstandi ng in crore

Overdue Status as on Amt. Period

Classific ation Status

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N/A

(Details of liabilities of the Applicant with other Branches of National Bank Ltd. be enclosed in above format.)

R.

Details of Financial Commitment with other Leasing Companies / Bank under Lease Finance as on 10.06.2008
Type of Asset Leased Lease Amount, Tk. Outstanding, Tk. Lease Term Date of Expiry Overdue Status as on

Name of the Leasing Company/ Bank

Amoun t of monthl y rental

Amt.

Period

NIL

I/We do hereby declare that the particulars furnished above are true and correct to the best of my/our knowledge. I/We authorise you to obtain and / or verify information from any source regarding my/our credit worthiness.

Yours faithfully,

(Seal & Signature of the Applicant)

Name:

97

6.2.2) Limit proposal and approval form: National Bank Ltd. Muradpur Branch Chittagong
LEASE PROPOSAL FORM
Reference No.AHU/MRD/LEASE-01 Date 11.06.2008

Sub:

Application for Lease Financing facility of Tk 12,50,000.00. for procurement of Capital Machinery/ Equipment / Consumer durable / Medical instrument / Vehicles etc.

CRG Information: (a) Risk Grading: (b) Aggregate Score:80 (Pls. attach evaluation sheet) 01. Particulars of the client a) Name of the Account b) Address i) Business/Show room/shop : : : M/S Rehab Steel.. Janata Iron Market, Sagoriza Road, P.S-Pahartali, ... ii) Office : Phone ........................................................ ... ... iii) Factory : Phone No. ... .. Phone No. ... chittagong.

98

c)

Account No. & date of Account : opening

CD-713, Date: 02.02.06 & CC-37000446, Date:31.12.06 lac. Maximum Balance : Tk.5.08 Minimum Balance Tk. .01 lac

Average Balance Tk. 8.10 lac Dr. Summation : 231.85 lac Cr. Summation :223.97 lac (During d) e) f) g) h) i) j) k) Sanction status of Lease Legal Status Date of Incorporation/Establishment Date of Commencement of business TIN Nature of Business Net worth of business (calculation : : : : : : : last one year). Fresh 2005 346-107-5121 Whole seller and retailer of Scrap Iron TK.98,85,574.00 Throughout Bangladesh.

to be enclosed) Market/Place of business/area of : operation / name of major buyer etc. History of relationship with the : customer (How & when the relationship started/state if repayment and adjustment have been regular)

l)

The Party has been banking with our NBL, Pahartali branch, chittagong with full of satisfaction since 02.02.2006 and also availing CC (H) facility of Tk.30.00 lac since 31.12.2006.

m) Purpose of Lease n) Capital Structure (For Ltd. Company) i) Authorized Capital ii) Paid up capital iii) Total capital Funds(Paid-up Capital + Retained Earnings + reserves + Others) Investment in business (For Individual & Firm) 02. Name of individual borrower/ Proprietor / Partners / Directors Name Fathers Name, Mothers Name, Husbands Name :

: : : : : :

For private use

Tk. Tk

o)

TK.98,85,574.00

Address Permanent Present Phone No. (Residential) Phone No.

Age (years)

Share %

Status

Net worth as on (as per enclosed statement) 99

Md.Azhar Uddin .

Hajee Badshah Meah. & Nurjahan Begum

Bahtiary,P.SSitakunda , Chittagong

Chemon ara House,Near bahutala colony ,Agrabad, Chittagong

36 years

100%

proprie tor

183.24 lAC

03. 04. 05.

Date of application submitted by the customer: 10.06.2008 Place of installation of Equipment/Capital Machinery: Procurement cost of Machinery/ Equipment: (Pls. verify price competitiveness) C&F Cost/Procurement Cost (as per quotation / Indent / Proforma Invoice) Less: Down Payment, if any Sub Total Add: Duty / VAT / Other Cost etc. Total Procurement Cost Lease Finance Tk. .............................................. Tk.17,50,000.00 .............................................. Tk. .............................................. Tk. 17,50,000.00.................... Tk. 17,50,000.00.............................................

Tk.12,50,000.00 ......................................... :

06. Particulars of the Guarantor (where applicable)

(i) (ii)

Guarantors Name

Address
a) Permanent b) Present (Residential)

: : : : : : :

Md.Bazlur Rahman Bhatiary, P.S-Sitakunda, Chittagong Bhatiary, (Badshah Meah Bari), Sitakunda , Chittagong Brother Prop of M/S .Earfan Steel , (Pls. attach net-worth statement)

(iii) Relationship of the Guarantor with the applicant (iv) Guarantors back ground (v) Net worth of the Guarantor

07. Liability Position of the Applicant with National Bank Ltd., all branches (Both funded & non funded) as on 04.06.2008
Name of the branch Nature of Limit Amount of Limit Validity of Limit Outstanding (in crore) Type and Value of Annual Turn Overdue Status as on

100

Collateral Securities

Over (in crore) 2,23,96,7 66.00 as on 31.12.07

Amt.

Period

Classifi cation Status uc

NBL ,PAHARTA LI BR., CTG

CC (H)

30.00 LAC

31.12.2008

29,49,787.00

Reg mort of 30.83 dec land valuing 88.82 lac

N/A

(If required the liability position may be furnished in separate sheet.)

08. Liability Position of the sister concern / Group of the Applicant with National Bank Ltd., (Both funded & non funded) as on
Name of the branch Nature of Limit Amount of Limit Validity of Limit Outstanding (in crore) Type and Value of Collateral Securities N/A Annual Turn Over (in crore) Overdue Status as on. Amt. Period Classifi cation Status

(If required the liability position may be furnished in separate sheet.)

101

09. Liability position of the Applicant and its sister concern/Group with other banks and financial institution (Both funded & non funded)
Name of the borrowing Concern / Group Name of Bank Branch Nature of Limit Amount of Limit Validity of Limit Outstandi ng in crore Overdue Status as on. Amt. Period Classific ation Status

N/A

(Details of liabilities of the Applicant with other Branches of National Bank Ltd. be enclosed in above format.)

10. 11.

CIB report (Applicant and Guarantor): CIB enclosed received date 08.05.2008 Securities (Details to be mentioned separately for each limit) :

i) Primary security

Ownership of Leased Assets 48 nos. post dated cheques.

ii) Collaterals (Valuation certificate with : mention of forced sale value to be enclosed as per Head Office circular letter no. .. dated .. ) iii) Other securities (if any) :

12.

Opinion on Customers Management (Education, Training background and past experience of key management personnel to be mentioned)

The party is now well established business man and tested and trusted customer of our NBL, pahartali branch, Chittagong.

102

13. Factory/ site visit report ( Pls. enclose separate sheet if necessary) :

14. Existing Production details : Item of Rated Capacity (at 100%) production Quantity Taka

Attainable/Attained Capacity (at%) Quantity Taka

15.Turnover of the account(s) during last 3-years: Nature of Advance CC (H) Cc (H) 2007 2008 Year Dr. Summ 231.85 lac 211.73 lac 16. Performance of the client/allied concern(s) (Last 3 years) with our Bank/Other Bank(s): Import (Our Bank) : Name of Year L/C Opened Documents retired Outstanding Remarks No. Amount No. Amount No. Amount Account N/A 223.97 lac 182.24 lac Cr. Summ. Balance Maximum Minimum 20.22 lac 29.97 lac 00 2.08 lac Adjustment in time 05 Recycling in time 23 -.

Import (Other Banks) : Name of Account N/A Export (Our Bank) : Name of Year Account

Year

L/C Opened No. Amount

Remarks

Export made

Proceeds Realized Export made

Proceeds yet to be realized Remarks

Remarks

N/A Export (Other Banks) : Name of Account Year N/A

103

Others (if any) : 17. Earnings from the client/allied concerns (during last 3 years) by our bank : Name of Account Year Interest Commission Others NBL,Pahartali 2007 93,821/Ctg. do 2008 70,943/18. a) Competitive position of the customer (Pricing/Marketing/Special Advantage etc.) b) How others in the same business are doing Name of 2/3 leading companies: :

Total 93,821/70,943/-

19. Any adverse comments from last Inspection/Audit Report : (Our Bank and Bangladesh Bank): N/A 20. a) Financial Statement of the Customer for the last three years (State whether audited/unaudited and the name of the audit firm)

SALES & PROFITABILITY

(For last 3 years) Sales Cost of goods sold GROSS PROFIT Selling General, Admn. Financial expense & Depreciation OPERATING PROFIT/LOSS Add Other Incomes Less Income Tax NET PROFIT / LOSS Before Income Tax Net Profit/Loss after Income Tax : : : : : : : :

Year

Year

Year

ASSETS & LIABILITIES

Cash in hand/at Bank Inventory/Stocks Receivables Others Current Assets : : : :

TOTAL CURRENT ASSETS

104

Non Current Assets Fixed Assets

: : : : :

TOTAL ASSETS
Cash Credit/Overdrafts Trade Payables Other Current Liabilities

TOTAL CURRENT LIABILITIES

Non Current Liabilities : : :

TOTAL LIABILITIES
Equity (Total Assets Total Liabilities)

b)

CASH FLOW FROM OPERATING ACTIVITIES Net Profit/Net Loss : Plus Depreciation : Minus Dividend Paid : Accounts Payable Increase/Decrease : Inventory Increase/Decrease : +/- Other Non Cash Adjustment : : NET OPERATING CASH

FLOW

c)

IMPORTANT RATIO: Current Ratio Quick Ratio Leverage Debt to Assets Gross Profit to sales
:

Current Asset Current Liabilities Current Asset-Inventory Current Liabilities Total Liabilities Equity Total Liabilities Total Assets

: CRG ENCLOSED :

: :

Gross Profit X 100 Net Sales

105

Net Profit to sales

Net Profit X 100 Net Sales

Return on Equity : Debt Service Coverage Ratio

:

Net Profit X 100 Equity

: :

d)

Net Profit + Depreciation +Interest paid Interest Paid + 12 months Principal Payment Comments on Financial Statements : three years) Comments on cash flow :

(Enclose Financial Statement preferably audited of the Company/Firm for the last e)

21. Financial projection from proposed Lease Asset under Lease Finance: Particulars Proposed Sales /Turnover Proposed Net Profit after Tax Year-1 Year-2 Year-3

22. OTHER INFORMATION (IF ANY) : 23. BRANCH COMMENTS / RECOMMENDATION : a) Comments / Recommendation :

Mr. Md. Azhar Uddin owner of M/S Rehab Steel is extremely hospitable and with a scale of aristocracy in personal life. He is well known to us as well as in the market who is a man of commitment. He has gathered huge knowledge in the line of trading and Scrap Business. As a very much tested party he has been banking with our Pahartali Branch with satisfactory transactions and adjustment of liability regularly in his loan account. M/S Rehab Steel is a growing and prospective firm. We may able to procure more business from them and other customers of their association in the days to come if we can accommodate them. In view of the above and considering the partys past good track record, business worthiness, repayment capacity, commitment, experience 31.07.2012. , we recommend for sanction of Tk.12.50 lac as Lease Finance Facility with validity up to

106

(b) Basic Terms & Condition of Lease: i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. Lease Amount Lease Period Application Fee Service Charge Commitment Charge Risk Fund Supervision & Monitoring Fee Rate of interest for determining Lease Rental Lease Deposit Lease Margin / Down Payment : : : : : : : : : : : : N/A 24. DECLARATION : a) All procedures in respect of opening of Account have been complied b) c) d) e) f) g) with All necessary documents establishing the borrowers legal entity have been obtained Generate sufficient cash flow to pay lease rentals on regular basis. Existing securities/Banking documentations and collaterals with their valuation have been checked and they are in order Documents establishing that proposed facility is within authorization and borrowing powers of the applicant have been obtained All assets offered as security/collateral have been verified to be free from all encumbrances & acquisition. Security documents as prescribed have been obtained/will be obtained along with complete set of borrowing documents before h) i) j) disbursements. The customer is a Director/Shareholder of our bank, if yes, the extent of share holding (value Tk..) The customer is a Director/share holder of other banks (If yes, mention the name of the Bank). The customer has got no classified liability in its name/in the name of the Proprietor / Partners / Directors of the company and/or in the name of the allied concerns in which the subject company/the above persons have interest. 107 Yes/No Yes/No Yes/No 12,50,000.00 48. months from the date of execution. Tk. 500.00 (already realized) Tk. 3,000/1% lease Amount 1% lease Amount 1% lease Amount 15% % 2 (Two) Lease Rentals 29 % 02.07.2008

Expected date of disbursement Others if any

Yes/No Yes/No Yes/No Yes/No Yes/No Yes/No Yes/No

k)

Up-to-date CIB report (date 30.04.08.) obtained / collection under process.

Yes/No

Signature of Other Official (Executive / Officer) Name : MD .JAMAL UDDIN CHY. Designation : SR.PRINCIPAL OFFICER

Signature of Manager (Head of the Branch) Name :ASM HELAL UDDIN Designation : MANAGER

6.2.3 Net worth calculation (Individual)

Personal Net- worth Statement as on 31.12.2007

The Manager National Bank Limited Muradpur Branch Chittagong...

Dear Sir, I do hereby furnish the under noted particulars of my assets and liabilities and information. The information furnished below are correct to the best of my knowledge. 1. 2. 3. 4. Name Md.Azhar Uddin............................... Father's Name / Husband's Name Mother's Name Residential Address : .Hajee Mohammed Badshah Meah

Date:10.06.2008..

: Nurjahan Begum.......... :Chemon Ara Vila, Near bahutala colony,

Agrabad C/A, Chittagong

5.

Permanent Address

: Bhatiary, Badshah Meahs House, P.S-Sitakunda Chittagong

6.

Telephone: Office .......................... Mobile: 01815632724,01678063450

Residence : ............................

108

7.a) 7.b) 7.c)

TIN no.346-107-5121 Occupation Income from other source

: ..................................................... : seller of scrap iron........... Monthly Income :2,00,000/-.......................... : Source .................................................... Monthly Income :

Monthly expenditure:Tk.25,000/-

8.

Description of the properties and Assets :

8.(a) Land & Building (Unencumbered):

Location & Particulars of the Property Area of Land/ Covered area (in case of Building) Ownership Market Value of Land/Building

Total 8.(b) Land & Building (Encumbered):

Area of Land/ Covered area (in
case of Building) Ownership

Tk =

Location & Particulars of the Property

Market Value of Land/Building

Mortgaged amount
(credit limit)

Mortgage with ................... ...... (name of Bank with branch) NBL,Pahartali Branch, Ctg.

Mouza- Dakkin Jangle Sonaichari, PS-Sitakunda, Ctg. Mouza- Bhatiary, PS-Sitakunda, Ctg. Mouza- Bhatiary, PS-Sitakunda, Ctg. Mouza- Bhatiary, PS-Sitakunda, Ctg.

5.17 dec.

10.34 lac

Tk.30.00 lac

8.00 dec. 2.00 dec. 15.66 dec.

16.00 lac 4.00 lac 58.48 lac

Do Do DO

DO DO DO

8.(c)

Investments details as on .31.12.2007..........

109

Name of the Concern & address M/s Rehab Steel Janata Iron Market,Sagoica Road,P.S-Pahartali, Chittagong

Associated as (Status) Proprietor

Nature of Business Seller of Scrap iron

Amount of investment 98,85,574.00

8.(d)

Cash and Bank balances as on date i) with National Bank Ltd. Tk.70,000/-.................................... ii) with other Bank Tk..2,74,000/-.......... Tk................................................

8.(e) 9.

Other Assets, if any

Total Assets 8(a) + 8(b) + 8(c) + 8(d)+8(e) Tk=1,91,12,000/-....

110

10.

Details of Liabilities

10.(a) Borrowing from Banks as on 31.12.2007..........

Name of the Bank with Branch National Bank limited Total Tk =30.00 lac 7,88,174.00 Nature of Loan CC (H) Limit sanctioned 30.00 lac Present outstanding 7,88,174.00 Expiry of limit 31.12.2008 Classification status uc

10.(b) Other liabilities, if any 11. 12. Total Liabilities 10(a) + 10(b) Net Worth (9 - 11) Tk.1,83,24,000/- .......................................................

Tk ............................................. Tk. 7,88,174/-.......................

I authorise you to obtain any information and / or verify any information from any source you require regarding my credit worthiness. Yours faithfully,

(Signature of the Customer) Name: Date:10.06.2008

111

6.2.4 ) Net worth calculation (Guarantor):

Personal Net- worth Statement as on 31.12.2007

The Manager National Bank Limited Muradpur Branch Chittagong...

Dear Sir, I do hereby furnish the under noted particulars of my assets and liabilities and information. The information furnished below are correct to the best of my knowledge. 1. 2. 3. 4. Name Md.Bazlur Rahman............................... Father's Name / Husband's Name Mother's Name Residential Address : .Hajee Mohammed Badshah Meah

Date:26.06.2008..

: Nurjahan Begum.......... : Bhatiary, Badshah Meahs House, P.S-Sitakunda Chittagong

5.

Permanent Address

: Bhatiary, Badshah Meahs House, P.S-Sitakunda Chittagong

6.

Telephone: Office .......................... Mobile: 01819611339,

Residence : ..........................

7.a) 7.b) 7.c)

TIN no.346-106-2655 Occupation Income from other source

: .............................................................. : seller of scrap iron........... Monthly Income :2,20,000/-.......................... : Source ........................................... Monthly Income : ...........................

Monthly expenditure:Tk.20,000/-

112

8.

Description of the properties and Assets :

8.(a) Land & Building (Unencumbered):

Location & Particulars of the Property Area of Land/ Covered area (in case of Building) Ownership Market Value of Land/Building

Total 8.(b) Land & Building (Encumbered):

Tk =

Schedule of Land & Building Mouza-Bhatiary, PSSitakunda, Ctg Mouza-Bhatiary, PSSitakunda, Ctg Mouza-Bhatiary, PSSitakunda, Ctg Mouza-Bhatiary, PSSitakunda, Ctg Mouza-Dakkin Jangal, Sonaichari, PSSitakunda, Ctg

Area of land 18.00 Dec. 12 Dec. 4 dec. 2.50 dec. 2.50 dec.

Description of building / structure Residential land Agricultural land

Value

Name of

Land
27.00 lac 24.00 lac 8.00 lac 5.00 lac 5.00 lac

Structure
-

Total
27.00 lac 24.00 lac 8.00 lac 5.00 lac 5.00 lac

Mortgagee NBL, -Do-Do-Do-Do-

-Do-Do-Do-

8.(c)

Investments details as on .3112.2007

113

Name of the Concern & address

Associated as (Status)

Nature of Business Seller of Scrap iron

Amount of investment 1,19,70,926.00

M/S.Earfan Steel,Tulatali Proprietor Road, Fouzderhat Station. Bhatiary, Chittagong Sitakunda,

8.(d)

Cash and Bank balances as on date i) with National Bank Ltd. ii) with other Bank Tk.20,000/-................................. Tk..1,35,000/-.......... Tk..............................................

8.(e) 9.

Other Assets, if any

Total Assets 8(a) + 8(b) + 8(c) + 8(d)+8(e) Tk=1,90,25,926/-

10.

Details of Liabilities

10.(a) Borrowing from Banks as on 31.12.07.

Name of the Bank with Branch M/s Earfan Steel National Bank limited Pahartali Br, ctg. Md Bazlur rahman Standered Chartered Bank Total 55.00 lac 47,34,926/STD 10.00 6.,50,000/30.06.2009 Uc Nature of Loan CC (H) Limit sanctioned 45.00 lac Present outstanding 40,84,926/Expiry of limit 30.06.08 Classification status Uc

114

10.(b) Other liabilities, if any 11. 12. Total Liabilities 10(a) + 10(b) Net Worth (9 - 11)

Tk ............................................. Tk.47,34,926.00 ................... Tk.

1,42,91,000/-............................................... I authorise you to obtain any information and / or verify any information from any source you require regarding my credit worthiness. Yours faithfully, (Signature of the Customer) Name: Date:26.06.2008

6.2.5 Check List:

Check List: 1) 2) Lease Application form duly filled in. Information and papers relating to:a) For machinery / Equipment: (i) Competitive quotations/

Invoice for proposed Machinery/ Equipment (imported/ local) along with copy of supporting literature / catalogue. Quotation(s) of party's desired Machinery / Equipment must be marked "Accepted" with signature of the Applicant. (ii) Production capacity of the machinery etc. b) For Vehicle / Lift / Generator / Air Condition etc.: Competitive quotations along with copy of supporting literature/catalogue. Quotation(s) of party's desired items must be marked "Accepted" with his signature of the applicant.

115

3)

Detailed break-up of personal Net worth of each individual / proprietor/ Partner/Director of the Company / Firm as per prescribed format.

4) 5) 6) 7) 8) 9)

2 (Two) copies of Passport Size recent photograph of the Directors /Individual/ Partner/ Proprietor. Certified copy of Memorandum and Article of Association along with Certificate of Incorporation. Certified copy of Commencement of business (in case of Co.) Certified copy of Annual Return statements to Registrar of Joint Stock Company. Board resolution to avail Lease Financing facility and also execute documents. Copy of Trade License, TIN certificate, IRC duly attested by the promoters / Directors.

10)

Financial Statements (Balance sheet, Income statement, Cash flow Statement -Preferably audited) for the last consecutive three years.
[

11) 12)

Projected Financial statements as well as cash flow statement. Original Title Deed for property offered as security along with the following documents a) b) c) d) e) Bia deed Non encumbrance certificate. Certified copy of CS, RS & SA Khatian. Original copy of Mutation order and certified copy of Mutation Khatian. Original copy of Up-to-date rent receipt.

13) 14) 15)

Copy of Bank Statement duly attested by the MD/Chairman. Government permission for setting up of the Industry. Industry profile mentioning therein industry growth, competitive pressure (i.e. list of competitors and their performance, barriers to prevent new competitors to enter this industry), Competitive position (i.e. company rank in industry in terms of market share) and strength & weakness of the company in comparison to its competitors.

16) 17)

Feasibility report of the project. If the project is located / to be located in rented premises, copy of Lease Agreement be furnished.

116

18)

Other relevant information / documents, if necessary.

6.2.6) CIB Report:

Inquiry Form: CIB - 1A (For Individual/ Institution)

Amount of loan applied for: In figure: 15,00,000/In words: Fifteen LAC ONLY. 1. Name of the Bank/ Financial Institution: NATIONAL BANK LIMITED, 2. Name of Branch : Muradpur Branch Branch Code Date : Date : 3. Under district of : Chittagong. 4. Reference Nos of branch : 5. Reference Nos. of Head Office : 6. Borrower code ( If available) : 7. Name of the borrower in full : 8. Abbreviated Name : 9. Fathers Name ( In case of Individual) : 10. Mothers Name ( In case of Individual) : 11. Husbands name ( In case of Individual) : 12. Address : a) Permanent : b) Present c) Business : d) Factory 14. TIN : 15. Individual ID No. : 13. Tele Phone No : : . N/A N/A N/A

: M/S REHAB STEEL

117

To the best of our knowledge the above borrower obtained the credit facilities from different banks/ financial institutions as mentioned below :Name of the banks/ financial institutions (i) (ii) (iii) NIL Signature Head of the Branch/ Manager. Name: ASM MANAGER Seal : Tele Phone No. HELAL UDDIN, Name of the branch with districts

Note: Suppressing or distortion of any information ( related to borrower/owner ) by the banks/financial institution is punishable under Bangladesh bank Order 1972, Chapter IV Art 48

118

(TO BE FILLED IN CAPITAL LETTER/ TYPE)

Inquiry Form : CIB 2A

(Owner information if borrower is institution.) Name of the Bank/ Financial Institution : National Bank Ltd. 1. Name of Branch : 2. Branch Code No : 3. Reference Nos. of branch : 4. Reference Nos of Head Office 5. Borrower Code : ( If available ): 6. Full name of the borrower 7. Full name of the owner 8. Abbreviated name of the owner
: M/S REHAB STEEL

Muradpur Branch Date : Date :

: MD. AZHAR UDDIN. : N/A

10. Fathers Name ( In case of Individual) : HAJEE BADSHA MIAH 11. Mothers Name ( In case of Individual) : NURJAHAN BEGUM 12. Husbands name ( In case of Individual) : 13. Address : a) Permanent : b) Present c) Business : d) Factory : 15. TIN of the Owner _____________________________15.Owners ID No.* 16. Status of the owner ( Tick Only) : Proprietor Partner ChairmanSponsor/ Appointed MD. Sponsor/Appoint ed Director Sponsor/ Elected DirectorNominated ( by Govt.) ( by Pvt. int.) 17. Name of the bank/ financial Institution/ Insurance co.(Of which the above owner is Chairman/Director). To best of our knowledge the above owner : 119 Other : N/A

c) Obtained credit facilities in individual name : Yes as mentioned below.

No

d) Has got other business which obtained credit facilities from the bank/financial Institution

Name of the owner related business/ firm with Name of bank/financial institution address : i) ii) To the best of our knowledge the above information is correct . NIL

Name of branch with District

Signature Head of the Branch/ Manager. Name

UDDIN,MANAGER

MD.

ASM

HELAL

Seal : Tele Phone No.

Note : Suppressing or distortion of any information ( related to borrower/owner ) by the banks/financial institution is punishable under Bangladesh bank Order 1972, Chapter IV Art 48
* Applicable for individual only.

120

( TO BE FILLED IN CAPITAL LETTER /TYPE)

Inquiry Form : CIB 3A

(Information of group / Related Business concern) 1. Name of the Bank/ Financial Institution : NATIONAL BANK LIMITED, 2. Name of the Branch : Muradpur Branch 3. Under district of : Chittagong. Branch code NoDate : Date : Borrower Code : 4. Reference Nos. of Branch : 5. Reference Nos. of Head Office : 6. Full Name of Borrower : M/S REHAB STEEL ( If available) : 7. Name of the Group 8. Address of Group a) Permanent b) Present c) Business : : : :Business address N/A : :

9. Related Business concern Name i) ii) iii) iv) v)

Please write N/A or Not Applicable if the concerned borrower is neither a group nor a subsidiary/ sister concern under declared a group. To the best of our knowledge the above information is correct .

121

Signature Head of the Branch/ Manager. Name:ASM

,MANAGER

HELAL

UDDIN

Seal : Tele Phone No.

Note : Suppressing or distortion of any information ( related to borrower/owner ) by the banks/financial institution is punishable under Bangladesh bank Order 1972, Chapter IV Art 48

122

CHAPTER SEVEN Problem related to Credit Management

Reluctant to maintain procedures: In spite of having strong procedures in association with credit, proper implementation of those procedures is not seen. High cost of fund: The cost of fund of this bank is relatively higher than other banks. High interest rate: Due to increased cost of fund, the bank has to charge high interest rate on loan. Due to this high interest rate, the bank cant attract more customers for investment. Inadequate information: Some customers give improper and incomplete information about themselves while taking loan for which risk increases Break of commitment by clients: Some of clients do not utilize the loan amount for the purpose which the client didnt acknowledge the bank before. Lack of strong monitoring system: There is a lack of proper monitoring system after sanctioning loans and advances. And this can be a cause of classified loan. The bank is efficient in client management for which clients are not strongly motivated for further investment. Interest rate gap: One of the most important problems in advance is Interest Rate Gap which means the negative gap between interest rate on deposit and interest rate on advance. Usually this gap is created because of having more cost of fund.

123

 Inability to reduce interest rate: Govt. has declared to charge single digit interest rate on loan, which has been exercised in some of the banks but NBL, still now charges two-digit interest rate from the customer. Unfavorable govt. policy: Sometimes Govt. policy is not favorable for banking business. Lack of manpower: There are not enough officers in the Advance section of the branch to handle all the activities properly. Insufficient advertisement: There is a lack of proper advertisement for different loan scheme of the bank. It makes the customer ignorant about the banks credit service. Demotivating working environment: Working environment of the advance section is not influencing and satisfactory enough to attract interested candidates who are looking for a smart banking job.

124

CHAPTER EIGHT SWOT Analysis

SWOT stands for Strength, Weakness, Opportunity and Threat. The SWOT of NBL has been shown below: SWOT Analysis

Internal Factors

External Factors

Strength

Weakness

Opportunity

Threats

Internal factors
Strength
Existence of strict and standard credit management. Wide network branches with online services. It offers diversified loan offerings. Harmonious lender (bank) - borrower (Client) relationship. Experienced manpower in advance/loan department. Decreasing trend of classified loan. Existence of some new & attractive credit scheme.

Weaknesses
Lack of modern equipment. Lack of proper office space. Lack of young, energetic and talented officers. Absence of high tech computerized system. Absence of Islamic Banking System. Lack of proper advertisement of the products and services of advance. 125

External factors
Opportunities
It can introduce more new and attractive credit scheme. It can set a competitive interest rate. It can recruit young, energetic and talented officers. It can take initiative for introducing Islamic Banking system.

Threats
Govt. policies are not in favor of the private banks. Competitors done the credit services to customers more effectively. Competitors offer low interest rate on loan. Entrance of highly equipped and modern banks. Intense competition in the credit market. Competitors have young and energetic work force. Govt. has imposed high rate of taxes and VAT on interest received on advance. Remarkable progress on Islamic Banks.

126

CHAPTER NINE FINDINGS, RECOMMENDATION & CONCLUSION

9.1) Findings are as follows:
(1) (2) (3) (4) (5) (6) (7) (8) (9) NBL has a good set of institutional owners that gives it a better Board of Directors that many other banking companies. NBL is a bank, which has been successful in developing a professional job environment where each officer has substantial level of authority and responsibility. NBL has started to diversify its business into different areas of the country. The growth of the NBL has so far been very steady and very high. NBL is maintaining steady profitability. NBL is maintaining good credit policy. NBL has good investment structure but in some sector it does not perform very well. NBLs liquidity performance is satisfactory. NBLs credit appraisal process is pleasing but some corrective measure has to be taken.

9.2) Recommendations:
The following steps may be taken for the betterment of the bank. (1) Branch should intensify its quality of client service. Customer services must be made dynamic and prompt. (2) Bank should be more innovative and diversified in its services.

(3) Put more emphasis on the depository service and create more depository services. (4) Information system should be developed. NBL should establish its own networking system between its branches so that they can exchange their information faster and efficiently.

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(5) NBL should develop their E-Banking system. (6) NBL should always monitor the performance of its competitors in the field of credit. (7) The bank should try to decrease the interest rate on loan in single digit according to the declaration of the Government. Then the bank can get more clients. (8) Proper and effective monitoring system should be developed in order to prevent loan default. (9) The officers of this department to make a remarkable standard should strictly follow advance procedure. (10) The bank should strictly follow the principal of sound lending. The bank should not sanction loan to the customer without all necessary documents (11) There should have adequate advertisement for the new loan scheme in order to influence customer.

9.3) Conclusion
In the face fierce competition from the other players of the market and strict policies being introduced by the Government and Bangladesh Bank, NBL has established itself as renowned private bank. On the other hand, opening more branches year by year facilitates the expansion of network of the bank. Banks are the pillars of the financial system. Likewise Lending is the pillar of a bank. Without lending operations a bank has no sense. In spite of many shortcomings, NBL has introduced some attractive credit scheme. The bank has a tremendous management side that is still truing to make the bank more successful. Success in the banking business largely depends on effective lending. Less the amount of loan losses, the more of the income will be from credit operations. The more the income form credit operations the more will be the profit of the bank. So National Bank Limited has many strength and opportunities to make more benefit in the future.

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References
1. Annual Report of National Bank Ltd.2006, 2007, 2008. 2. Credit Manual: Complied by Training Institute, National Bank Ltd. 3. Instruction Manual of National Bank Training Institute. 4. Office Website of the Bank: www.nblbd.com 5. National Bank Brochure.

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