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1.1 Introduction
The company I have been assigned is National Bank Limited, mirpur-2, dhaka. This is one of
the best banks and a largest and oldest banking and financial institution in our country. As a
compulsory course of Bachelor of Business Administration (BBA) program under the
Department of Business Administration at Bangladesh University of business and
technology, this report entitled A Comprehensive Evaluation on Credit Management of
National Bank Limited is a scheme description of the three months long internship
program in the National Bank Limited.

The basic purpose of the study goes to the students who might be able to have practical and
theoretical knowledge about the organizational activities and functions and also provides
the best opportunity to apply theoretical learning in practice. As there are some differences
between theories and practices, the internship program links between these two. So far I
worked with the bank I gathered knowledge about the professional aspects and manners
that one should maintain.

Actually the education is the combination of theoretical and practical knowledge where
there remains a gap if the students can not apply his or her theoretical knowledge in work.
Thats why, we need to complete internship program to fulfillment our studies.






Chapter One: Background of the Study
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1.2 Objectives of the Study
The main objective of the study is to know about the Credit Management of National Bank
Limited.
More specifically the study was conducted for the following objectives-
To know about the credit policy of National Bank Limited.
To know about the process of credit analysis for clients by NBL.
To identify the recovery systems and problems related with this.
To show the trend of growth regarding the credit policy, interest income and net interest
margin of NBL.

1.3 Scope of the Study
The study was kept limited to National Bank Limited, Mirpur Branch, Dhaka. This branch
deals in all kinds of banking business under the control of Bangladesh Bank. Scope of the
study has to describe in terms of two grounds-
1. Organizational scope:
I worked in every important department of NBL, Mirpur Branch, Dhaka. I had emphasis on
general banking department and deposit department.
2. Field scope:
This study started after completing the BBA course and continued for three months.






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1.4 Methodology of the Study
Different data and information are required to meet the goal of this report. Those data and
information were collected from various sources such as primary and secondary which is
showed below-
I. Primary sources-
I have collected data by interviewing employees and clients of the National Bank
Limited. Primary data has been derived through the discussion with the employees of
the organization.
Face to face conversation with the officers.
Day to day deskwork.
Direct conversation with the client.
By observing various register of the branch.
II. Secondary sources-
Unpublished data received from the branch.
Banks annual report.
Banks records.
Different papers of the bank.

1.5 Limitations of the Study
The following limitations are apparent in this report:
Time is the first limitation as the duration of the program was of three months only.
Insufficient supply of relevant books and journals.
As the officers are very busy with their daily work, they could provide very little time.
Audit from Bangladesh Bank and Head office made difficult to collect data, talk with
banks employees and other parties.
Another limitation of this report is banks policy of not disclosing some data and
information for obvious reason which could be very much useful.
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2.1 Overview of National Bank
National Bank Limited (NBL) is one of the pioneers of first generation private commercial
bank incorporated in 1983. To provide modern banking facilities to the mass people, NBL is
opening branches in rural areas alongside urban areas giving due importance. Presently, the
bank created a strong market base through 149 branches and 15 SME/Agri branches
throughout the country. NBL emphasizes on customer satisfaction and involvement in its
daily activities. The emergence of National Bank Limited in the private sector was an
important event in the banking arena of Bangladesh. When the nation was in the grip of
severe recession, the government took the farsighted decision to allow 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 was the firm determination of National Bank Limited to play a
vital role in the national economy. The President of the People's 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 commercial operation on March
23, 1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong.

Particulars (in number) Year
2007 2008 2009 2010 2011
Branches & SME Centers 101 106 131 145 154
Employees 2,432 2,737 2,960 3,442 3,758
Foreign Correspondents 405 405 415 415 415
Chapter Two: Theoretical Aspects
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2.2 Corporate Vision
Ensuring highest standard of clientele services through best application of latest information
technology making due contribution to the national economy and establishing themselves
firmly at home and abroad as a front ranking bank of the country are their cherished vision.

2.3 Corporate Mission
Efforts for expansion of their activities at home and abroad by adding new dimensions to
their banking services are being continued unabated. Alongside, they are also putting
highest priority in ensuring transparency, account ability, improved clientele service as well
as to their commitment to serve the society through which they want to get closer and
closer to the people of all strata. Winning an everlasting seat in the hearts of the people as a
caring companion in uplifting the national economic standard through continuous up
gradation and diversification of their clientele services in line with national and international
requirements is the desired goal they want to reach.












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2.4 Property & Assets of NBL







Items Amount (Tk. in millions) Percentage

Cash & Bank Balance 15,157.41 9%
Call Money 719.40 0%
Investment 30,334.63 19%
Loan & Advance 1,15,388.89 68%
Fixed Assets 1,955.29 2%
Other Assets 5,481.76 2%



Cash & Bank Balance
Call Money
Investment
Loan & Advances
Fixed Assets
Other Assets
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2.5 Organizational Hierarchy of NBL




































Senior Executive Vice President (SEVP)
Executive Vice President (EVP)
Senior Vice President (SVP)
Vice President (VP)
Senior Assistant Vice President (SAVP)
Assistant Vice President (AVP)


Senior Principal Officer (SPO)
Principal Officer (PO)
Senior Officer (SO)
Executive Officer
Assistant Officer
Junior Officer
Deputy Managing Director (DMD)
Managing Director (MD)
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2.6 NBL and its Offshore UNIT at a Glance

Particulars 2010 2011

1.Operating Income 18,612
(million)
76.06%
21,932
(million)
76.06%
2.Operating Profit 8,941
55.43%
9,592
55.43%
3.Total Assets 134732

167037

4.Earnings per Share 15.55
10.86%
15.55
10.86%
5.Market Value per Share 191.60
126.97%
66.80
126.97%
6.Return on Assets 6.05
3.53%
4.01
4.01%
7.Employees 3,442 nos
4.82%
3,758 nos
4.82%
8.Branches & SME Centers 145 nos
14%
154 nos
14%
9.Price Earning Ratio 12.32 times 12.32 times
10.Import 96443
(million)
189.03%
104571
(million)
189.03%
11.Export 47812
(million)
94.13%
60894
(million)
94.13%
12.Remittance 49145
(million)
47.63%
54469
(million)
47.63%


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2.7 Functional Aspects of NBL
Banks are identified by the functions they perform in the economy. In modern times, the
commercial banks undertake diverse functions and it is getting increasingly difficult to
distinguish the commercial banks from other banks and financial institutions in terms of
their nature of function. As a commercial bank, National Bank Bangladesh Limited performs
the following functions
1. Acceptance of deposit: One of the principal functions of NBL is collection of deposits
through various types of deposit accounts such as current account, savings bank
account, short term deposit account, fixed deposit account etc. Deposits collected
through such accounts constitute the major source of fund for NBL.
2. Granting of loans and advances: The main business of NBL is to provide loan facilities
both short term and long term to trade, commerce and industrial enterprises.
3. Offering of payment services: NBL support the payment system by issuing cheques,
draft, payment order, etc.
4. Creation of deposits: NBL create deposits through lending and influence the money
supply position of the economy.
5. Making investment: NBL invest their surplus fund in various securities such as treasury
bills, bonds, debentures, shares etc.
6. Financing imports and exports: NBL provide financing facilities and payment services for
international trade such as import and export.
7. Foreign exchange transaction: NBL participate in sale and purchase of foreign
currencies.
8. Fund transfer services: NBL transfer fund from one place to another through mail
transfer, telegraphic transfer, bank draft, etc.
9. Discounting services: NBL provide bill discounting services to its customers.
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10. Trust services: NBL provide trust services by way of undertaking administration and
management of financial affairs and property of individuals or business firms in return
for a fee.
11. Guarantee and indemnity service: NBL issue guarantee and indemnity services to its
customers.
12. Other services:
Salepurchase of shares and securities on behalf of its customers.
Merchant banking services, Lease financing, Housing finance, etc.
Issuance of credit cards, Debit cards, ATM services etc.

2.8 Divisions of National Bank Limited


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2.9 Product & Services of NBL













Divisions of NBL
Public Relations Protocol
Credit Administration
Division
Card Division
Financial Administration
Division

General Banking
Division

Human Resource Division

Internal Control and
Compliance Division

International Division

Information
Technology Division

Law and Recovery Division

Marketing Division
Merchant Banking Division

System and
Operation Division

Products & Services
Deposit Products

Current Deposit
Scheme
Savings Deposit
Scheme
Short-Term Deposit
Scheme
Credit Products

Cash Credit (CC)
Secured Overdraft
(SOD)
Working Capital Loan
Term Loan
Housing Loan
Others

Cards
Foreign Remittance
Capital Market
Services
Locker Services
Merchant Banking
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2.10 NBL Anderkilla Branch, Ctg.
General information
Name of the Branch: National Bank Limited, Mirpur Branch, Dhaka.

Date of Launching: 12
th
December 2007

Location: plot-4, block-ka, section-6, Mirpur main road-1, Dhaka.
Phone: 9013216, 9014480
Email: mirpur@nblbd.com
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Branch in Charge: Mr. Akmal Hossain, AVP & Manager
Second in Charge: Mr.AFM Abid Hassain, AVP & Deputy Manager
Number of Employees:
Officer 19
Staff 06
Total 25

Section of the Mirpur Branch:




2.11 Definition of Credit
The word credit derives from the Latin word credere to trust. The fundamental nature of
credit is that an element of trust exists between buyer and seller whether of goods or of
money. Credit may be defined broadly or narrowly.
Broadly, credit is finance made available by one party (lender, seller) to another party
(borrower, buyer). Narrowly, credit is simply the opposite of debt. Debt is the obligation to
make future payments. Credit is the claim to receive these payments.
NBL
General
Banking
Cash Deposit
Remittance Clearing
Accounts
Loan &
Advance
Administration
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Importance of Bank Credit:
Financial intermediary is an important activity in the economy because it allows fund to be
channeled from who might otherwise not put them to productive use to those who will. In
this way financial intermediaries can help to promote a more efficient and dynamic
economy. Some other importance of bank credit is as follows -
Credit is an important determinant of money creation and hence of production,
consumption and national income.
Credit influences and is influenced by quantity of money, level of economic activity
(GNP), imports and net foreign assets.
Credit influences imports and capital movements and hence the outcome of balance of
payments.
Credit influences behavior of economic sectors (industry, agriculture) and behavior of
economic agents.
Credit provides vital linkage among govt. sector, private sector, financial sector and
foreign sector.
Credit is the most important activity of banks because interest of loans constitutes the
major part of bank income.


2.12 Types of Credit









Credit
Loans
Loan General
House Building
Loan
Loan against
Import
Merchandise
(LIM)
Overdrafts
SOD (FO)
SOD (G)
Cash Credits Discounts
Inland Bills
Purchase
FDBP &
Discounted
Payment
against
Document
Pledge
Hypothecation
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2.13 Interest Rate of Various Credits Offered by NBL

Types of Loan
and Advance

Existing Rate of
Interest
Mid Rate on
Lending
Cash Credit:
i. Pledge
ii. Hypothecation

13%
13%

13%
13%
Working Capital 12-18% 12%
House
Renovation
Loan




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SOD (F) General:
i. Against FDR/FO of our Bank


ii. Against FDR/FO of other Banks ICB Units
iii. Against Work/Supply Order, Real Estate etc.

2-4% above relative FDR
rate

12-13%
12-13%

3% Above relative FDR
rate
13%
13%

Loan (Term Loan):
i. Small Cottage Industry
ii. Large and Medium Scale Industry
iii. Agricultural subject to BD (Bank Norms)
iv. HBL
v. Transport, Project Loan/Demand Loan
vi. Staff HBL
vii. Executive Car Loan
viii. Staff Provident Fund

12-17%
12-17%
10%
13%
12-15%
At Bank Rate
At Bank rate
At Bank rate

17%
17%
13%
13%
13%
At Bank rate
At Bank Rate
At Bank rate
Small Loans:
i. Small Business Loan
ii. Festival Loan
iii. House Repairing/Renovation Loan
iv. Personal Loan
v. Consumer Finance Scheme
vi. Education Loan

17%
17%
17%
17%
17%
13%

17%
17%
17%
17%
17%
13%
Lease Finance 17% 17%
Import Finance:
i. PDA
ii. LIM
iii. LTR

12%-15%
12%-15%
12%-15%

13%
13%
13%
Export:
i. Packing Credit ECC

7%

7%
IBP (Inland Bill Purchase)
FBP (Foreign Bill Purchase)
12%-15%(for overdue
period)
13%(for overdue period)
FDBP &Bill Discount 12%-15%(for overdue
period)
13%(for overdue period)
All other Commercial Lending 13%-15% 13%
2.14 Definition of Loan/Credit Policy
A bank has social obligation of meeting diverse credit needs of different sections of the
community but it cannot afford to lend the funds of its depositors and owners
indiscriminately and incur losses. It has to conduct its lending business in an orderly and safe
manner so that its loan portfolio remains balanced from the standpoints of size, type,
maturity and security and promises reasonable and steady earnings. This calls for a clear-cut
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and security and creditworthiness, liquidation of loans, compensation balances, limits of
lending authority, loan territory and similar other matters. Such a policy provides a direction
to the use of funds; controls the size; make up loan portfolio and influences credit division of
the bank. With systematic loan policy banker will find it easy to reach the goal of the banks
and serve the public concurrently.
So in a short we can say, a loan policy is a guideline of a financial institution to determine-
Who shall get credit (eligibility to get loan)?
How much to lend (amount of lending)?
Why to lend (purpose of lending)?
Where to finance (portfolio management depending upon profitability and requirements
for participation on socio-economic benefits)?

2.14.1 Credit Operations:
Credit operations start from the selection of borrower from field level i.e. branch initially
ends with disbursing sanctioned amount after proper documentations as per given
authorization of the bank.

2.14.2 Applicant Borrower:
Filled up prescribed application form submitting required papers.


2.14.3 Advance Department of Branch/Branch Manager:
Scrutinizing submitted papers/documents, preparing CIB inquiry forms, LRA report and
preparing proposal for onward submission to Head Offices approval.

2.14.4 Credit Division:
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Scrutinizing the proposal submitted by branch, query made if required, appraising the credit
proposal for onward submission to higher authority, inform the branch after getting
decision of the sanctioning authority.

2.15 Credit Policy of National Bank Limited
The credit policy is a statement of basic 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.
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.
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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 qualify borrowers 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 fund 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 NBL
one 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 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).
8. NBL may consider term loans with maturity up to five years or longer none except the
Managing Director approves such loans. Management reviews the term loan portfolio
periodically.
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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 perfect 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):
Deposit mix
The volatility and seasonal fluctuation of the deposit base
The amount of purchased funds
The composition of investment portfolio
Liquidity of banks assets
Credit budget will be prepared having a diversified loan portfolio spreading over a large
numbers 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:
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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-
1. Branch Manager
2. Executive Vice President/Managing Director at Corporate Office
3. 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:
1. Risk exposure (obligor and industry)
2. Cost of fund
3. Terms of loan (maturity)
4. 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 form of
documentation should be used whenever possible.
Monitoring of Credit:
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The control of credit operations fall into two parts-
1. Monitoring and review of all accounts
2. 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 increase 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.

2.16 Factors Influencing Loan/Credit Policy
1. Capital position.
2. Earnings requirements.
3. Deposit variability.
4. State of local and national economy.
5. Ability and experience of loan officers.
6. Competitive position.
7. Credit need of the area served.


2.17 Sources of Credit Information
1. Loan application.
2. Market reports.
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3. Study of accounts.
4. Financial statements.
5. Personal interview.

2.18 Important Points for Selecting Good Borrower
National Bank Ltd. considers the following points while selecting a good borrower-
1. Sound Entrepreneur:
a) Integrity b) Self-confidence c) Dynamic
2. Sound Management:
a) Integrity b) Endurance c) Co-operation
3. Sound Market:
a) Depth b) Growth c) Stability
4. Sound Product:
a) Quality b) Demand c) Durability
5. Sound Operation:
a) Utilities b) Raw materials c) Transport
6. Sound Finance:
a) Fund b) Collateral c) Capital market
7. Other Information:
a) Reputation b) CIB Report c) Past Performance d) Demand Gap e) Analysis of Balance
Sheet



2.19 Credit Analysis
Credit analysis is the analysis of financial statements of business/customers for the purpose
of lending. Credit analysis are conducted to determine whether the customer is
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creditworthy and whether the customer has sufficient cash flows and back up assets to
repay the loan. The main purpose of credit analysis is to ascertain whether the loan can be
serviced by the customer and whether the bank is adequately protected to realize the loan
in the event of default by the borrower to repay the loan.
Major Issues/Questions Analyzed/Examined in Credit Analysis:
a) Is the borrower creditworthy?
b) Whether the purpose of the loan is consistent with banks credit policy and government
regulations.
c) Whether customers or his business have the ability to generate enough cash to repay the
loan.
d) Whether sufficient security has been offered so that in the event of default banks fund
can be recovered. Whether banks claim on that security can be established without
risk/with low risk.
e) Fixing the amount of loan, loan terms and conditions, documentation, etc. to meet the
needs of the borrower and to protect the interest of the bank.

Is the Borrower Creditworthy?
a. Character:
To determine whether the borrower has a responsible attitude towards borrowed funds
and whether he will have every effort to repay the loan.
Responsibility, truthfulness, serious purpose and serious intention to repay loans make
up the characters of borrower.
b. Capacity:
Whether customer requesting the loan has the authority to request a loan and have the
legal standing to sign loan agreement and documents.

c. Conditions:
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Whether borrower has sufficient assets to repay the loan (cash, business assets, other
moveable/immoveable properties).
Other loans and liabilities of the borrower.
d. Credit History/Credit Habit:
Whether loans borrowed by the customers previously and how those earlier loans were
handled.
Whether there is any loan default earlier.
Whether legal action has ever been taken against him for recovery of default loan.
e. Credit Ratings:
Credit ratings of the borrower by CIB of Bangladesh Bank.
Purpose of the Loan:
Customers must have the well-defined purpose for requesting the loan.
Purpose of the loan must be consistent with banks credit policy and government
regulations.
Business Position:
a. Cash flow: There are three sources to repay the loan-
1. Cash flow generated from sales or income.
2. The sale or liquidation of assets.
3. Funds raised by issuing debt or equity securities.
History of earnings and sales whether there is a history of steady growth in earning or sales
and whether there is high profitability that such growth will continue.
b. Conditions: Analysis of recent trends in the borrowers business/industry and whether
changing economic condition might affect business or loan.
c. Control: Whether there is a chance of change in government policy or law could adversely
affect borrowers business.



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2.20 Security for Loans and Advances
There are securities for loans and advances which are as follows-
1. Most preferred businesss income or cash flow from which the customers will repay the
loan.
2. Second security consists of customers balance sheet/his assets that can be liquidated for
adjustment of loan.
3. Guarantees from owners or from a third party.
Primary security=goods, hypothecated/pledge
Secondary security=mortgage of real estates
4. Insurance policy as per security.
5. Collateral security serves two purposes for a lender, first if the borrower cannot pay, the
collateral gives the lender the right to seize or sell those properties to cover the amount
of loan default. Secondly, collateral security gives the lender a psychological advantage
over the borrower. Borrowers in this situation feel more obligated and work hard to
repay the loan to avoid losing valuable assets.
Loan amount/Loan terms and conditions/Loan documents:
1. Loan amount should be fixed such a way that it will require the needs of the customer or
his business. Proper accommodation of a customer may involve lending more or less
money than asked for over a longer or shorter period than requested.
2. Loan terms and conditions should be termed in such a way that they will protect banks
interest as well as customers purpose. The loan agreement must be structured in such a
way that the borrower may be able to service the loan and be able to comfortable repay
the loan as per schedule.
3. Loan documents must be executed properly so that the bank can establish its claim
against the assets or earnings of the customer to recover the banks funds rapidly at low
cost and with low risk in the event of default by the borrower.
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4. If necessary, certain restrictions (covenants) may imposed on the borrower in loan
agreement so that the borrower may not include to such activities which could threaten
the use and recovery of banks funds.
2.21 Credit Risk Grading (CRG)
CRG is the combination of analysis of various types of risks that may occur while a loan have
sanctioned. This is an analysis of the measurement of performance of a company or
individuals. When a loan has been provided by the bank then all types of risks have to
calculate. This is not easy to express all the pros and corns of CRG in this report. Before
sanctioning a loan it is necessary to analyze the CRG. National Bank has formatted this
analysis which contains several sheets of analysis to identify the strength and weakness and
the repayment probability of the lending.

GRADING SHORT NAME NUMBER
Superior SUP 1
Good GD 2
Acceptable ACCPT 3
Marginal/Watch list MG/WL 4
Special Mention SM 5
Sub standard SS 6
Doubtful DF 7
Bad & Loss BL 8

Credit Risk Grading Definitions of the Different Categories:
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.



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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.
An 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.
An 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.
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Loan repayments routinely fall past due.
Account conduct is poor or other untoward factors are present.
Credit requires attention.
An 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:
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.
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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 detail process for arriving at credit risk
grading. Credit risk for counterparty arises from an aggregation of the following-
1. Financial Risk
2. Business/Industry Risk
3. Management Risk
4. Security Risk
5. Relationship Risk
Each of the above mentioned key risk areas required be evaluating and aggregating to arrive
at an overall risk grading measure.
Evaluation of Financial Risk:
Risk that counterparties will fail to meet obligation due to financial distress. This typically
entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest
coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor liquidity, low
profitability & insufficient cash flow.
Evaluation of Business/Industry Risk:
Risk that adverse industry situation or unfavorable business condition will impact borrowers
capacity to meet obligation. The evaluation of this category of risk looks at parameters such
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as business outlook, size of business, industry growth, market competition & barriers to
entry/exit. To conclude, this capitalizes on the risk of failure due to low market share & poor
industry growth.


Evaluation of Management Risk:
Risk that counterparties may default as a result of poor managerial ability including
experience of the management, its succession plan and team work.
Evaluation of Security Risk:
Risk that the bank might be exposed due to poor quality or strength of the security in case
of default. This may entail strength of security & collateral, location of collateral and
support.
Evaluation of Relationship Risk:
These risk areas cover evaluation of limits utilization, account performance,
conditions/covenants compliance by the borrower and deposit relationship.
According to the importance of risk profile, the following weightings are proposed for
corresponding principal risks-

Principal Risk Components Key Parameters Weight
Financial Risk 50% - Leverage 15%
- Liquidity 15%
- Profitability 15%
- Coverage 5%
Business/Industry Risk 18% - Size of Business 5%
- Age of Business 3%
- Business Outlook 3%
- Industry Growth 3%
- Market Competition 2%
- Entry/Exit Barriers 2%
Management Risk 12% - Experience 5%
- Succession 4%
- Team Work 3%
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Security Risk 10% - Security Coverage 4%
- Collateral Coverage 4%
- Support 2%
Relationship Risk 10% - Account Conduct 5%
- Utilization of Limit 2%
- Compliance Covenants/Conditions 2%
- Personal Deposit 1%

After the risk identification & weight age assignment process (as mentioned above) the next
steps will be to input actual parameter in the score sheet to arrive at the scores
corresponding to the actual parameters.
The following is the proposed credit risk grade matrix based on the total score obtained by
an obligor-
Number Risk Grading Short Name Score
1 Superior SUP 100% cash covered
Government guarantee
International bank guarantees
2 Good GD 85+
3 Acceptable ACCPT 75-84
4 Marginal/Watch list MG/WL 65-74
5 Special Mention SM 55-64
6 Sub-standard SS 45-54
7 Doubtful DF 35-44
8 Bad & Loss BL <35

Credit Risk Grading Process:
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 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
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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. 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.
Credit Risk Grading exercises 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.
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 Grading.

2.22 Lending Process
The main function of commercial bank is to deposit and invest this fund. But in the process
of lending it has safeguard to the depositors money as well as business of the bank.
Therefore, proper management supervision and follow-up is very important in the lending
and recovery process. Lending process involves three stages-
1. Pre-sanction.
2. Post-sanction/pre-disbursement.
3. Post disbursement.


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Pre-sanction Stage:
Virtually, the very supervision of loans starts during pre-sanction stage. At this stage credit
investigation is very important as it involves selection of right and qualitative borrower. To
select the borrower banks personnel first interview the entrepreneurs/sponsor directors to
judge their capability to manage the finance or to run the project efficiently as the case may
be. This depends mainly on integrity, business behavior, reputation, past experience in
particular line of business, financial solvency, quantum of own equity in business, willingness
to repay the loan etc. Then credit report should be collected from-
1. Credit Information Bureau (CIB) of Bangladesh Bank.
2. Declaration of the party with regard to liability with other bank, financial institutions.
3. Internal sources i.e. to find out account performance, reputation, track record,
repayment capability and intention to pay back the banks money.
The following aspects are mainly noticed-
a) Managerial Aspects:
-Managerial ability
-Honesty, integrity
b) Technical Aspects:
-Whether the technology is outdated or modern to handle by the firm.
-Cross-check of the pricing as stipulated in the indent/pro-forma invoice.
-Check the productivity of the proposed plant and machinery matching with the firms goal.
c) Financial Aspects:
-Companys operating performance and future earnings prospects.
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-Current financial condition, factors likely to affect in the near future.
-Demand-supply gap keeping in view the other similar existing industries and the industries
which are in the offing.
-Net worth of sponsor directors/entrepreneurs/proprietor.
-Lending risk analysis. Proper analysis should be so that under finance or over finance is not
made and there is no diversion of fund.
Post-sanction/Pre-disbursement Stage:
Proper documentation and securitization is very important at this for safety of the credit
facility be extended and enabling the bank to liquidate in the event of borrowers default.
Proper/correct documentation serves three basic purposes-
1. Borrowers unqualified asset of availing credit facility.
2. Banks legal right is created to the securities deposits/offered as of the loan.
3. In case of default of the borrower to repay, the documents can be placed before court
for a degree to realize the dues.
Moreover, the documents also keep the borrower under a mental pressure that in the case
of default, the law of the country will not spare him.
Charge Documents:
Usual charge documents duly signed by the entrepreneur or authorized persons must
invariably be obtained prior disbursement of loans which are as under-
1. D.P. note
2. Letter of arrangement
3. Letter of disbursement
4. Letter of hypothecation/pledge
5. Letter of lien
6. Personal guarantee.
In addition, letter of acceptance of the terms and conditions signed by the borrower to be
obtained.
Direct/Indirect Securities:
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Direct securities like FDR, other term deposits, PSP/BSP, WEDB standing in the name of
borrower himself and those standing in the name of 3
rd
party should be lined duly
discharged.




Goods and Stocks under Pledge/LIM:
1. Pledge stock must remain in effective control of the bank and stored in godown
providing full security and safety.
2. Quality, Quantity and market price of the goods must be verified.
3. The commodities pledged to bank must be readily saleable/have constant demand in the
market/should not be perishable in nature.
4. The goods are to be insured covering all risks.
5. Imported goods at landed cost or market price whichever is lower should be considered.
6. Margin requirement should meticulously be followed at the time of taking pledge of
goods.
7. Stock report should be obtained duly signed by the borrower.
Collateral Security:
1. Original deed
2. Bia deed
3. C.S, S.A, RS
4. Non-encumbrance certificate
5. Up-to date rent receipt etc.
In case of accommodation against hypothecation of moveable property (machinery, stock
etc.) of limited company charge (on the asset acquired to be acquired) must be created with
the register of joint stock company within 21 days from the date of documentation and the
certificate thereof must be maintained with the charge documents.

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Post-disbursement Stage:
At this stage following points are considered-
1. Whether transaction in the loan is being done satisfactorily i.e. turnover is satisfactory.
2. Whether balance in the loan account remains within in limit.
3. Whether fund disbursed has been used for the purpose the loan has been sanctioned
for.
4. Whether stock reports are obtained and stocks are being inspected/examined at a
regular interval.
5. Whether stock and D.P (Drawing Power) register, order properly maintained.
6. Whether personal contacts with the borrower kept on at a regular intervals.
7. Whether the aspects revealing financial and management position of the borrower are
under close watch and supervision.
8. Whether balance confirmation is being obtained from the borrower at a regular interval.
9. Whether required statements of advances is sent to the controlling office regularly,
timely and correctly with true picture of position of each and every loan.









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3.1 Definition of Loan Disbursement
Loan disbursement is a process of allocating the loan amount to the perspective borrower
and creates charge document (which is termed as documentation) on the loan amount.

3.2 Definition of Loan Recovery System
Loan recovery system refers to the process of collecting the installment and interest on loan
amount. A bank faces problems when a loan becomes overdue or classified. Loan
disbursement and recovery system are very crucial tasks involved in loan sanction
procedure. So firstly, I am going to describe the procedure of loan sanction which includes
loan disbursement and recovery system and their position in the process as well.

3.3 Procedure of Making Loan
The following procedure is applicable for giving advance to the customer. These are-
Duly fill up first information sheet
Application for loan
Collecting CIB report from Bangladesh Bank
Feasibility study
Making loan proposal
Project appraisal
Head Office approval & sanction letter
Disbursement of loan & charge document
Chapter Three: Practical Aspects
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Repayment, defaultation & classification of loan
Bad loan monitoring and recovery system

3.3.1 Information Sheet:
Information sheet is prescribed form provided by the respective branch that contains NBL
bank information of the borrower like-
Name of the concern with its factory location
Officers address and telephone number
Name of the main sponsors with their educational qualification
Business experience of sponsors
Details of past and present business, its achievement and failures
Income tax registration number with the amount of tax paid for the last three years
Details of encumbered assets personally owned by the sponsors
Estimated cost of the project & means of finance, etc.
Here a bank officer needs to select a potential borrower that involves the study of borrower.
Borrower selection includes the study of 6cs-
Character
Capacity
Cash
Collateral
Condition
Control
All must be satisfactory for the loan to be a good one from the lenders point of view.

3.3.2 Application for Loan:
After receiving the first information sheet from the borrower, bank official verifies all the
information carefully. He also checks the account maintained by the borrower with the
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bank. If the official becomes satisfied then he gives loan application form to the prospective
borrower.


3.3.3 Collecting CIB Report from Bangladesh Bank:
After receiving the application for advance, National Bank Ltd. sends a letter to Bangladesh
Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau)
report. NBL generally seeks this report from the head office for all kinds of loan. The
purpose of this report is to be informed that whether the borrower has taken loan from any
other bank, if yes then whether the party has any overdue amount or not. Internal sources
i.e. to find out account performance, reputation, track record repayment capability and
intention to pay back the banks money.
3.3.4 Feasibility Study:
After receiving the CIB report from the Bangladesh Bank the bank conducts a feasibility
study. Following aspects are mainly noticed-
a) Legal Aspects:
Registration Certificate
Trade License
TIN Certificate
Vat Registration Certificate
Memorandum of Association & Articles of Association
CIB Report, etc.
b) Business Aspects:
Application for proposed loan
Information in a prescribed format for loan/credit limit
Audited balance sheet
List of machineries/Stock report
Details of assets, etc.
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c) Security/Documentation:
Original deeds of the property to be mortgaged
Bio deeds
Net worth of the applicant
Lending risk analysis
3.3.5 Making Loan Proposal:
After conducting feasibility study, the branch prepares a loan proposal which contains terms and
conditions of loan for approval of Head Office or Head of the concerned branch. The following
are necessary for sending the loan proposal-
Loan application
Declaration of the borrower
Bio data of the borrower with photograph duly attested
Purpose and limit of loan
Credit report
Legal opinion
Trade license
Copy of title deeds
Tax clearance certificate, etc.
If the bank officer thinks that the project is feasible then he will prepare a proposal on behalf of
the borrower. NBL prepares the proposal in a specific form called loan proposal. It contains
following relevant information-
Borrower
Date of establishment, constitution
Main sponsor/director with background
Capital structure, address
Account opening date introduction by type of business, particulars of previous sanctions
Security (existing and proposed)
Movement of accounts
Components on the conduct of the account
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Details of deposit, liabilities of allied concerns, liabilities with other banks
CIB report
Rated capacity of the project (item wise)
Production or purchase during the period
Sales during the period
Earning received for the period
3.3.6 Project Appraisal:
It is the pre loan analysis done by the officer before approval of the project. Project appraisal
in the banking sector is needed for the following reasons-
To justify the soundness of an loan
To ensure repayment of bank finance
To achieve organizational goals
To recommend if the project is not designed properly
Techniques of Project Appraisal:
An appraisal is a systematic exercise to establish that the proposed project is a viable
preposition. Appraising officer checks the various details submitted by the promoter in first
information sheet, application for loan and loan proposal. National Bank Ltd. considers the
following aspects in appraising a proposal-
Technical viability
Commercial viability
Financial viability
Economic viability
The Head Office (HO) mainly checks the technical, commercial and financial viability of the
project. For others HO is dependent on branchs information. But when the loan size is big
then the HO verifies the authenticity of information physically.




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3.3.7 Head Office Approval & Sanction Letter:
Head Office Approval:
Upon receipt of the loan proposal from the branch, the Head Office again appraises the
project. If it seems to be a viable one then HO sends it to the Board of Directors for the
approval of the loan. The Board of Directors considers the proposal and takes decision
whether to approve the loan or not. If the Board of Directors approves the loan, the HO
sends the approval to the concerned branch with some conditions. These are like-
Drawing will not exceed the amount of bill receivables
Branch will not exceed the sanctioned limit
All other terms and conditions
Bank may change or alter or cancel any clause (s) of the sanction without assigning any
reason whatever and that will be binding upon the client unconditionally
Required charge documents with duly stamped should be obtained
Drawing will be allowed only after completion of mortgage formalities and other security
arrangement, etc.
Sanction Letter:
After getting the approval of the HO, the branch issues a letter to a borrower. A sanction
letter contains the following particulars along with other details-
Name of the borrower
Facility allowed
Purpose
Rate of interest
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Period of loan and mode of adjustment
Security
Other terms and conditions




3.3.8 Disbursement of Loan and Charge Documents:
After issuing the sanction advice and if the borrower accepts the sanction letter, the
disbursement starts. Then the bank will collect necessary charge documents which vary on
the basis of types of facility, types of collateral. It includes 3 steps-
Charge Documentation: Documentation is a written statement of the fact evidencing
certain transactions covering the legal aspects duly signed by the authorized persons
having the legal status. Following are the most common documents used by the NBL for
sanctioning different kinds of investment-
Joint promissory note
Letter of arrangement
Letter of disbursement
Letter of installment
Letter of continuity
Trust receipt
Counter guarantee
Stock report
Letter of lien
Status report
Letter of Hypothecation
Letter of guarantee
Documents relating to mortgage
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Charges on Securities: Charge documentation also includes creation of charges on
securities. Charges on securities mean a documented claim on securities by means of
which it may be made available as a cover for an advance. There are 6 types of modes of
charging securities-
Pledge: Pledge is the bailment of goods as security for payment of a debt or
performance of a promise, a pledge may be in respect of goods including stocks and
share as well as documents of title to be good such as railway, bill of lending, etc.
duly endorsed in banks favor.
Hypothecation: Hypothecation is the possession and ownership of the goods both
rest with the borrower. The banker creates equitable charges on securities to the
borrower.
Mortgage: In this case the mortgagor does not transfer the ownership of the specific
immovable property to the mortgage only transfer some of his rights as an owner.
The banker exercises the equitable mortgage.
Lien: Lien is the right of the banker to retain the goods of the borrower until the loan
is repaid. A banker can retain all securities in his possession till all claims against the
concerned person are satisfied.
Assignment: Assignment means transfer of any existing or future right, property or
debt by one person to another person. Usually assignment is made of actionable
claims such as book debts, insurance claims, etc.
Set-off: It means the total or partial merging of claim of one person against another
in a counter claim by the letter against the former.
Disbursement of Loan Amount: In practical, the loan amount is disbursed in different
ways which depends on the following things-
Nature of the loan
Type of loan
Nature of the borrower
Nature of the business
Period of the loan
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Amount of the loan
Area of the project
Return on investment, etc





Generally the bank disburses a loan in three ways-
Loan amount can be disbursed wholly by crediting the borrowers loan account.
The amount can be disbursed monthly in an equal amount.
The bank can disburse the loan amount after the completion of a part of the project
or floor of a building or anything as mentioned in the loan agreement.
The bank can disburse the loan in any of the above ways but it should always be
remembered that the amount must be disbursed within one year from the date of sanction
of the loan.
Loan Follow Up at Disbursement Stage:
At the stage of disbursement of loan a credit officer has to ensure the proper
documentation and use of fund for the purpose for which loan was given. They ensure the
following activities-
Progress made in construction and operation
Disbursement made as per sanction advice
Obtained all papers/documents before disbursement as per Head Office sanction advice,
etc.




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3.4 Recovery & Default of Loan
From the bankers point of view, repayment means the recovery of loan that is schedule to
repay by the borrower within a specified time period. Repayment is done by the installment.
Installment refers to the part of principal amount together with the interest and service
charges become due for a particular date, i.e. due date.

Basic Elements of Loan Repayment:
Recovery of loan would generally come out of surplus of income left over after meeting all
sorts of cost related to production and operation. The amount and numbers of installment
are fixed based on the following elements-
The purpose and maturity of loan
Gestation period of the project
Economic life of the project or assets
The nature of cash flow of the project

Types of Repayment Plan:
1. Straight-End Repayment Plan: This is also known as single repayment plan. According to
this plan, the repayment of the entire loan is made on the expiry of the term. The
interest of the loan is paid each year.
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2. Variable or Flexible Repayment Plan: Under this plan the agreement is made initially on
the basic of some amortized repayments but the repayment of loan is written every year
taking into account the variability of income from year to year.
3. Amortized Decreasing Repayment Plan: This plan provides for fixed principal payments
and declining interest payments on the outstanding balance with every installment of
the payment.



Loan Classification:
But when a borrower fails to pay the installments for three months, the borrower becomes
a defaulter. A loan starts to be classified when the installment is not paid for 3 months. It has
four stages-
1. SMA (special mention account)-till 3months from the date of nonpayment
2. SS (sub standard)-above 3 to 6 months
3. DF (doubtful)-above 6 to 9 months
4. BL (bad & loss)-above 9 to 12 months
3.5 Bad loan Monitoring and Recovery System

Credit Monitoring and Review:
In the implied credit rules by NBL it is the managers responsibility to monitor the profile and
risk aspect of the credit portfolio. Such monitoring will be evidenced from the comments of
the manager in monthly call or time to time call and visit reports of the assigned officers and
be kept in the credit file with a copy to Head Office. All extensions of credit have to be
reviewed and graded at intervals prescribed by the Head Office. The purpose of this
procedure is to monitor lending performance and to identify potential delinquent credits.
The basis of review and classification are risk of the transaction, repayment record of
borrower, collateral conditions, supporting information and documentations and the degree
of conformity to bank facilities. The responsibilities for review and classification of credit
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facilities start at branch level and finally end at the Head Office. Regardless of any formalized
times for facility to be reviewed and formally classified by the branch manager or the
concerned credit officer.
Purpose of Credit Monitoring in NBL:
The purpose of credit monitoring is pointed out below-
To prevent loan classification
To return flow of fund
To obtain feedback from borrowers
To take timely corrective action regarding a particular loan, etc
Credit Administration as a Tool for Credit Monitoring:
To monitor insurance coverage to ensure appropriate coverage is in place over assets
pledged as collateral and is properly assigned to the bank.
To control loan disbursement only after all terms and conditions of approval have been
met and all security documentation is in place.
To maintain control over all charge documentation.
To monitor borrowers compliance with covenants and agreed terms and conditions and
general monitoring of account conduct/performance.
Moreover, regular contact with customers will customers will enhance the likelihood of
developing strategies mutually acceptable to both the customer and the bank.
Early Warning System in Credit Monitoring:
NBL uses early warning system for effective monitoring of its loans and advances. The
components of early warning system consist of current or anticipated alternations in the
followings-
Industrial patterns or structures
Management composition or succession
Impact of national or international political and economic trends
Borrower performance versus budget or forecast, etc.
Recovery of Advance:
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A banks profitability and sustainability mostly depends on the recovery of its outstanding
amount includes both principal and interest because 80% of banks earnings comes from
advances. A poor recovery rate indicates the weak condition of the banking operation and
vice versa. But in the mid 80s, there started a loan defaulting culture which is still in practice.
As a result, banking sectors as well as the whole economy is facing a great threat from the
defaulters. Money circulation has come down at its minimum level. If this cannot be
checked, whole banking system of our country will collapse one day.

Recovery Procedure:
Recovery procedure is a lengthy one that requires efforts of the bank, society and legal
institutions. It also takes time and money. Like other banks, National Bank follows four steps
to recover the outstanding amount. These four steps are described in detail below-
Reminding to the clients: Reminder to the client is given through a formal
communication channel. A letter is written and properly signed on the bank's papers.
This letter is issued several times to remind the honorable lender to repay his/her
outstanding portion.
Creating social pressures: If the loan amount is not yet repaid after sending a series of
letters then persons create social pressure on the client referred while opening account
in the bank.
Sending legal notice: Legal notice is prepared and sent by National Bank when above
two steps fail to recover the amount. It is a threat to the borrower.
Legal action: The last and final step of the recovery procedure is the help from the court.
National Bank sincerely tries to avoid this kind of situation for its honorable clients but
cannot help doing for its own sustainability.




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3.6 Five Years Performance at a Glance
Particulars 2006 2007 2008 2009 2010
Authorized Capital 2,450.00 2,450.00 2,450.00 7,450.00 17,500.00
Paid-up Capital 805.47 1,208.20 1,872.72 2,846.54 4,412.13
Reserve Fund 2,468.78 3,360.19 4,253.55 6,070.22 14,693.47
Deposits 40,350.87 47,961.22 60,187.89 76,834.13 102,471.83
Advances 32,709.68 36,475.74 50,665.07 65,129.29 92,003.56
Investment 6,239.83 7,760.38 9,156.61 12,315.20 24,993.33
Import Business 42,458.50 62,759.00 78,226.32 77,539.77 96,442.57
Export Business 28,019.20 31,824.00 36,284.44 38,398.85 47,812.47
Interest Income 3,674.32 4,288.80 5,786.71 7,006.63 9,616.14
Interest Expenditure 2,449.76 2,833.45 3,594.84 4,490.34 5,577.09
Profit-Before Tax 1,146.78 2,215.10 3,123.83 3,397.50 8,940.60
Profit-After Tax 507.49 1,238.11 1,517.43 2,070.47 6,860.34
Total Capital 3,237.87 4,711.47 6,519.14 9,124.62 19,190.79
Fixed Assets 1,627.29 1,842.28 1,981.60 2200.85 2,609.46
Total Assets 46,796.04 56,526.96 72,205.50 91,931.63 134,732.31
(In Taka)
Net Asset Value Per Share 40.65 37.81 32.71 31.32 43.30
Market Value Per Share 76.05 149.40 101.43 64.63 191.60
Earnings Per Share 6.30 6.61 5.33 4.69 15.15
Dividend 50% 55% 52% 55% 95%
(In Number)
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Number of Foreign Correspondents 400 405 405 415 415
Number of Employees 2,270 2,432 2,737 2,960 3,442
Number of Shareholders 10,241 14,003 24,296 36,467 34,130
Number of Branches 91 101 106 131 145





3.7 Growth of Loan & Advance & Deposits for Last Five Years

Graphical Representation:



Comment:
0
20000
40000
60000
80000
100000
120000
2006 2007 2008 2009 2010
Loan & Advances Deposits
Year 2006 2007 2008 2009 2010
Loan & Advance 32,709.68 36,475.74 50,665.07 65,129.29 92,003.56
Deposits 40,350.87 47,961.22 60,187.89 76,834.13 102,471.83
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From the above figure we see that the banks loan and advance has been growing since
2006. Total advance stood at Tk. 92,003.56 million after end of the year 2010 where it is Tk.
26,874.27 million higher than the previous year that was Tk. 65,129.29 million. On the other
hand, total deposits also have been increasing since 2006. The deposits stood at Tk.
102,471.83 million after end of the year 2010 where it is Tk. 25,637.7 million higher than the
previous year that was Tk. 76,834.13 million.


3.8 Interest Income of NBL for Last Five Years
Year 2006 2007 2008 2009 2010
Interest Income 3,674.32 4,288.80 5,786.71 7,006.63 9,616.14

Graphical Representation:



Comment:
From the above graph we see that, Interest income has been growing since 2006. And after end of
the year 2010, total interest income stood at Tk. 9,616.14 million.
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
2006 2007 2008 2009 2010
Interest Income
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3.9 Sectoral Distribution of Loan & Advance by NBL in 2010


Comment:
In 2010, the bank has disbursed loan and advance to different sectors as follows -

1. Agriculture 984.01

2. Term loan to small cottage industries 258.14
Agriculture-
984.01
Term loan to small
cottage industries-
258.14
Term loan to large
& medium
industries-
13897.12
Working capital to
industry-11641.07
Export Credit-
5058.6
Trade Finance-
35346.4
Credit Card-411.98
Others, 24406.24
Agriculture Term loan to small cottage industries
Term loan to large & medium industries Working capital to industry
Export credit Trade Finance
Credit Card Others
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3. Term loan to large & medium industries 13,897.12

4. Working capital to industry 11.641.07

5. Export credit 5,058.60

6. Trade Finance 35,346.40

7. Credit Card 411.98

8. Others 24,406.24


3.10 Ratio Analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated
quotient of two mathematical impressions and as the relationship between two or more
things. In financial analysis, a ratio is used as benchmark for evaluating the financial position
and performance of a firm. I am describing some ratios for the measurement of the
performance of the bank.

3.10.1 Advance to Deposit Ratio:



Year Loan & Total Deposits Ratio (times)
81.06%
76.05%
84.18%
84.77%
89.78%
65.00%
70.00%
75.00%
80.00%
85.00%
90.00%
95.00%
2006 2007 2008 2009 2010
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Advances
2006 32,709.68 40,350.87 0.81
2007 36,475.74 47,961.22 0.76
2008 50,665.07 60,187.89 0.84
2009 65,129.29 76,834.13 0.85
2010 92,003.56 102,471.83 0.89

Comment:
From the above figure we see that, banks advance to deposit ratio decreased in 2007,
increased in 2008, 2009 & 2010. Advance to deposit ratio of bank are highly correlated.
3.10.2 Net Interest Margin (NIM):
Net Interest Margin measures the net return or spread on the banks earning assets.


*Net interest income=Interest income Interest expense

Year 2006 2007 2008 2009 2010
NIM 2.62% 2.57% 3.04% 2.74% 3.00%



2.62%
2.57%
3.04%
2.74%
3.00%
2.30%
2.40%
2.50%
2.60%
2.70%
2.80%
2.90%
3.00%
3.10%
2006 2007 2008 2009 2010
P
e
r
c
e
n
t
a
g
e

Year
NIM
Assets Total
* Income Interest Net
(NIM) Margin Interest Net
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Comment:
From the above figure we see that, the banks Net Interest Margin (NIM) has been
decreasing in 2007, 2009 & increasing in 2008, 2010.









3.10.3 Non-Performing Loan to Total Loan Ratio:
This ratio measures how much of loan are not performing out of total loan.
*Non-performing loan to total asset ratio=Non-performing Loan/Total Loan.




Comment:
6.01%
4.53%
5.39%
5.97%
3.96%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2006 2007 2008 2009 2010
P
e
r
c
e
n
t
a
g
e

Year
Year 2006 2007 2008 2009 2010
Non-performing loan to total loan ratio 6.01% 4.53 % 5.39 % 5.97 % 3.96%
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The graph shows us a decreasing trend of the banks nonperforming loan. Though it is
fluctuating it has a downward direction because non performing loan at 2010 is lower than
that of 2006.








3.11 Recovery of Loan & Advance by NBL for Last Five Years
Year 2006 2007 2008 2009 2010
Recovery of
loan &
advance
93.99% 95.47% 94.61% 94.03% 96.64%

Graphical Representation:


85.00%
87.00%
89.00%
91.00%
93.00%
95.00%
97.00%
99.00%
2006 2007 2008 2009 2010
Recovery of Loan &
Advances
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Comment:
From the above graph we see that, recovery of loan in year 2010 is growing rather than in
year 2009.







3.12 Findings
The findings of this report are as follows-
NBL has a good set of institutional owners that gives it a better Board of Directors than
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.




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3.13 SWOT Analysis
Introduction:
Both manufacturing and service oriented business organizations start to possess some
weaknesses as time elapses. The weaknesses of an organization can be turned into
opportunities if recognized on time. Moreover, overlooking any threat may result in loosing
valuable business opportunities. For this reason, an assessment of every business
organization is required to judge the performance from the aspects of its strength,
weakness, opportunity and threat. The strength, weakness, opportunity and threat (SWOT)
analysis of the NBL is as follows-
Strength:
NBL has a separate department in Head Office to comply with guideline of credit
management manual.
Credit management policy is reviewed annually by the Board of Directors.
NBL has a high growth of loan and advance in 2011 compared to previous years.
NBL has a high interest income in 2011 compared to previous years.
NBL has commendable achievement of recovering loan and advance in last five years
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Weakness:
Credit proposal evaluation process is lengthy. Therefore, sometimes valuable clients are
lost and the bank becomes unable to meet targets.
Marketing policy is not well setup.
Proper training and learning of the employees is not ensured.
All the branches of NBL have not yet implemented credit management manual fully.
Opportunities:
Credit department can provide various facilities and help the new entrepreneurs to
inform about the SME financing.
Bank can also offer micro credit business for individual and small business.
Transaction procedures can be easier.

Threats:
Common attitude of Bangladeshi clients to default.
Opening the recent permitted new bank without implementation of the needed reforms.
Similar products are offered by other banks.
Industrial recent downward trend due to recession, inflation & unemployment.
High & unhealthy competition.
Globalization.









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4.1Problems
4.2 Recommendations
National Bank Limited is one of the potential banks in the banking sector. The credit
operation branch of National Bank is a large and busy branch. Therefore it is not an easy job
to find so many things during the very short period of internship program. Though now I
would like to present my recommendations to improve the banking service and make the
customer more satisfied-
Bank should provide more industrial loans.
Bank should be innovative and diversified in its business.
Bank should introduce modern technology.
Bank should try to be fully computerized.
Branch should increase its quality of customer services.
Chapter Four: Conclusion
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Bank should immediately enter into the credit card market.
Speed up processing of loan application.
Human Resource Division should be developed.
Marketing for selling the services should be encouraged.
Detail manual should be prepared for accurate credit operation.
Bank should reduce classified loan on an emergency basis.





4.3 Conclusion
From the practical exposure to the various aspects of banking activities during the whole
period of my practical orientation in National Bank Limited I have reached a firm and
concrete conclusion in a very confident way. I believe that my realization will be in harmony
with most of the banking thinkers. It is quite evident that to build up an effective and
efficient banking system to the highest desired level computerized.

The primary function of commercial banks is the extension of credit to borrowers. Banks
credit is a catalyst for bringing about economic development. Without adequate finance,
there can be no growth or maintenance of a stable output. Banks lending is important to
the economy, it makes possible the financing of agriculture, commercial and industrial
activities of a nation.

Success in the banking business largely depends on effective lending and customer service.
Less the amount of loan losses, the more of the income will be from credit operations. The
more the income from credit operations the more will be the profit of the bank.
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Though there are some drawbacks in implementing credit facilities in National Bank Limited
as per manual, it can be further developed in of recommendations being discussed earlier.
Finally it can be argued that through the results achieved so far are not satisfactory,
effective customer satisfaction is an efficient technique for enhancing NBLs strength and
there lies the opportunities to make it more effective in the future for their own benefit.





4.4 Bibliography
Reports, Articles:
1. Annual Report of National Bank Limited (2006-2010).
2. Article on Advance & Credit Management by Saberi Akhter Jamal, Faculty Member,
BIBM.
3. Instruction Manual of National Bank Training Institute.
4. National Bank Brochure.
5. Manual on Credit Risk Management with Policy Guideline-2010 of National Bank Limited.

Text Books:
1. Fundamentals of Corporate Finance-Stephen a Ross, Randoloph W Westerfield, Bradford
D Jordan (Eighth Edition)
2. Commercial Bank Management-Peter S. Rose (Fifth Edition)

Websites:
1 1. . www.google.com
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2 2. . www.nblbd.com
3 3. . www.bangladesh-bank.org
4. www.report-bd.com
5 5. . www.answers.com