Credit Management Procedure and Practices: A Case Study of First Security Islamic Bank Limited.

First Security Islami Bank Limited ( FSIB) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its Fifty Three (53) branches in the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit.

 Vision Mission Strategic Priority Objectives

Organizational Structure

introduction to the study

The word credit comes from the Latin word Credo meaning I believe. It is a lenders trust in a persons/ firms/ or companys ability or potential ability and intention to repay. In other words, credit is the ability to command goods or services of another in return for promise to pay such goods or services at some specified time in the future. For a bank, it is the main source of profit and on the other hand, the wrong use of credit would bring disaster not only for the bank but also for the economy as a whole.

Objective of the Report

To have better orientation on credit management activities. To find out the strengths and weakness of the credit procedure method. To identify the factors that must be considered and analyzed by the bank and financial institutions in determining the credit worthiness of the client. To get an overall idea about the performance of First Security Islamic Bank Ltd, Mohakhali Branch.

Introduction to the Corporate Credit Management System

Organization Structure of Credit Department of FSIBL

Sales and Marketing Credit Assessment and Approval Credit Documentation and Administration Credit recovery

Management Structure of Credit Department of FSIBL

Head of Credit Department

Head of Credit Corporate

Head of Credit General

Credit Administration

Credit Recovery

Credit Retail (CCS)

SOD, Bank Guarantee

Different Types of Loan/advance offered by FSIBL

Deposit Scheme Investment Scheme Letter of Guarantee Letter of Credit (L/C)/ Back to back Letter of Credit (L/C) Specialized Schemes

Credit Assessment System

Allocation of Authority Approving Authority Branch Credit Committee Head Office Credit Department Executive Department Board of Directors

Steps in Loan Processing

Credit Request Credit Application form Scrutinizing and Collection of Information Credit Appraising & Presentation of Credit Proposal for Approval Approval of Credit by Higher Authority

Steps in Loan Processing(Cont.)

Sanction of Credit Disbursement of Credit Credit Administration and File Maintenance Credit Monitoring and Reviewing Taking Precaution/Legal Action against Delinquent Clients

Credit Risk Management

Credit Risk Market Risk

Risk Management Liquidity Risk Operational Risk

Reputation Risk

Risk Management Process

Oversight by the Executive Committee. Audit committee of the Board reviews the internal audit reports Different Credit Departments are responsible for implementation of the risk policies Dedicated committee at Management Level has been set up to monitor risk PBL has put in places all manuals as suggested in the core risk management guide lines of Bangladesh Bank.

Credit Risk

Credit risk is one of the major risks faced by the Bank. This can be described as potential loss arising from the failure of a counter party to perform according to contractual arrangement with the bank. The failure may arise due to unwillingness of the counter Party or decline in economic condition etc.

Credit Risk Assessment

Assessment Frequency
Assessment Documentation KYC Policy Accountability Filing up credit assessment form Repayment source Risk and Mitigating factor Collateral

Credit Risk Grading

Superior (SUP) Good (GD) Acceptable (ACCPT) Marginal/Watch list (MG/WL) Special Mentioned (SM) Substandard (SS) Doubtful (DF) Bad and Loss (BL)

Analysis

Analysis of Loans & advances of FSIBL

Year 2008 (30/12/2008) 2009 (30/12/2009) 2010 (30/12/2010) 2011 (31/03/2011) Amount 25,854,541,500 42,423,092,722 56,344,959,167 60,615,776,645

Source: Annul report of FSIBL

Graph: Scenario of Deposit.

Amount of Various Kinds of Deposit at FSIBL (Last Four Years)

Year
Al-Wadia Current Accounts and Other Deposit Accounts Mudaraba Savings Bank Deposits Mudaraba Term Deposits including other Banks Mudaraba Deposits under Schemes

2008

1,444,525,699

922,379,325

19,319,071,709

3,904,772,214

2009

3,958,510,256

2,441,458,467

26,684,564,624

8,777,183,002

2010

7,043,747,274

3,987,763,459

33,076,189,284

11,691,392,816

2011

6,020,311,799

3,966,246,913

40,391,686,166

9,495,477,187

Amount of Various Kinds of Deposit at FSIBL (Last Four Years)

Al-Wadia Current Accounts and Other Deposit Accounts Mudaraba Savings Bank Deposits Mudaraba Term Deposits including other Banks 2008 2009 2010 2011 Mudaraba Deposits under Schemes

45000000000 40000000000 35000000000 30000000000 25000000000 20000000000 15000000000 10000000000 5000000000 0

Major Findings
Should be careful and control its costs. Amount of Consumer Credit loan increased with the increase of the buying power. According to CCS Policy the loan processing time will not exceed more than 7 days but in reality it takes more time than that. The Head Office sets up the rate of interest. Interest rate has to be with in a limit notified by Bangladesh bank. Credit allocation is set up by the Head Office Credit Committee.

Recommendations
Credit officer should not be liberal in Credit evaluation. It should improve in file management system to faster the dealings with the client's proposal. Most of the clients dont submit the stock report, monthly statements, and overall stage report in case of large project. For reducing the cost problem the credit officer must look for whether the construction be given contract and turnkey basis. The Risk that can be arises while implementation of the project must be analyzed and mitigated through the perfect risk taker.

Conclusion
Though Credit Management is the most important sector in banking Industry, It is not an easy process. Credit risk concern with sanctioning loan, thats earns a lot of profit for a bank. Who deals with credit risk has to very careful in collecting data & Gathering risk. In perspective of Socio-Economic condition of Bangladesh, it is very difficult to collect proper information in compete with all commercial banks as well as Government Banks.

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