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CHAPTER-1

Introduction

1.1

BACKGROUND OF THE STUDY.

Four years back Bangladesh Bank undertook a project to review the global best practices in the
banking sector and examines in the possibility of introducing these in the banking industry of
Bangladesh. Four Focus Groups were formed with participation from Nationalized Commercial
Banks, Private Commercial Banks & Foreign Banks with representatives from the Bangladesh
Bank as team coordinators to look into the practices of the best performing banks both at home
and abroad. These focus groups identified and selected five core risk areas and produced a
document that would be a basic risk management model for each of the five 'core' risk areas of
banking. The five core risk areas are as follows1

a)

Credit Risks;

b)

Asset & Liability / Balance Sheet Risks;

c)

Foreign Exchange Risks;

d)

Internal Control & Compliance Risks; and

e)

Money Laundering Risks.

Bangladesh Bank in one of its circular (BRPD Circular no.17) advised the commercial banks of
Bangladesh to put in place an effective credit approval and monitoring system by December,
2003 based on the guidelines sent to them.

In my study, I would try to put forward my findings about the Credit Management Policy of
Bangladesh Bank, and its implementation. To illustrate my point, I am giving the example of
Bank Asia Limited, Premier Bank Limited, and Agrani Bank Limited.

1.2

OBJECTIVES OF THE STUDY.

Broad objective:
The broad objective is to know the Credit Management Policy of Bangladesh
Bank.
To analyze its implementation at Bank Asia Limited, Premier Bank Limited
and Agrani Bank Limited.
Specific objective:

In order to reach the broad objective, some specific objectives are identified.In this report, I
have attempted to give an overview of credit management of BAL, PBL and ABL.
Following are the main objective:
To familiarize with the history and operations of Bank Asia Limited
Bangladesh, Premier Bank Limited and Agrani Bank Limited.
To show an overview of credit management of BAL, PBL and ABL.
To show the comparative analysis.

1.3

RATIONAL OF THE STUDY.

Any academic course of study has a great value when it has practical application in real life.
Only a lot of theoritical knowledge will be a little important unless it is applicable in practical
life.So we we need proper application of our knowledge to get some benefit from our theoritical
knowledge to make it more fruitful. This is why thesis program is a prerequisite for acquiring
BBA Degree in my university. The entire BBA program is divided into eight semesters. The
thesis program is executed in the last semester and it has got the same weight as othersemester in
the evaluation process. As the classroom discussion alone can not make a student perfect in
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handling the real business situation. Therefore it is an opportunity for the students to know about
real life situation through this thesis program. This program consists of three phases:
1.3.1 The project Work:
To pertainning to a perticular problem matching with the students capacity and organizations
requirement.
1.3.2 The report writing:
To eptomize the students analysis, findings and achievements, in this connection, I would like to
add, this report is completely confidential and prepared with a view to expose myself to the
prctical exposure and knowledge.

1.4

METHODOLOGY.

The study is performed based on the imformation extracted from different sources collected by
using a specific methodology. To perform the study the data sources are to be identified and
collected, they are to be classified, analyzed, interpreted and presented in a systematic manner
and key points are to be found out.
Population:
Population Definition:
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Elements: Existing Customers and Credit Departments of BAL, PBL, and ABL.
Units: Existing Retail Customers of BAL, PBL and ABL.
Extent:
Bank Asia Limited.
Corporate Head Office,
Tea Board Building (1st Floor),
111-113, Motijheel C/A, Dhaka-1000.
The Premier Bank Limited
Head Office
IQBAL CENTRE (4th Floor)
42 Kemal Ataturk Avenue, Banani, Dhaka-1213
Agrani Bank Limited
Head Office
9D Dilkusha Commercial Area
Dhaka-1000

Sampling:
Sampling Method:
According to the concept of probability sampling method, each element of the population has a
known chance of being selected for the sample (Kinnear & Taylor P 411). In this practicum
report the sampling is done by the mathematical decision rules that leave no discretion to the
report. As a result, probability sampling method has been chosen for this practicum report.
Sampling Procedure:

For conducting this practicum report, Cluster sampling procedure has been chosen. Under
Cluster sampling procedure, Systematic sampling procedure has been applied with an interval of
5 respondents. Then the account holders were interviewed. If any errors were found in any of the
interviews then it was skipped.
Sampling Frame:
Customer list of BAL, PBL and ABL are maintained in Head Offices & Main Branches,

1.5

LIMITATIONS OF THE STUDY.

Financial institutes job is usually full of responsibilities and the officers are usually
running against time. Despite these problems, I received whole-hearted cooperation from
officers of those institutes and my university faculty supervisor.
However; there were some constraints and barriers which I faced during the study of this
report.
TIME LIMITATION.
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The first obstruct is time itself. Due to the time limit, the scope and dimension of the
study has been curtailed. I could spend sufficient time for my study because the time limit
given for submitting the report was very short.

INSUFFICIENT DATA.
It was very difficult to collect data which was very essential from some newly established
branches of BAL. Therefore they were unable to supply my topic-related data .
LACK OF RECORDS.
Sufficient books, publications, Facts and Figures narrowed the scope of accurate analysis.
Without these the report would have been more useful and attractive.

POOR LIBRARY FACILITY.


Most of the commercial banks have their own modern, rich and wealthy collection of
huge and various types of banking related books, Journals, Magazines, Papers, Case
Studies, Term Papers, Assignments etc. But the libraries of some banks are not well
ornamented.

Inability of cover whole area of information.

During the study it was not possible to visit the whole area are covered by the Ba.
Although the financial statements and other information regarding the study have been
considered.

Confidentiality of data.
Confidentiality of data was another barrier that was confronted during the conduct of the
study.
Sensitivity of data.
The major limitation I have faced in preparing this report was the sensitivity of data. As it
is a highly competitive market, if the margin imformation is released to other
competitors, it may have a negative impect on their business.

1.6

SCOPE OF THE STUDY.

The study will cover the sample banks only. Data available from the advance department of the
sample banks and Bangladesh Bank are analyzed and classified. Other departments concerned
are not taken into consideration.

CHAPTER-2
Overview of Banking Sector in Bangladesh

Overview of Banking Sector in Bangladesh


Definition of Bank:
An institution, that acts as a financial intermediary by receiving money from depositors &
lenders & also lending to borrowers. Whoever, being an individual firm, company or corporation
generally deals in the business of money & credit are called a Bank.
Purpose of Banking:
The purpose of the Banking is to ensure transfer of money from surplus unit to deficit units. Bas
in all countries work as the repository of money. The owners look for safety and amount of
interest for their deposits with Bas. Entrepreneurs try to obtain money from the Bas as working
capital & for long-term investment. These entrepreneurs welcome effective & forward-looking
advice for investment. Banking sector thus owe a great deal to the deposit holders on the one
hand and the entrepreneurs on the others. They are expected to play the role of friend,
philosopher, and guide for the deposit holders and the entrepreneurs.
The opening of private and foreign participants to the Banking sector was intended to obtain
desirable results from Banking. The authorization of private Bas was designed to create
competition among the Bas & competition in the form of efficiency within and the productivity
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in enterprises funded by Bas. Unfortunately for the people, at large Banking sector is yet to
obtain the credit for efficiency, credibility, and growth.

Banks in Bangladesh:
Number of Branches
Name of Bas

Inland

Abroad

1313
897
978

7
4
-

836
300
15
5
1110

1. Rupali Bank.
2. Pubali Bank Ltd.
3. Uttara Bank Ltd.
4. Arab Bangladesh Bank Ltd.
5. International Finance & Investment & Commerce Bank Ltd.
(IFIC).

515
351
198
58
55

1
1
2

6. Islamic Bank Bangladesh Ltd.


7. National Bank Ltd.
8. The City Bank Ltd.
9. United Commercial Bank Ltd.
10. Al-Baraka Bank Bangladesh Ltd.
11. Prime Bank Ltd.
12. Dhaka Bank Ltd.
13. ICB Islami Bank Ltd.

103
97
80
79
33
31
35
20

1
-

A. Nationalized Commercial Bas.


1. Sonali Bank.
2. Janata Bank.
3. Agrani Bank.
B. Specialized Bas.
1. Bangladesh Krishi Ba.
2. Rajshahi Krishi Unnayan Bank.
3. Bangladesh Shilpa Ba (Industrial).
4. Bangladesh Shilpa Sangstha.
5. Grameen Bank.

C. Private Commercial Bas.

10

14. South East Bank Ltd.


15. Bank of Small Industries & Commerce
16. Eastern Bank Ltd.
17. Brac Bank
18. Social Investment Bank Ltd.
19. Mercantile Bank Ltd.

42
21
26
77
31
54

D. Foreign Commercial Bas.


1. American Express Bank Ltd.
2. Commercial Bank of Ceilon
3. The Standard Chartered Bank.
4. Habib Bank Ltd.
5. State Bank of India.
6. Muslim Commercial Bank.
7. City Bank NY.
8. National Bank of Pakistan.
9. Hanil Bank.
10. Dutch Bangla Bank.
11. HSBC

2
2
19
2
1
2
2
1
1
2
5

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Brief History of Banking in Bangladesh.


The banking system at independence consisted of two branch offices of the former State Bank of
Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi
interests and three by foreigners other than West Pakistanis. There were fourteen smaller
commercial banks. Virtually all banking services were concentrated in urban areas. The newly
independent government immediately designated the Dhaka branch of the State Bank of Pakistan
as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating
currency, controlling credit and monetary policy, and administering exchange control and the
official foreign exchange reserves. The Bangladesh government initially nationalized the entire
domestic banking system and proceeded to reorganize and rename the various banks. Foreignowned banks were permitted to continue doing business in Bangladesh. The insurance business
was also nationalized and became a source of potential investment funds. Cooperative credit
systems and postal savings offices handled service to small individual and rural accounts. The
new banking system succeeded in establishing reasonably efficient procedures for managing
credit and foreign exchange. The primary function of the credit system throughout the 1970s was
to finance trade and the public sector, which together absorbed 75 percent of total advances.
The government's encouragement during the late 1970s and early 1980s of agricultural
development and private industry brought changes in lending strategies. Managed by the
Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and
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fishermen dramatically expanded. The number of rural bank branches doubled between 1977 and
1985, to more than 3,330. Denationalization and private industrial growth led the Bangladesh
Bank and the World Bank to focus their lending on the emerging private manufacturing sector.
Scheduled bank advances to private agriculture, as a percentage of sectoral GDP, rose from 2
percent in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing rose from
13 percent to 53 percent.
The transformation of finance priorities has brought with it problems in administration. No sound
project-appraisal system was in place to identify viable borrowers and projects. Lending
institutions did not have adequate autonomy to choose borrowers and projects and were often
instructed by the political authorities. In addition, the incentive system for the banks stressed
disbursements rather than recoveries, and the accounting and debt collection systems were
inadequate to deal with the problems of loan recovery. It became more common for borrowers to
default on loans than to repay them; the lending system was simply disbursing grant assistance to
private individuals who qualified for loans more for political than for economic reasons. The rate
of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans
was even worse. As a result of this poor showing, major donors applied pressure to induce the
government and banks to take firmer action to strengthen internal bank management and credit
discipline. As a consequence, recovery rates began to improve in 1987. The National
Commission on Money, Credit, and Banking recommended broad structural changes in
Bangladesh's system of financial intermediation early in 1987, many of which were built into a
three-year compensatory financing facility signed by Bangladesh with the IMF in February 1987.
One major exception to the management problems of Bangladeshi banks was the Grameen Bank,
begun as a government project in 1976 and established in 1983 as an independent bank. In the
late 1980s, the bank continued to provide financial resources to the poor on reasonable terms and
to generate productive self-employment without external assistance. Its customers were landless
persons who took small loans for all types of economic activities, including housing. About 70
percent of the borrowers were women, who were otherwise not much represented in institutional
finance. Collective rural enterprises also could borrow from the Grameen Bank for investments
in tube wells, rice and oil mills, and power looms and for leasing land for joint cultivation. The
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average loan by the Grameen Bank in the mid-1980s was around Tk2,000 (US$65), and the
maximum was just Tk18,000 (for construction of a tin-roof house). Repayment terms were 4
percent for rural housing and 8.5 percent for normal lending operations.

Banking Sector in Bangladesh.


Banking sector has a vital role to play in the economic activities and development of any
country. This sector is much more important in a developing country like Bangladesh. The whole
scenario of the economy of a country can be ascertained by examining the condition of the
banking sector. In Bangladesh, the banking sector dominates the financial sector and
macroeconomic management largely depends on the performance of the banking sector. Banking
sector grew primarily in the public sector with main emphasis on restructuring of the financial
system and development needs of the war-torn economy with gradual liberalization in
subsequent years. It was increasingly felt that banks should be allowed in the private sector for
giving a fillip to development process on the basis of private initiative. In the 80s for the first
time a number of banks in the private sector were allowed. Subsequently in the mid 90s some
more banks in private sector also commenced operations. Finally, in 1999, 3 rd generation of
private sector banks was given permission to operate. As a result while up to 80s public sector
banks dominated financial sector, banks in the private sector were given increased responsibility
with the passage of time.
Circumstances being such, it becomes imperative to find out the role that now playing in the
country & analyze its operational aspects so as to ascertain the importance of this delicate
financial sector & its over all impact on our national economy. To ascertain the role of Banks &
to analyze its operational aspects & its overall impact on our national economy a through study
as to its distribution, expansion and contribution is essential to comprehend its past, present and
future bearings for the growth & development of the Banking sector of the country. In the global
context, the role of Banks is far reaching & more penetrating in the economic and fiscal
discipline, trade, commerce, industry, export & import all carried through the Bank. Banks are
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the only media through which international trade & commerce emanate and entire credit
transactions, both national and international.
Private commercial banks are divided into three groups according to their commencement of
business. They are familiar in the name of 1st generation, 2nd generation and 3rd generation banks.
1st Generation Banks (Established 1982-1988):
National Bank Limited, The City Bank Limited, United Commercial bank Limited, AB Bank
Limited, IFIC Bank Limited, Islami Bank Bangladesh Limited and Al-Baraka Bank Bangladesh
Limited.

2nd Generation Banks (Established 1992-1996):


Eastern Bank Limited, Prime Bank Limited, National Credit & Commerce Bank Limited,
Southeast Bank Limited, Dhaka Bank Limited, Al Arafa Islami Bank Limited, Social
Investment Bank Limited and Dutch-Bangla Bank Limited.
3rd Generation Banks (Established 1999 to present):
Mercantile Bank Limited, Standard Bank Limited, One Bank Limited, EXIM Bank Limited,
Premier Bank Limited, Mutual Trust Bank Limited, First Security Bank Limited, Bank Asia
Limited, The Trust Bank Limited, Jamuna Bank, BRAC Bank Limited and Shahjalal Bank
Limited.
INDUSTRYS DOMINATE ECONOMIC FEATURE.
It is extremely important for a firm to understand the dominant economic features of the relevant
industry, as the character and structure of different industries are significantly different.

Scope of competitive rivalry:


Although some banks are operating in international area, in Bangladesh the competition in
banking industry remains within the country.

14

Number of Companies in the Industry

Nationalized Commercial Banks

04

Specialized Banks

05

Private Commercial Banks

30

Foreign Commercial Banks

13

Number of Branches

6,236
Source: Scheduled Banks Statistics.

Customers:
As on June 2007, there are 62,234,135 number of deposits accounts and 32,358,205 number of
advance accounts in the banks. Normally the customers are businesses firms, household and
other banks.
Degree of vertical integration:
No opportunity for vertical integration, but horizontal integration is possible.
Ease of entry and exit barrier:
The main entry barrier is huge resource requirement. Moreover to set up a bank parliament
approval is required.
Technology/Innovation:
The improvement of information technology is helping new digital financial products enter into
the market of Bangladesh. This trend will continue with the improvement in telecommunication
technology. The continuous flow of improvement in the telecommunication technology has led to
the introduction of the following cost effective new products leading to the growth of PCBs
operating in Bangladesh:

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Automated Teller Machine (ATM)


Point of Sales (POS)
Phone Banking
Credit Card Service
Tele-Banking
On-Line Banking
Any Branch Banking
Internet Banking
Evening Banking
Stage in life cycle: The industry is currently in growth stage.
Scale economies: As all banks do not have similar cost of fund so the scale of economies is
strong. Costs of fund differences exist as different banks deposits cost are different and amount
of classified advances are different. Those who have less classified advance they have
advantages in cost of fund.
Learning and experience curve effects:
Not very strong for older banks but it is strong for the newer banks because as they are new they
will learn various skills of this industry day by day and it will have impact on their day-to-day
operations.
Capacity utilization:
Costs are sensitive to capacity utilization. In this industry, capacity utilization means effective
use of human resources. Relationship marketing is the heart of this industry. So, the banks that
are efficient in this regard they are able to reap the profit better than others.
Industry profitability:
Industry profitability mostly depends on the national economy, macro environmental factors and
individual banks ability to make good advance.

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COMPETITIVE FORCES AT WORK & STRENGTH OF EACH OF THE


COMPETITIVE FORCES
To devise a successful strategy it is essential to understand the main sources of competitive
pressure and how strong each competitive force is. Professor Michael Porters Five forces model
of competition is an effective framework in gauging the nature and intensity of competitive
forces.

Rivalry among competing sellers in the industry:


Rivalry in the banking industry is very intense. New banks are entering into this industry with
new facilities and better services, consumers are becoming more fragmented and it becomes
important for banks to maintain their existing client and to attract new customers. As a result
rivalry is entering into this industry with high intensity. Banks are trying to provide best
customer services, lowering their service charges and trying to include new products and services
in their product portfolio to attract the customers.
Substitutes:
There are substitute financial institutions that do many of the activities and transactions of a bank
in the leasing field Industrial Leasing and Development Company Ltd. (IDLC), Industrial
Promotion and Development Corporation (IPDC), United Leasing Company (ULC) are the key
players. They provide industrial leasing to many companies in the country. Vanik Bangladesh
Ltd., a merchant bank, provides investment counseling and credit services among its other
financial activities but some of the operations of the banks like exporting/importing have no
substitutes.

17

Threat of potential entry:


Threat of potential entry is not that much strong, because it is a highly regulated industry.
After a long time, in 1999 nine new banks started their operations and it made the
industry more competitive. Some more local and foreign banks are expected to enter
the market in Bangladesh within the near future to avail of the opportunities in a
developing economy like Bangladesh.
The bargaining power of suppliers:
Depositors are the supplier to the bank because they provide surplus or additional fund to banks
and banks use these fund to give loans and advances. That is surplus money is transferred to
those who are in need of this money. Bank acts as an intermediary in this regard. Deposits are the
liability for the bank and loans are the asset for the bank. Most of the banks are offering different
services to attract customers so the power of supplier is high; they have available options to
switch the banks.
The bargaining power of buyer:
Businesses, households and corporations are the buyer of banks. Borrowers are referred as
buyers. Household and small businesses or clients have less power to influence the interest rate.
Big amount creditors have strong powers in determining interest rate of their credit amounts.
Banks distinguish their prime customers from others by setting a prime interest rate for them.

Low

Low
High

High

High

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Fig1.1 Different competitive forces are presented in Porters five forces diagram

DRIVERS OF CHANGE & ITS IMPACT IN THE INDUSTRY


Trends and new developments that gradually or speedily produce changes are important enough
to require a strategic response from participating firms to characterize all industries. Forces are in
motion that creates incentives or pressures for change. Following are the driving forces in the
industry.
Changes in the long-term industry growth rate:
The industry is growing and the long-term demand is also increasing. This upward moving
industry growth and an upsurge in long-term demand attract new entrants to the market and
encourage competition.
Changes in who buys the product and how they use it:
The way of using banking service has been changed. Use of new digital products like ATMs,
access card, credit card significantly created change in banking transactions. This shift is forcing
banks to adjust their customer service offerings, opening the new way to market their product.
Product innovation:
A product innovation has provided ways for this industry to shake up the structure of the
competition by broadening an industrys customer base, rejuvenating industrys growth and
widening the degree of product differentiation among competing banks. Successful new product
introduction strengthens the market position of the innovative banks.
Service innovation:
Service innovation is a great driving force in banking industry, because all the banks exert their
best efforts to win customers with new innovative services. Thats why innovation of superior
service will place a bank in competitive position in the industry.

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Technological change:
Technological changes in the banking industry of the country have been quite significant
recently. Banks need security, speed, accuracy and quality. All these four required elements are
combined in IT solutions. IT permeates a wide range of banking activities and it had positioned
itself at the center of modern banking operations. Modern technology helped development of
some attractive electronic banking products like ATM, POS, EFT etc. Electronic Commerce is
going to play a major role in international trade and payments in the next century. In fact the 21 st
century is the century for technology driven banking environment.
Marketing innovation:
Marketing innovation plays a role of key driving force in modern banking industry. By
successful introduction of new ways to market their products and services, they can get the
buyers as well as sellers interest, widen industry demand, increase product differentiation and
lowers the unit cost.
Changes in cost and efficiency:
Widening or shrinking differences in the costs and efficiency among key competitors tends to
dramatically alter the state of competition. Especially in the face of threat from new private
banks, older banks are hard-pressed to achieve highest point of efficiency resulting in lowest
cost.
Regulatory influences and government policy changes:
Regulatory and government actions make significant changes in industry practices and strategic
practices. Ministry of finance and Bangladesh Bank has the authority of the country to take
policies that will protect the interest of the public as well as banks and that will help the country
to prosper.

Companies in the strongest/weakest position


To analyze this question the major players in the banking industry operating in Bangladesh have
been considered. For the strategic group mapping, the horizontal axis shows the geographic
coverage, while the vertical axis delineates the image of the firms. It can be seen from the
20

strategic map that 3rd generation banks are placed in a position that represents a low range of
geographic coverage and a medium to high image relative to Foreign Banks and growing third
generation banks.
Nationalized commercial banks are the market leaders in banking industry of Bangladesh but due
to their poor service quality, their image is quite low. On the other hand though foreign banks
have very little market share and limited geographic coverage, they are highly known for their
quality service. Private commercial banks fall between these groups. Among the private banks,
Islami Bank Bangladesh Limited is comparatively in a good position.

CHAPTER-3
Company Profile(s)

21

Bank Asia Limited:


Bank Asia Limited is one of the leading private sector banks in Bangladesh offering full range of
Personal, Corporate, International Trade, Foreign Exchange and Capital Market Services. Bank
Asia Limited is the preferred choice in banking for friendly and personalized services, cutting
edge technology, tailored solutions for business needs, global reach in trade and commerce and
high yield on investments, assuring Excellence in Banking Services.

Background of Bank Asia Limited


Bank Asia started its journey on the 27th of November 1999 with the inauguration of the banks
Corporate Office at the Rangs Bhaban. By a great number of public responses has enabled the
Bank to keep up the plan of expanding its network. The opening of the Principal Office was the
big leap forward and successively the opening of Gulshan and Chittagong Branch expanded the
horizon of Bank Asia to bring its services to the valued clients more effectively.

Within a very short period, the Bank has opened 2 more branches in Dhaka and 2 branches in
Sylhet and Kishorganj. In February 2001 Bank Asia took over the Bangladesh operation of The
Bank of Nova Scotia of Canada, the first acquisition of a foreign bank by a local bank in the
history of Bangladesh. Later, Bank Asia took over the Bangladesh operation of Muslim
Commercial Bank Limited (MCB) of Pakistan in January 2002. These courageous moves were
possible for some visionary decision-makers and also dedicated team of professionals who are
constantly putting all their best efforts to establish the bank as one of the leading concern in the
industry.

22

Bank Asia has so far been highly successful in keeping its clientele satisfied with its high quality
services, while continuing its expansion to reach more people around the whole nation. Bank
Asia conducts all types of commercial banking activities. The core business of the bank
comprises of import, export, working capital finance and corporate finance. The bank is also
rendering Consumer loan, and services related to local and foreign remittances.
The Consumer loan scheme of the bank, which is designed to help the fixed income group in
raising standard of living is competitively priced and has been widely appreciated by the
customers. The Bank also has ATM services and very lucrative deposit schemes i.e. DG+, DB+,
MB+ which have earned the Bank a name in the market. However, these products are
temporarily suspended at present.

Bank Asia has also embarked on a new Era of banking automation by migrating to Stelar
Software System since January 01, 2004.It is also the first local bank to initiate SMS banking via
Citycell and Grameen Phone, Banglalink and Aktel. The banks strategy is to gradually cover the
total arena of banking. Bank Asia has said its aim high enough: to provide high quality service to
its customers, to participate in the growth and expansion of our national economy, to set high
standards of integrity, to bring total satisfaction to our clients, shareholders and employees, and
to become the most sought after bank in the country, rendering technology driven innovative
services by the dedicated team of professionals.

Bank Asia is expecting to concentrate on efforts to set high standards for quality of service at all
levels. Highest emphasis is given on quality in recruiting human resources, and in adopting stateof-the-art technology for serving the clients. The management of Bank Asia is determined to
maintain and upgrade the quality of these resources through continuous training and upgrading
of technology to keep pace with market demands, new developments and practices of the
competitors. Bank Asia entered the market at a time when the economic policy environment of
the country is poised for higher levels of business activities and growth. The prevailing
macroeconomic management and the governments determination to carry on reforms in the
banking sector provide a supporting and encouraging environment.

23

The breakthrough was possible for some visionary decision-makers and also dedicated team of
professionals who are constantly putting all their best efforts to establish the bank as one of the
leading concern in the industry.

Capital Base
Authorized Capital

BDT 4450.00 million.

Paid up Capital

BDT 1116.00 million (as on December 31, 2006)

Mission Statement
To assist in bringing high quality service to our customers and to participate in the growth
and expansion of our national economy.
To set high standards of integrity and bring total satisfaction to our clients, shareholders and
employees.
To become the most sought after bank in the country, rendering technology driven
innovative services by our dedicated team of professionals

24

Corporate Objectives

Bank Asias objectives are reflected in the following areas.


Highly personalized service
Customer-driven focus
Total commitment to quality
Competitive products with some unique features
Contribution in the economy.
Quality of human resources
Managing the core and support risks
The company believes that communication with, and feedback from, its clients help it achieve its
goal of providing world-class products and services. Bank Asia regularly conducts client
satisfaction surveys and make immediate accommodations and adjustments where needed. It also
constantly monitors its standards, and strives to meet clients requirements.

Values that are considered as the guiding factors


All the activities and decisions of Bank Asia are based on, and guided by, these values.
Placing the interests of clients and customers first.
A continuous quest for quality in everything the company does.
Treating everyone with respect and dignity.
Conduct that reflects the highest standards of integrity.
Teamwork from the smallest unit to the enterprise as a whole.
Being good citizens in the communities, in which they live and work.

25

Branches
Bank Asia Limited has 30 conventional Branches in 7 districts. Most of the branches are located
on the basis of customer demanded area or commercial or business area, other then few like
Bashundhara. One new branch is going to open in Bogra in this month. Out of this 30, 14
branches are located in Dhaka City, 8 branches are located in Chittagong, 2 in Sylhet and 2 in
Munshigonj. The other 4 branches are located in Rajshahi, Khulna, Kishoreganj & Noakhali one
each. It is also in the process of introducing banking functions on Islamic Banking Principles
from the following September and SME is working in many branches.

The entire operation of Bank Asia Ltd. is divided into two zones and control of the zone is done
by the zonal head. Total operation is monitored by corporate office (Head Office), what was
located at Rangs Bhaban (8th Floor), 113-116 Old Airport Road, Dhaka-1215 has recently shifted
to Tea-Board Building, (1st floor) 111-113 Motijheel Commercial Area, Dhaka-1000.
Management Information System (MIS)
Since its journey as commercial Bank in 1999 Bank Asia Limited has been laying great emphasis
on the use of improved technology. It has gone to online operation system since 2003. Previously
the Bank used the Banking Software named Bexibank and now the Bank uses new Banking
Software named Stelar. As a result the Bank now can provide improved standard of services.
Also the internet banking system allows the client to get the banking facility from any branch of
the same bank.
Correspondent Relationship
The Bank established correspondent relationships with a number of foreign banks, namely
Standard Chartered Bank, American Express Bank, Credit Suisse First Boston, CITI Bank NANew York & London, Arab Bangladesh Bank-India, Bank of Tokyo, Commerz Bank AG, Habib
American Bank, Habib Bank AG Zurich, Mashreq Bank plc, National Westminster Bank &
Hong Kong Shanghai Banking Corporation etc. The Bank is maintaining foreign exchange
accounts in New York, Australia, Germany, Tokyo, Pakistan, Calcutta, and London. The bank has
set up letter of credit on behalf of its valued customers using its correspondents as advising and
26

reimbursing Banks. As of end 2006 Bank Asia established correspondence relationship with 206
banks in 173 countries.
Human Resources Management of BAL
Bank Asia Limited recognizes that their employees are the most important assets. Therefore, the
Bank consistently channels a great deal of resources into training and development of managers
and employees.

Job satisfaction, growth opportunities, due recognition and good working environment promotes
a high level of loyalty and commitment into the employees. Realizing this Bank Asia Limited has
placed the utmost importance on continuous development of its human resources, identify the
strength and weakness of the employee to assess the individual training needs, they are sent for
training for self-development.

To enhance and update the professional skills and knowledge of the officers and staff, regular
training and orientation courses are organized at Bangladesh Institute of Bank Management
(BIBM), a few other professional institutions and other correspondent Bank as well as in the
Banks own training center. The Bank also sends its Executives outside Bangladesh for
specialized training on money, banking and commercial activities.
The remuneration is very competitive in comparison with industry average. Beside these the
recruitment procedure is comprehensive. By the end of 2006 the manpower strength increased to
397 from 515 at the end of the previous year.

Product and Services


The product and services that are currently available are given below:
Bank Asia Limited launched several financial products and services since its inception. Among
them are Monthly Savings Scheme, Monthly Benefit Scheme, Special Savings Scheme,
27

Consumer Credit Scheme, Small Loan Scheme, Rural Finance Scheme & E-cash ATM. All of
these have received wide acceptance among the people.
Monthly Savings Scheme (DG+): The prime objective of this scheme is to encourage people to
build up a habit of saving. In this scheme, one can save a fixed amount of money every month
and receive substantial lump sum of money after three or five years.

Monthly Benefit Scheme (MB+): MB+ is a five (05) years scheme that lets depositors earn
monthly benefit of TK. 1000 or its multiple by minimum initial deposit of TK. 100,000 or its
multiple and after maturity depositors will get refund of his/her principle amount.

Special Savings Scheme (DB+): DB+ is a six (06) or ten (10) years scheme. The deposit
doubles in 06 years and triples in 10 years.

Bonus Savings Scheme: A savings account with a minimum balance of TK. 50,000 will attract
not only the usual savings interest but also a further 10% bonus on interest.
Personal Credit: Consumer loan is a relatively new field of collateral-free finance of the bank.
People with fixed income can avail of these credit facilities to buy household goods, consumer
items, buy car or to renovate/expand existing house, etc.
Credit Loan: If anyone is in possession of BSP (Bangladesh Sanchaya Patra), which will mature
within the next 05 years, but he/she is in need of funds, the scheme can come to rescue.

Rural Development Scheme: Rural Development Scheme has been evolved for the rural people
of the country to make them self-employed through financing various income-generating
activities. This scheme is operated through the rural branches of the Bank.

E-Cash Banking Facility: The E-cash card is an ATM card. It can be used as a combination of
debit facility. The E-cash card network offers ball banking requirements without ever setting foot

28

in a bank. Its more than just an ATM service for quick cash withdrawals or account enquiries. Ecash card provides round the clock banking.
Depository Product
Bank Asia Limited is now offering different types product for mobilizing the savings of the
general people.

Deposit Product
Current Deposit
Saving Deposit Account
Short Time Deposit (STD) Account
Fixed Deposit
Foreign Currency Deposit Account
NFCD Non Resident Foreign Currency Account

Interest paid to different Deposits

The revised rate of Bank Asia Ltd. on all types of Deposits viz. Savings, Short Term & Fixed
effective from May 01,2004 for new as well as existing deposits from its next maturity are as
follows:
Tenor
3
months

12.00% P.A.

Tenor
6 months
12.25% P.A.

Tenor
1 year
12.50% P.A.

Short Term
Deposit
5.00% P.A.

Savings
Deposit
7.00% P.A.

Loan Product
The Bank Asia is offering the following loan and advance product to the client for financing
different purpose that fulfill the requirements of the bank and have good return to the investment
as well as satisfy the client. The loan and advance products are:
29

Name of the Products


Consumer loan (PC)
Term Loan
Small & Medium Enterprise loan
Working Capital Financing
Import Financing
Export Financing
Syndicate Loan
Industrial Financing

Personal Banking Products


ATM Card Service
Internet Banking
SMS Service/Mobile Banking
Locker Service

Financial Performance of BAL


The Bank Asia Limited is one of the most successful private sector commercial bank in our
country, though it started its operation only five years back. It has achieved the trust of the
general people and made reasonable contribution to the economy of the country by helping the
people investing allowing credit facility.

Profit
Bank Asia Limited achieved an operating profit of Tk. 1072 million in 2006 as against an amount
of 800 million for the previous year. Amongst the third generation banks, Bank Asia maintained
its third position in terms of profitability. This happened in a year of downward pressure on
interest rates, and Bank Asia was able to reduce its costs and lending rates keeping spreads at
reasonable level.
30

Capital
Bank Asia Limited commenced its operation with an authorized capital of Tk. 800 million with
paid up capital of Tk. 218 million which amounted Tk.4450.00 million and Tk.1116.00 million
respectively by the end of the year 2006. The total shareholders equity as of December 31, 2006
stood at Tk.1950 million (inclusive of 2% general provision on unclassified loans & advances
and balances in the exchange equalization account). The Bank maintained a capital adequacy
ratio of 11.23% against the requirement of 9.0%.
Deposits
With growing consumer confidence and pro-active marketing Bank Asia increased its deposit
base of TK. 25,289 million by the end of 2006 compared to TK. 18,500 as of 2005.
Loan and Advances

The Bank from its inception adopted a credit policy of maximizing return by building up a welldiversified loan portfolio and taking acceptable risks including those for new ventures. The result
has been impressive. Loans and advances increased to Tk.22,255 million as of December 2006
compared to Tk. 17,869 million in 2005.

These covered term finance and working capital finance for industries and trade finance. Greater
attention was given to small and medium enterprises and to consumer credit, gradually
expanding to the retail sector.
Treasury Operations
Bank Asia has been actively participating in the local money market as well as foreign currency
market without exposing the Bank to vulnerable position. The Banks investment in
Treasury Bills and other securities went up noticeably making the scope for ensured profit
in the context of a regime of interest rate decline. These increased to Tk.3,345 million as
on December 2006 from Tk.2,256 million during the previous year.

31

BANK ASIA AT A GLANCE: 1999, 2005 & 2006

Financial Highlights.

Authorised Capital
Issued, Subscribed & Paid up
Capital
Shareholders Equity
Total Assets
Deposits
Loans & Advances
Import Business
Export Business
Operating profit
Investments
Dividend
Profit before Tax
Profit after Tax

(Figures in million Taka )

1999*
800.00
218.00

2005
**1,200.00
930.00

2006
4,450.00
1,116.00

213.14
632.01
341.91
19.52
(4.86)
557.95

1,473.98
23,379.96
18,500.07
17.869.84
26,352.30
13,963.70
172.77
2,256.28
30%
603.60
383.51

1,949.74
30,478.43
25,289.36
22,255.64
31,625.60
17,480.10
256.95
3,345.33
25%
967.10
475.75

167.85
94.64

* In 1999, there were 35 (thirty Five) days operating days.


** Subsequent to 31st December 2006, the authorized capital was enhanced to TK. 1,200 million
from TK. 800 million.
*** Annual report of year 2007 has not published yet.

32

Sources of income of BAL:


Interest on short-term loan:
The main source of income of BAL is the interest on short term loan. BAL invest it Majority
amount of fund in this sectors.

Others loan interest:


BAL not only pays loan in the short-term basis but also it provides loan to the customer for longterm period. Normally Bank invests fixed deposit money (which is long term fixed deposit) to
the client for long-term period.

Receive from advances:


BAL gives loan to the customer as the form of over draft, cash loan and it receives huge amount
of money from this advances as income.

Purchases of financial instrument:


Some time Bank purchase, share debenture government securities from market and earn huge
amount of money from this sectors.

Rent of Locker:
Many client keep their valuable goods and ornament to the Bank for ensure of security. BAL
charge rent from the customer to taking risk of these goods.

Income from foreign exchange:


Some time BAL earns huge profit by selling and purchasing of foreign currency.

33

Commission form agent:


Many times this Bank acts as the agent of client in many cases. For these types of activities Bank
charge money from client.

Issue of evidence:
BAL deals about the foreign exchange of client. Basically all the necessary evidence of client for
imports and export of goods is transfer by the Bank from this evidence transfer it gets lot of
money as profit.

Sale of asset:
Some times BAL sale many ensure assets from which it gets profit.

Other Source:
Except this source BAL earn huge amount of money as income such as commission for
performing any activities for central Bank fee for working activities.

34

An overview of Organizational Structures:


Management of BAL:
BAL Bangladesh is one such company that has to overcome a lot of hurdles to reach the position
it now holds. Mercantile Banks Board of Directors, Executive Committee, Audit Committee,
and Management & Management Committee ensure the effective Corporate Governance, being
transparent, accountable and professional in discharging their responsibilities. The Board of
Directors ensures that the Management supported by its various committees, runs the functioning
of the Bank complying with applicable rules and regulations. They equally contributed to BALs
superior leadership, by carrying out their unique roles. They worked well together, respecting
each others abilities & arguing openly without any resentment when they disagreed.

Figure: Good Governance Principles.

Organizational Chart of Bank Asia Limited has been shown below:

35

Figure-02: Organizational Chart of BAL.

Each & every employee of BAL takes pride of being an employee at BAL & his or her pride
comes from the freedom of direct communication with the top management. The management of
BAL is supportive in the sense that the top management deliberately supports the suggestions,
values, ideas, innovation and hard work of the employees and officers. Again high amount of
employee participation is encountered in the management process.
There are also systems for awards, incentives, and status for innovative ideas & hard works.
Again the management style can also be termed as collegial as high amounts of team work and
participation exists between the top and bottom parts of BAL.

BAL follows a 4 layers management philosophy in Bangladesh. These are Managers, Executives,
Officers and Assistant officers. The CEO is the top most authority of all the levels. Managers are
the departmental heads who are responsible for the activities of their departments. They are the
heads of the department who formulate strategies department.

Officers are the next persons to stand in the hierarchy list. They are the typical mid-level
employees of BALs organizational hierarchy. These officers are responsible for managing the
36

operational activities and operating level employees of BAL who are ranked as Assistant officer
fill the last layer of this hierarchy. They perform the day-to-day operational activities of BAL.

Management Hierarchy of Bank Asia Limited:

Figure-03: Management Hierarchy of BAL.


Chief Executive Committee:

37

Figure-04: Structure of Chief Executive Committee.


The organizational structure of BAL is designed according to the various and functional
departments. The CEO heads of the chief executive committee, which decides on all the strategic
aspect of BAL. The CEO is the person who supervises the heads of all the departments and also
is the ultimate authority of BAL. He is responsible for all the activities of BAL & all its
consequences. He administers all the functional departments and communicates with the
department heads for smooth functioning of the organization. The BAL Chief Executive
Committee is formed with the heads of all departments along with the CEO. The structure of this
top-most, authority is shown in the following figure. Besides the CEO the there are six more
managers: Manager of Human Resources, Manager of Services, Manager of Financial Control
Department, Chief of Personal Baing and Manager of Marketing.

Segregation of Roles:

Figure-05: Segregation of Roles.

38

Board Supporting Committees:


The Board has two supporting committees; Executive Committee & Audit Committee. These
committees have been formed comprising the members from the Board of Directors as per
Central Banks directives. These Committees operate under specific Terms of Reference that set
out their responsibilities.

Figure-06: Board Supporting Committees.

Financial Reporting Standard:

Figure-07: Financial Reporting Standard.

39

Accountability and Agency Relationship:

Figure-08: Accountability and Agency Relationship.

40

An over View of the Premier Bank Limited


The Premier Bank Limited is incorporated in Bangladesh as banking company on June 10, 1999
under Companies Act.1994. Bangladesh Bank, the central bank of Bangladesh, issued banking
license on June 17, 1999 under Banking Companies Act.1991. The Head Office of the Premier
Bank Limited is located at Banani, one of the fast growing commercial and business areas of
Dhaka city.

The Head Office of Premier


Bank Limited at 42 Banani
Commercial Area
Corporate Information
Authorised Capital: BDT
2000.00 Million
Paid up Capital: BDT
1681.45 Million
Total Capital Fund: BDT 2792.33 Million

The Premier Bank started its journey from October 26, 1999 with a clear vision of
CORPORATE EXCELLENCE together with a popular motto of SERVICE FIRST under the
auspices of 11 successful entrepreneurs, well known at their respective fields of business and
industry. From the very beginning the bank set forth a dream to creat a financial institution that
would stand out in crowd and meet the demand of 21st century. Now after 10 successful years of
41

operation, the bank is justified in its vision and mission and well-set to complete its 10 th year on
progress.
The Head Office of the Premier Bank Limited is located at Banani, one of the fast growing
commercial and business areas of Dhaka city. Still now it has opened 30 branches in different
areas of the country.
The bank got listed with both the stock exchange of the country viz. Dhaka Stock Exchange and
Chittagong Stock Exchange in may, 2007 whereby the trading of shares of the bank began. It was
first bank in the country to introduced daily balance based interest on deposit account.
Premier bank Corporate Culture:
Believe in promotion of trust, team work and professionalism which benefits Their customers,
employees, shareholders and whole society.
Board of Directors
The Board consist of 11 (eleven) Directors. The members of the Board of Directors of the Bank
hold very respectable positions in the society. They are from highly successful group of Business
and Industries in Bangladesh. Out of 11 members one is from Taiwan. Each member of the
Board of Directors plays a significant role in the socio-economic domain of the country. A list of
the Directors and their shareholding along with associated business is given below:

Board of Directors of Premier Bank Limited

42

Chairman
Dr. H.B.M Iqbal
Vice Chairman
Mr.B.H. Haroon.

Managing Director
Mr.Sarwar . Ahmed

Directors

Dr.Arifur Rahman
Mrs. Shaila Shelly Khan
Mr.Abdus Salam Murshedy
Mjr. Sanwar Dito
Al-Haj Abul Kahem

Mr.Nurul Amin
Mr. Md. Lutfur Rahman
Mr.Shafiqur Rahman
Ms. Nawrin Iqbal
Mr. Yeh Cheng Min

Vision
The Premier Bank aim to provide financial services to meet customer expectations so that
customers feel that they are always there when they need Banking service, and can refer them to
their friends with confidence. They want to be a preferred bank of choice with a distinctive
identity. Stand steady in the teeth of advertises and ensure sound profitability in a bid to
safeguard the optimum benefit of the shareholders.

To build a sustainable and respectable financial institution.

To be a leading Commercial Bank, with a social focus, assisting in the economic


development of the country.

43

The Profit of the bank used for the Socio-economic development of Bangladesh

Mission:
The mission of the Premier Bank is to make banking easy for their customers by implementing
one-stop service concept and provide innovative and attractive products & services through their
technology and qualified human resources. They always look out to benefit the local community
through supporting entrepreneurship, social responsibility and economic development of the
country. The mission of the Premier Bank is as follows.

Achieving sound and profitable growth in Assets & Liabilities, with focus to maintain
non-performing assets at acceptable levels.

To build long-lasting, credible and mutually dependable relationships with customers.

Efficiently managing interest and operating costs.


To excel in rendering superior customer service.
To be the preferred employer among Banks in Bangladesh.

Positioning statement:
Premier Bank is a contemporary, upbeat brand of distinctive quality of service and solution that
offers a rewarding banking experience as preferred choice of banking partner every time,
everywhere.
Premier banks Value
To be the most caring provider of financial services, creating a befitting atmosphere for clients to
thrive and for employees to develop

Dependable
Reliable
Professional
Dynamic
Fair

Branch Network

44

The Branch network of the Premier Bank Limited is quite strong. With an age of only ten years
the bank is now having a network of 30 branches across Bangladesh as on 31 December, 2008.
These branches are situated at various strategically important commercial and industrial
locations in the country. Among these branches, 20 branches are in Dhaka division, 5 branches in
Chittagong division, 2 branches in Sylhet division, 1 branch in Rajshahi and I branch in Barisal,
1 branch at Khulna The above branch network is expected to be sufficient to maintain required
growth rate of the bank.
Organizational Structure of Premier Bank Limited:
Managing Director (MD)

Additional Managing Director (AMD)

Executive Vice-President (EVP)

Senior Vice- President (SVP)

Vice-President (VP)

Assistant Vice President (AVP)

First Assistant Vice-President (FAVP)

Senior Executive Officer (SEO)

Executive Officer (EO)

45

First Executive Officer (FEO)

Senior Officer (SO)

MTO/Officer

Financial performance on the over all activities of the Premier Bank limited
Particulars
Authorized Capital
Paid-Up Capital
Reserve Fund
Total Capital Funds

(TK. In Million)
2006
2007

2002

2003

2004

2005

1000.00

1000.00

2000.0

2000.00

2000.00

2000.00

239.76

408.91

557.55

557.55

845.00

1689.99

98.24

130.00

301.08

403.85

543.76

649.79

380.60

768.10

1312.63

1318.99

1855.58

2792.33

18005.20

20290.47

24199.01

27114.47

Deposits

5373.75

Advances

4280.73

8095.57

15383.93

20677.68

18032.50

23637.61

680.09

1330.20

2750.00

2392.01

2240.78

3461.45

11782.80

20934.30

34108.50

33850.23

38797.18

43222.20

54.80

364.50

1408.00

1427.40

1620.60

Income

576.78

1251.76

2395.45

2863.86

3622.05

4186.33

Expenditure

380.54

851.03

1464.52

1964.83

2679.98

3188.22

Operating Profit

196.24

400.73

930.93

899.03

942.07

998.11

Fixed Assets

73.29

107.90

149.57

165.48

163.93

219.79

Total Assets

6036.92

11096.30

20100.25

22767.84

27170.45

32573.19

140.97

168.12

207.69

203.31

192.44

145.88

28.30

67.02

84.40

32.45

43.63

4.66

13.70%

36.35%

36.84%

24.00%

10.00%

Investment in Govt.

10030.52

Securities
Foreign Trade Business
Foreign Remittance

Book Value per Share

940.10

(Taka)
Earning per Share (Taka)
Dividend

7% bonus
share

Loan as a % of total

79.66%

80.71%

85.44%

88.87%

85.45%

87.18%

Deposits

46

Non-Performing Loan as %

1.16%

0.36%

0.43%

3.86%

4.91%

5.96%

9.27%

11.76%

10.69

8.24%

10.66%

12.66%

12

17

21

21

26

27

156

238

297

345

350

397

281

435

554

605

677

731

of total Loan
Capital Adequacy Ratio
Number of Branches
No. of Foreign
Correspondents
Number of Employees

Source: Annual Report 2007.

Deposits Composition of Premier Bank:


As December 31, 2007 total deposit of the bank stood Tk.27, 114.47 million which was
Tk.24119.01 milllion in the previous year, registering 12.05% growth. The upward trend of
Deposits growth reflecting continous trust of the coustomer on Premier bank emanated from
their untiring marketing and promotional efforts during the whole year.
Table: 1 Deposits Composition of Premier Bank
Sl.

Item

Tk.In Million

No.

% of
Total deposit

Current Deposit

1125.25

4.15%

Savings bank Deposite

1744.09

6.43%

Fixed Deposite

18184.28

67.07%

Bills Payable

235.33

1.95%

Short time deposit

915.38

3.37%

Deposit Scheme

2944.63

10.86%

Others

1672.96

6.17%

Total

27114.47

100%

Source: Annual Report 2007.

47

Figure2.1- Source of Deposit Collection of Premier bank in the year2007

From the above graph we can see that the main source of deposit of the premier bank is fixed
deposit, which account for almost 68% of the total deposit of the premier bank.
The overall Deposit and Profit also increased from the preceding year. Premier Bank has
launched Islamic Banking which was highly cheered by the customers. Among the third
generation bank the Premier bank first issued Visa Debit card. It also ensures online banking for
its client. The customer can now deposit and withdraw money from any branch according to their
needs. The bank also update it technology for the better service of its customer. The bank set
ATM booth for providing the 24 hours banking facility to its customer.
Types of credit made by the Premier bank ltd:

Modern banking operation touches almost every sphere of economic activity. The extension of bank
credit is necessary for expansion of business operations. Bank credit is a catalyst bringing about economic
about economic development. Without adequate finance there can be no growth or maintenance of a
stable output. Bank lending is important to the economy, for it makes possible the financing of
commercial and industrial activities of a nation. The credit facilities are generally allowed by the bank
may be in two broad categories.

48

They are as follows:

Funded Facilities:
Funded facilities can also be divided into the following categories

Term Loans:
The term of loan is determined on the basis of gestation period of a project generation of income by the
use of the loan. Such loans are provided for Farm Machinery, Dairy, Poultry, etc. It is categorized in three
segments:

Types of Term Loan

Time (Period)

Short Term

1 to 3 years

Medium Term

3 to 5 tears

Long Term

Above 5 years

Over Draft (OD):


OD is some kind of advance. In this case, the customer can over draw from his/her current account. There
is a limit of overdraw, which is set by the bank. A customer can with draw that much amount of money
from their account. For this there is a interest charge on the over draw amount. This facility does not
provide for every one, the bank will provide only those who will fulfill the requirement. It means that
only real customer can get this kind of facility.

Cash Credit (Hypo):


It allows to individuals or firm for trading as well as whole-sale purpose or to industries to meet up the
working capital requirements against hypothecation of goods as primary security fall under this type of
lending. It is a continuous credit. It allowed under two categories:
1. Commercial Lending
2. Working Capital

49

Cash Credit (Pledge):


Financial accommodation to individual/firm for trading as well as whole sale purpose or to industries as
working capital against pledge of goods primary security falls under this head of advance. It also a
continuous credit and like the above allowed under the categories:
1. Commercial Lending
2. Working Capital

SOD (General):
Advance allowed to individual/firm against financial obligation (i.e. lien of FDR/PS/BSP etc.) and against
assignment of work order for execution of contract works fall under this head. This advance is generally
allowed for allowed for definite period and specific purpose. It is not a continuous credit.

SOD (Imports):
Advances allowed for purchasing foreign currency for opening L/C for imports of goods fall under this
type of leading. This is also an advance for a temporary period, which is known as preemptor finance and
falls under the category Commercial Lending.

PAD:
Payment made by the bank against lodgment of shipping documents of goods imported through L/C falls
under this type head. It is an interim type of advance connected with import and is generally liquidated
shortly against payments usually made by the party for retirements of documents for release of import
goods from the customer authority. It falls under the category Commercial Lending.

LTR:
Advances allowed for retirement of shipping documents and release of goods imported through L/C
without effective control over the goods delivered to the customer fall under this head. The goods are
handed over the importer under trust with arrangement that sales proceed should be deposited to liquidate
the advances within a given period. This is also temporary advance connected with import that is known
post-import finance under category Commercial lending.

50

IBP:
Payment made through purchase of inlands bill to meet urgent requirements of customer fall under this
type of credit facility. This temporary advance is adjusted from the proceeds of bills purchased for
collection. It falls under the category Commercial Lending.

FDBP:
Payment made to a party through purchase of foreign documentary bills fall under this head. This
temporary advance is adjustable from the proceeds of negotiable shipping/export documents. It falls
under category Export Credit.

LDBP:
Payment made to a party through purchase of local documentary bills fall under this head. This temporary
liability is adjustable from proceeds of the bill.

Bank Guarantee:
The exporters pay of the imported goods on behalf of the importer through bank guarantee. If the exporter
fails to make the fulfill payment at the moment the bank will take the liability and pay to the exporter.
This type of guarantee is also needed to attend in any tender.

Micro Credit:
Loan has given only to the Person for the purpose of Repairing and Reconstruction of dwelling Houses

HBL: House building Loan: A credit facility is available for the person having land property.

Non Funded Facilities:


Non funded facilities are divided into the following categories:

Guarantee:
A credit facility in contingent liabilities from extended by the banks to their clients for participation in
development work, like supplies goods and services.

51

Letter of Credit:
A credit facility in contingent liabilities from provided to the clients by the banks for import/procurement
of goods and services.

CREDIT RATING REPORTON PREMIER BANK LIMITED


CRISL assigns A- (A minus) to Premier Bank Limited in long term and St-3 rating for short term. It has
been done on the basis of Banks good fundamentals such as good asset quality, good profitability,
moderate growth rate, reasonable capital adequacy and diversified product lines. However the above
factors are moderated, to some extent, by limited market share, high dependence on term loans and
average risk management. Bank rated in this category are adjudged to offer adequate degree of safety for
timely payment of financial obligations. This level of rating indicates a corporate entity with an adequate
credit profile. Risk factors are more variable and greater in periods of economic stress than those rated in
higher categories. The short term rating indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although on going funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.

52

Agrani Bank Limited:


Establishment of Agrani Bank Limited and Its Journey Towards Progress
Agrani Bank Limited has been incorporated as a Public Limited Company on May 17, 2007 vide
Joint Stock Companies and Firms' certificate of incorporation with a view to take over the
business, assets, liabilities, rights and obligations of the former Agrani Bank, which emerged as a
Nationalized Commercial Bank in 1972, pursuant to THE BANGLADESH BANKS
(NATIONALISATION) ORDER, 1972 (President's Order No. 26 of 1972), on a going concern
basis through a Vendors Agreement signed between the Ministry of Finance, Government of the
People's Republic of Bangladesh on behalf of the former Agrani Bank and the Board of Directors
of the Bank on behalf of Agrani Bank Limited on November 15,2007 with retrospective effect
from 01 July, 2007. The Bank's entire shares are held by the Government of the People's
Republic of Bangladesh and 10 other shareholders nominated by the Government. The Bank has
867 branches as on 31st December, 2008 with no overseas branch.

The Bank has, however, two wholly-owned subsidiary companies named Agrani Exchange
House (private) Ltd. in Singapore and Agrani Remittance House SON, BHD in Kuala Lumpur,
Malaysia.

The Role of the Board of Directors


The Board of Directors, consists of 11 members, including Managing Director & CEO. The
Board plays a decisive role in the total affairs of the Bank. Consequent upon the corporatization,
the Board now exercises greater autonomy to run the organization more actively and effectively
than ever before. In 2008, the number of Board meetings held were 68 as against 55 in 2007. In
compliance with the Company's Act 1994 the 1 st Annual General Meeting of the Bank was heid
on 14th August, 2008. For the overall growth of the Bank, the Board delivered important
instructions and guidelines in all major areas to achieve its objectives, During the period under
review, the Board of Directors took important decisions on different administrative and policy
matters which helped to achieve the desired goal the Bank.
53

Customers: Our Business Partners


The business culture of the Bank is to achieve for a win-win deal, since we believe no business
transactions will be meaningful if it were not perceived for the satisfaction of our customers. We
promote, through personalized services and perpetual relationships, intensive business-tobusiness interactions, dialogues and partnership for mutual benefits. We have a strong
commitment and motivation to stay competitive and grow. But we won't grow if we can't help
our customers to grow. All our efforts are to establish a customer-friendly environment. We have
been offering the following services to our customers as mentioned below:
a) Deposit

Current Deposits (CD)

Savings Deposits (SB)

Fixed Deposits
(3 month, 6 month, 1 year & 2 year)

Special Notice Time Deposits (SNTD)

Call Deposits

Non Residence Special Deposit

NR Investors Taka Account

Agrani Bank Pension Sanchay Prokalpa (APS)

Agrani Bank Bishesh Shanchay (ABS)

b) Advances
Letter of Trust Receipt (LTR)
EOF Loan
Secured Overdraft (SOD)
Temporary Overdraft (TOD)
Inland Bills Purchased (IBP)
Foreign Bills Purchased (FBP)
54

Packing Credit
Cash Credit (Hypo)
Cash Credit (Pledge)
Loan against Imported Merchandize (LIM)

Branch Network
The Bank has a huge of branch network crises-crossing H3DK and comer of the country. At
present, it has of which 462 are urban and 405 are rural,
On the basis of their prospect and achievement, all branches are grouped into performing and
non-performing ones. As part of rigorous branch modernization plan, the Management continued
to extensively reduce the number of non-performing branches either by improving their
performance in terms of speedy recovery of overdue and classified loans, deploying fund in new
but resourceful areas and tapping low-cost deposits or by shifting some of them to prospective
areas. In 2008, the number of loss incurring branches has been reduced to 81 from 90 of 2007.
We now consider branch managers as the Banks ambassadors to the field. Hence their posting is
highly selective. Officers who have proven track records and who can work for results are now
being made branch managers.
Corporate Social Responsibility
The corporatization of our Bank has paved the way for putting in place a strong and effective
corporate structure in line with the directives and guidelines of the Government and Bangladesh
Bank.
Agrani Bank Ltd. are very sensitive to the society that in which we operate. We have a deep
commitment, loyalty and a high sense of responsibility to our nation and the people, ethics are
clear: not to earn excessive profits, but to operate in a rational
and sensible way. We conform to all of the stringent regulations issued by the Government of the
Peoples Republic of Bangladesh and the Bangladesh Bank. As part Agrani Bank Ltd. corporate
social responsibility, we contribute greatly to the nourishment of the country's arts, crafts, culture
and sports. We share all sorts of values and sentiments, irrespective of caste, creed or color,
Moreover, we uphold the concept of avoiding gender discriminations. We keep the door open for
55

empowerment of women workforce to ensure a level playing field in terms. of promotion


placement and delegation of power.
We arrange competition for the children regularly to explore their literary talents in a colorful
programmed named Agrani Bank Ltd. Shishu Academy.
As part of Agrani Bank Ltd. commitment of the society, we take part in activities like
beautification of city roads and highways, erecting road-side Sheds to save the blazing sun and
incessant rain.

Furthermore, the Board of Directors approved in principle to supply 03 PCs,03 UPS, 01 Dot
Matrix Printer and 04 Power Stripers to each of the 64 rural schools in 64 districts of the country
phases over a period 03 years, Accordingly, 19 schools will be covered during 2008, 20 school in
2009 and 25 schools in 2010. As per decision 03 PCs, 03 UPS, 01 Dot Matrix Printer and 04
Power Stripers have already been supplied to 19 schools in 19 districts during 2008. The
concerned Zonal Offices made arrangements for training of the teachers of selected schools by
then train students of those schools. For this purpose, the bank allocated Tk.2.55 million as
donation during the period under review.
Corporate Governance
Agrani Bank Limited. committed to adopt highest governance standards for attaining better
operational goals. Corporate Governance at Agrani Bank Limited is defined as the framework by
which the Bank is directed to control the mutual relationship between the management, the
Board of Directors, Managing Director and CEO, the Executive Committee ensure excellence in
corporate governance practices.

Environmental Policy
Agrani Bank Ltd. environmental management policy stipulates adherence to environmental
health and safety regulations and guidelines refraining from business that impairs the ability of

56

Agrani Bank Ltd. generations to meet their own needs. The policies with regard to safety, health
and environment management are also being observed in our fending practices.

Today's Challenge and Perspective


Agrani Bank Ltd. experience over the past three decades has taught us to stay competitive in the
market and to march on. We are striving continuously to face the worst eventuality. Our
collective efforts and wisdom has enabled us to maintain the positive image of the Bank.

Business Performance
Preparation of Accounts
The financial Statements, prepared in accordance with Bangladesh Accounting Standards (BAS)
and Bangladesh Financial Reporting Standards, (BFRS) and in the format prescribed by
Bangladesh Bank vide BRPD Circular No. 14 dated 25 June 2003, give a true and fair view of
the State of the Banks affairs as at December 31, 2008 and of the results of its operations and of
its cash flows for the year ended December 31, 2008 and comply with the applicable sections of
the Bank Companies Act 1994 and other applicable laws and regulations, which has been duly
certified by the statutory auditors.
Import-Export Business
The Banks foreign trade related activities, carried out through 40 AD branches across the
country have earned confidence of importers, exporters and Bangladeshi workforce working
abroad.
in 2008, the Banks export dealing stood at Tk. 49.54 billon and import at Tk. 109.52 billon.
For smooth conduct of international trade. Agrani Bank Limited has as many as 383 foreign
correspondents throughout the world. In addition, the Bank is maintaining 39/NOSTRO
Accounts with the worlds leading banks.

57

Foreign Remittance Business


The Bank continues Taka Draft/Electronics Fund Transfer arrangements with different overseas
exchange companies/banks. In 2008, the Bank extended such. Overseas network by adding 1
more exchange companies/banks, totaling 31 against 30 of
2007 covering Middle East, The Gulf States, South-East Asia and Italy. Out of these

31

exchange companies/banks, the bank has two subsidiaries of its own through which expatriates
are sending their hard-earned money. The Bank has started instant payment remittance with the
assistance of Money Gram. The inflow of the remittance through the bank will increase
remarkably in the coming days. Meanwhile, the bank brought a revolutionary change in the
remittance distribution management by introducing on-line delivery system. At present, all the
branches of 32 zones have been brought under this network. All other branches of 20 zones and
corporate branches have already been brought under remittance on-line network. As a result, the
remitted money can be deposited to the beneficiaries account within 24 hours. The introduction
of on-line distribution of remittances, has generated much enthusiasm among the expatriate
Bangladeshi workers. The result was obvious. in 2008, the remittance inflow is shown below.

Treasury Operation
As in 2006 and 2007, the Fund Management Division also performed as a major market and
market leader in 2008.
The good news for the year under review was that the Division earned TK. 1.95 Billon through
prudent treasury operation by which it become the Banks top profit centre and it helped to earn
operating profit of Tk. 6.33 billon. Item wise income of treasury are shown below.

58

Loans and Advances


General Credit
The amount of loans and advances of the Bank as at the close of 2008 was Tk. 113.36 billion as
compared to Tk. 118.49 billon in the previous year.
The outstanding loans and advances as on 31 December,2008 are sown in the chart below.

Trade, Commerce and Industry

Agrani Bank Limited, in the greater national interest, continues to finance trade, commerce and
industry by providing short-term, mid-term and long-term loans for major sectors like: readymade garments, raw jute and jute goods, chemicals and pharmaceutical, iron and steel, fertilizer,
food, tea and leather. The Bank also helps
stabilize food and its supply by providing advances for production, procurement and preservation
of food grains internally on a priority basis.

Industrial Credit
Agrani Bank Limited has been playing a significant role in supporting the Government policy of
rapid industrialization.
The Bank continues its specialized services for financing medium and long-term capital finance
as well as short-term working capital finance to industrial projects. The total outstanding against
industrial project loan, excluding working capital loan as on 31 December, 2008 stands at Tk.
20.94 billion which is 18.47 per cent of the Bank's total loan portfolio. Agrani Bank Ltd has
extended credit facilities to all-important sub-sectors of the economy.
Sector-wise position of industrial credit excluding working capital loan as on 31 December 2008
is given in the pie chart and bar graph below:

59

Credit Lines
Agrani Bank Limited has utilized IDA Credit, Exim Credit, ADB Credit, OPEC credit and
different foreign credit lines under BSC/C Consortium tor onward lending in addition to Bank's
own sources. The balance outstanding against the loans and the number of projects funded are
appended below:
(Taka in billion)
Number

Amount

of

Outstanding

Projects
a. Foreign Fund

263

0.62

b. Local Fund

2231

20.32

SME and Micro Credits


Beyond conventional banking, the Bank has also been in several SME participating in several
SME programmes through its own efforts and in collaboration with different national agencies
like Bureau of Manpower Employment and

Training

(BMET), Rural Development Board

(BRDB), Bangladesh Small Cottage Industries Corporation (BSCIC)NGOs, (Bangladesh Rural


Advancement Committee-BRAC, Association for Social Advancement-ASA), International Fund
for Agricultural Development (IFAD), Norwegian Agency for Development Co-operation
(NORAD), Swedish International

Development Agencies (SIDA) etc. These are aimed at

reinforcing efforts of the Government to meet strategic objectives of alleviating poverty of the
rural poor, supporting small and micro enterprises/ entrepreneurs, increasing output, easing
unemployment problem and strengthening the rural financial market. So far, the beneficiaries
under the 14 programmes implemented by the SME and Micro Credit Division include 5,21,745
small entrepreneurs of different sectors. Setting a goal to promote countrys business expansion,
employment generation and development of private sector EGPRP (Employment Generation

60

Project for the Poor) Project under International Fund for Agricultural Development (IFAD) have
been successfully operated in the bank since 1995-96.
With the financial assistance from Agrani Bank Limited and Norwegian Agency for
Development Co-operation (NORAD) SEDP Project (Small Enterprise Development Project)
have been operated in greater Mymensing and Faridpur District Since 1995-96. The aim of the
project is to develop the standard of living through increase of income and employment
generation by giving financial and advisory assistance to the small labor intensive firms. Action
is underway to turn the project into a subsidiary Company of the bank.

Agriculture and Rural Credit

The Bank kept financing one of the country's priority sectors - agriculture. It started
accommodating millions of the rural poor with the mainstream development activities in areas of
livestock, fishery, poultry, nursery as well as many off-farm projects and the like in line with the
government. Poverty alleviation through income generating activities is one of the strategic
priorities that the Bank has kept pursuing to make the institutional help available to marginal
farmers, small entrepreneurs, distressed and destitute woman as well as unemployed youths.
Up to 2008, the bank disbursed Tk. 27.37 billion among 32,80,563 borrowers through 54
programmes.

Loan Classification and Provisioning


Reduction in the number and value of classified loans and advances has been a major priority of
the Bank, along with maintaining a commensurate provision. Various initiatives were taken and
adequate measures adopted to achieve the optimum result. The main focus was on the intensive
and strict follow-up in respect of recovery of previous classified and overdue loans along with
arresting new classification there of. As such the classified loan reduced to Tk 25.49 billon
against Tk 31.79 billion of 2007.

61

Recovery of Non-performing Loans


The Bank has geared up its efforts to reduce classified and overdue loans and take appropriate
measures for converting non-performing loans into performing ones. With this end in view,
intensive monitoring both at the field and Head Office level was carried out A Debt Collection
Unit was also set up inside the Bank for effective follow-up and recovery of loans. 5 private Debt
Collection Agents were appointed to recover non-performing and written-off loans.
Recovery position of classified and overdue loans during 2008 is shown below.
(Taka in billion)
ae:f_3ans

Outstanding

Annual

Amount as on Target
31.12.2007

Recovery

Amount Recovered in 2008

Percentage

of

of
Cash

Others* Write-off Total

Recovery

(2008)
". -3an

31.79

12.00

2.46

2.56

8.87

13.89

116%

Tue_3an

4.70

4.70

2.46

2.39

0.00

4.85

1 00%

Total

36.49

16.70

4.92

4.95

8.87

18.74

112Gc

* Other recovery consists of rescheduling, renewal and waiver of partial applied and unapplied
interest.

Financial Results
Total Income
The Bank's total income stood at TK 14.96 billon as against total income of Tk. 13.68 billon in
2007 with 6 (six) months income of former Agrani Bank registering an increase of Tk. 1.30
billon which was 9.5O per cert higher over the last year.

Total Expenditure
62

Despite stringent control on variable expenditure during 2008. total expenditure stood at Tk. 8.65
billion against Tk. 8.42 billion in 2007 including the 6(six) months expenditure of former Agrani
Bank, Enhancement of expenditure was mainly due to increase in depreciation and other cost.
Net Profit
During 2008, the Banks total net profit stood at Tk.2.65 billon after amortization of Tk. 1.33
billon for valuation adjustment which has been paid to the Ministry of Finance as purchase
consideration against net profit of Tk. 3.16 billion in 2007.
Shareholders Equity
As 31st December, 2008 the equity of the Bank stood at Tk. 6.42 billion which includes reserve
and undistributed profit of Tk. 3.51 billon and Revaluation Reserve on investment in
Government securities Tk.0.43 billon. The figure wasTk.33 billion as on 31 December2007
Dividend Declaration
As there is a capital shortfall, the Board of Directors did not recommend any cash dividend
considering the Bangladesh Bank regulation for the year 2008. However, a letter has been
written to Bangladesh Bank seeking permission to issue stock dividend @1:1 which they have
allowed vide their letter No. BRDP (P-2) 744 (Gha)/2009-2548 dated 19-07-2009 and is
recommended for approval in the Annual General Meeting.
Capital Adequacy
There is a remarkable improvement in capital shortfall which has come down to Tk. 0.67billion
against Tk. 3.26
billon in 2007. Details of which are given below:
Capital shortfall of Tk 0.67 billion as at Balance Sheet Date is expected to be covered and the
Bank will be able to maintain its required level of capital by April 30, 2009 from its operating
profit. In addition, it is worth mentioning that the management of the Bank has devised a 3-year
63

broad-based business development plan which has already come into effect from the year 2008.
On its completion, the Bank would be able to maintain more than the required level of capital.
Share holders value
The Agrani Bank Limited fully committed to deliver higher value to the shareholders. Increased
profitability trend will certainly increase the value of shares of the investors in Agrani Bank
Limited. The earning per share (EPS) improved and stood at Taka 106.52 as on 31 st December
2008.
Advances in Electronic Banking and Use of Technology
Planned and Increased Use of ICT
Agrani Bank Limited always keeps level with the latest ideas and approaches developed in areas
of Information and Communication Technology (ICT). The bank feels proud to be pioneer in
introducing computer Technology in the banking sector of the country. In the face of increasingly
fierce competition, the efficiency gains and speed of IT have paved the way for exploring new
sources of advanced and innovative products. It helps standardise The quality of work, internal
productivity and improved customer services. However, the Bank is moving ahead to realise its
plan for increased use of IT and management systems (MIS).
Branch Computerisation
The Bank has grown significantly over the years in branch automation. So far 258 branches out
of total 867 branches are equipped with computer technology having LAN-based branchbanking software. Rest of the branches are having at least 1 (one) desktop computer with internet
connectivity along with Online Foreign Remittance Payment Software and GL Software capable
of making instant payment of foreign remittance to the beneficiaries and preparing daily
Statement of Affairs and Profit and Loss statement besides other day to day correspondence.
On-line Banking
To-days competitive banking means

Electronic-based banking For spreading a large-scale

data-communication network across 100 locations in the country which includes Head Office,7
Circle Offices, 40 AD branches including 10 Corporate branches and 52 Zonal Offices,
64

implementation of a fully integrated core banking solution is continuing and expected to be


completed by 2009. All of our 40 Authorised Dealer branches including 1 0 corporate branches
will come under on line banking. The customers of the branches in on line system will get the
facility of phone banking, internet banking etc besides opportunity for making their banking
transactions to any of the branches.
Website
www.agranibank.org is the Bank's website address. All updated information relating to Bank, it's
products, services including recent financial and other non-financial information are available in
it.
ATM
Agrani Bank Limited offers ATM Card facility in the name of E-cash Card. Any cardholder has
24-hour access to cash withdrawal and utility bills payment facilities. There are now 6 member
banks sharing 40 ATM booths located at different cities of the country. However, the Bank has a
plan to expand the number of ATM booths and other related products.
SWIFT
Modern communication system is essential for carrying out foreign exchange transactions. With
a view to ensuring better services to the customers - especially to the importers, exporters and
remitters, Agrani Bank Limited has, in the meantime, set up 14 SWIFT stations in different
authorised dealer branches. Bank has planned to expand the facilities to other Authorised Dealer
branches in near future.
The present management of the bank is committed to adopt latest technology to provide better
services to its customers, Meanwhile, several steps have been taken to provide technology based
improved services at every branch of the bank.

Computerization facilities, electronic banking and communication facilities available in Agrani


Bank Limited are shown below in the tabular form:

65

1.

Fully Computerized Branch

2.

Branches using stand alone PC (with Ms-Office, On-line Remittance Software and 609
General ledger).
Total:

258

867

Among the 867 branches the following number of branches/circles/zonal offices and Head office
Divisions having the following additional IT facilities:
1.

Branches having SWIFT facility.

14

2.
3.
4.

ATM booths in bank's shared network with 6 (six) other banks


Our branches having ATM booths.
Offices where computers are used
I. Circle Offices
II. Zonal Offices

40
4

III. Head Office Divisions


Offices having Internet Facility
I. Circle Offices
II. Zonal Offices
III. Head Office Divisions
IV. Branches

30

7
52

7
52
30
867

Outlook for 2009


Agrani Bank Limited remains deeply committed its vision of becoming a leading banking
institution in Bangladesh and contributes significantly to the national economy. The Bank intends
to embrace the best practices and technology, It provides first-class products, financial services
and solutions to its customers. The Bank is already in the process of choosing a robust and
integrated software to provide more value added services to them.
66

The bank will introduce Islamic Banking operation through 20 branches in 2009 subject to
getting licence from Bangladesh Bank. Moreover, the bank is going to start merchant branking in
the period under review on getting licence from Security and Exchange Commission (SEC). We
shall continue to make significant investments for more telented people to help our customers
realize their dreams. We shall continue to follow and improve good corporate governance
practices, sound risk management policy, modern human resource policy and strictly maintain
quality of our assets to elevate the bank gradually to the r glory.
We will make every effort to achieve Return on Equity of more than 50 per cent, operating profit
of Tk. 7.25 billion in 2009, maintain required capital adequacy ratio and limit classified loan at a
tolerable level. By achieving these targets, we foresee to be better placed to exploit fully the
market potentials we see for our profitable growth. We are confident that our execution of
strategies will create further value for our stakeholders. We have another extremely busy and
exciting year 2009 in front of us. We hope to complete co-ordination and integration of our
initiatives. We shall seek to attract additional financial, human and material resources to manage
our institution with the intention to create more value for stakeholders, customers, employees
and the society. For obvious reasons, we look at the year 2009 with a considerable optimism.
However, as forward looking statements involve risks and uncertainties. We would therefore,
remain cautious of those elements.

CHAPTER-04
Findings & Analysis.
67

POLICY GUIDELINES
This section details fundamental credit risk management policies that are recommended for
adoption by all Banks in Bangladesh. The guidelines contained herein outline general principles
that are designed to govern the implementation of more detailed lending procedures and risk
grading systems within individual Banks.
Lending Guidelines
All Banks should have established Credit Policies (Lending Guidelines) that clearly outline the
senior managements view of business development priorities and the terms and conditions that
should be adhered to in order for loans to be approved. The Lending Guidelines should be
updated at least annually to reflect changes in the economic out look and the evolution of the
Banks loan portfolio, and be distributed to all lending/marketing officers. The Lending
Guidelines should be approved by the Managing Director/CEO & Board of Directors of the bank
based on the endorsement of the Banks Head of Credit Risk Management and the Head of
Corporate/Commercial Banking. (Section 2.1 of these guidelines refers) Any departure or
68

deviation from the Lending Guidelines should be explicitly identified in credit applications and a
justification for approval provided. Approval of loans that do not comply with Lending
Guidelines should be restricted to the Banks Head of Credit or Managing Director/CEO &
Board of Directors. The Lending Guidelines should provide the key foundations for account
officers/relationship managers (RM) to formulate their recommendations for approval, and
should include the following
Industry and Business Segment Focus
The Lending Guidelines should clearly identify the business/industry sectors that should
constitute the majority of the Banks loan portfolio. For each sector, a clear indication of the
Banks appetite for growth should be indicated (as an example, Textiles: Grow, Cement:
Maintain, Construction: Shrink). This will provide necessary direction to the Banks marketing
staff.

Types of Loan Facilities


The type of loans that are permitted should be clearly indicated, such as Working Capital, Trade
Finance, Term Loan, etc.
Single Borrower/Group Limits/Syndication
Details of the Banks Single Borrower/Group limits should be included as per Bangladesh Bank
guidelines. Bas may wish to establish more conservative criteria in this regard.
Lending Caps
Bas should establish a specific industry sector exposure cap to avoid over concentration in any
one industry sector.
Discouraged Business Types

69

Bas should outline industries or lending activities that are discouraged. As a minimum, the
following should be discouraged:
Military Equipment/Weapons Finance
Highly Leveraged Transactions
Finance of Speculative Investments
Logging, Mineral Extraction/Mining, or other activity that is Ethically or Environmentally
Sensitive
Lending to companies listed on CIB black list or known defaulters
Counter parties in countries subject to UN sanctions
Share Lending
Taking an Equity Stake in Borrowers
Lending to Holding Companies
Bridge Loans relying on equity/debt issuance as a source of repayment.

Loan Facility Parameters


Facility parameters (e.g., maximum size, maximum tenor, and covenant and security
requirements) should be clearly stated. As a minimum, the following parameters should be
adopted:
Bas should not grant facilities where the Banks security position is inferior to that of any
other financial institution.
Assets pledged, as security should be properly insured.
Valuations of property taken as security should be performed prior to loans being granted. A
recognized 3rd party professional valuation firm should be appointed to conduct valuations.
Cross Border Risk
Risk associated with cross border lending. Borrowers of a particular country may be unable or
unwilling to fulfill principle and/or interest obligations. Distinguished from ordinary credit risk
because the difficulty arises from a political event, such as suspension of external payments
70

Synonymous with political & sovereign risk


Third world debt crisis
For example, export documents negotiated for countries like Nigeria.

Credit Assessment & Risk Grading


Credit Assessment
A thorough credit and risk assessment should be conducted prior to the granting of loans, and at
least annually thereafter for all facilities. The results of this assessment should be presented in a
Credit Application that originates from the relationship manager/account officer (RM), and is
approved by Credit Risk Management (CRM). The RM should be the owner of the customer
relationship, and must be held responsible to ensure the accuracy of the entire credit application
submitted for approval.
It is essential that RMs know their customers and conduct due diligence on new borrowers,
principals, and guarantors to ensure such parties are in fact who they represent themselves to be.
All Bas should have established Know Your Customer (KYC) and Money Laundering guidelines
which should be adhered to at all times. Credit Applications should summarize the results of the
RMs risk assessment and include, as a minimum, the following details:
Amount and type of loan(s) proposed.
Purpose of loans.
Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
Security Arrangements
In addition, the following risk areas should be addressed:
Borrower Analysis The majority shareholders, management team and group or affiliate
companies should be assessed. Any issues regarding lack of management depth, complicated
ownership structures or inter group transactions should be addressed, and risks mitigated.
71

Industry Analysis The key risk factors of the borrowers industry should be assessed. Any issues
regarding the borrowers position in the industry, overall industry concerns or competitive forces
should be addressed and the strengths and weaknesses of the borrower relative to its competition
should be identified.
Supplier/Buyer Analysis Any customer or supplier concentration should be addressed, as these
could have a significant impact on the future viability of the borrower.
Historical Financial Analysis An analysis of a minimum of 3 years historical financial
statements of the borrower should be presented. Where reliance is placed on a corporate
guarantor, guarantor financial statements should also be analyzed. The analysis should address
the quality and sustainability of earnings, cash flow and the strength of the borrowers balance
sheet. Specifically, cash flow, leverage and profitability must be analyzed.
Projected Financial Performance Where term facilities (tenor > 1 year) are being proposed, a
projection of the borrowers future financial performance should be provided, indicating an
analysis of the sufficiency of cash flow to service debt repayments. Loans should not be granted
if projected cash flow is insufficient to repay debts.
Account Conduct For existing borrowers, the historic performance in meeting repayment
obligations (trade payments, cheque, interest and principal payments, etc) should be assessed.
Adherence to Lending Guidelines Credit Applications should clearly state whether or not the
proposed application is in compliance with the Banks Lending Guidelines. The Banks Head of
Credit or Managing Director/CEO should approve Credit Applications that do not adhere to the
Banks Lending Guidelines.
Mitigating Factors Mitigating factors for risks identified in the credit assessment should be
identified. Possible risks include, but are not limited to: margin sustainability and/or volatility,
high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or
72

expansion; new business line/product expansion; management changes or succession issues;


customer or supplier concentrations; and lack of transparency or industry issues.
Loan Structure The amounts and tenors of financing proposed should be justified based on the
projected repayment ability and loan purpose. Excessive tenor or amount relative to business
needs increases the risk of fund diversion and may adversely impact the borrowers repayment
ability.
Security A current valuation of collateral should be obtained and the quality and priority of
security being proposed should be assessed. Loans should not be granted based solely on
security. Adequacy and the extent of the insurance coverage should be assessed.
Name Lending Credit proposals should not be unduly influenced by an over reliance on the
sponsoring principals reputation, reported independent means, or their perceived willingness to
inject funds into various business enterprises in case of need. These situations should be
discouraged and treated with great caution. Rather, credit proposals and the granting of loans
should be based on sound fundamentals, supported by a thorough financial and risk analysis.
Risk Grading
All Bas should adopt a credit risk grading system. The system should define the risk profile of
borrowers to ensure that account management, structure and pricing are commensurate with the
risk involved. Risk grading is a key measurement of a Banks asset quality, and as such, it is
essential that grading is a robust process. All facilities should be assigned a risk grade. Where
deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be
immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications.
The following Risk Grade Matrix is provided as an example.
The more conservative risk grade (higher) should be applied if there is a difference between the
personal judgement and the Risk Grade Scorecard results. It is recognized that the Bas may have

73

more or less Risk Grades, however, monitoring standards and account management must be
appropriate given the assigned Risk Grade:
Risk Rating Grade Definition
Superior Low Risk (Grade 1) Facilities are fully secured by cash deposits, government bonds
or a counter guarantee from a top tier international Ba. All security documentation should be in
place.
Good Satisfactory Risk (Grade2) The repayment capacity of the borrower is strong. The
borrower should have excellent liquidity and low leverage. The company should demonstrate
consistently strong earnings and cash flow and have an unblemished track record. All security
documentation should be in place. Aggregate Score of 95 or greater based on the Risk Grade
Scorecard.
Acceptable Fair Risk (Grade3) Adequate financial condition though may not be able to sustain
any major or continued setbacks. These borrowers are not as strong as Grade 2 borrowers, but
should still demonstrate consistent earnings, cash flow and have a good track record. A borrower
should not be graded better than 3 if realistic audited financial statements are not received. These
assets would normally be secured by acceptable collateral (1st charge over stocks / debtors /
equipment / property). Borrowers should have adequate liquidity, cash flow and earnings. An
Aggregate Score of 75-94 based on the Risk Grade Scorecard.
Marginal - Watch list (Grade 4) Grade 4 assets warrant 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. Facilities should be downgraded to 4 if the borrower incurs a loss, loan
payments routinely fall past due, account conduct is poor, or other untoward factors are present.
An Aggregate Score of 65-74 based on the Risk Grade Scorecard.
Special Mention (Grade 5) Grade 5 assets have potential weaknesses that deserve
managements close attention. If left uncorrected, these weaknesses may result in a deterioration
74

of the repayment prospects of the borrower. Facilities should be downgraded to 5 if sustained


deterioration in financial condition is noted (consecutive losses, negative net worth, excessive
leverage), if loan payments remain past due for 30-60 days, or if a significant petition or claim is
lodged against the borrower. Full repayment of facilities is still expected and interest can still be
taken into profits. An Aggregate Score of 55-64 based on the Risk Grade Scorecard.
Substandard (Grade 6) financial condition is weak and capacity or inclination to repay is in
doubt. These weaknesses jeopardize the full settlement of loans. Loans should be downgraded to
6 if loan payments remain past due for 60-90 days, if the customer intends to create a lender
group for debt restructuring purposes, the operation has ceased trading or any indication
suggesting the winding up or closure of the borrower is discovered. Not yet considered nonperforming as the correction of the deficiencies may result in an improved condition, and interest
can still be taken into profits. An Aggregate Score of 45-54 based on the Risk Grade Scorecard.
Doubtful and MTBLd (non-performing) Grade 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 Loss. Assets should be downgraded to 7 if loan payments remain past due in excess
of 90 days, and interest income should be taken into suspense (non-accrual). Loan loss
provisions must be raised against the estimated unrealizable amount of all facilities. The
adequacy of provisions must be reviewed at least quarterly on all non-performing loans, and the
Bank should pursue legal options to enforce security to obtain repayment or negotiate an
appropriate loan rescheduling. In all cases, the requirements of Bangladesh Bank in CIB
reporting, loan rescheduling and provisioning must be followed. An Aggregate Score of 35-44
based on the Risk Grade Scorecard.

Loss (non-performing) Grade 8 Assets graded 8 are long outstanding with no progress in
obtaining repayment (in excess of 180 days past due) or in the late stages of wind up/liquidation.
The prospect of recovery is poor and legal options have been pursued. The proceeds expected
from the liquidation or realization of security may be awaited. The continuance of the loan as a
Bankable asset is not warranted, and the anticipated loss should have been provided for. This
75

classification reflects that it is not practical or desirable to defer writing off this basically
worthless asset even though partial recovery may be effected in the future. Bangladesh Bank
guidelines for timely write off of bad loans must be adhered to. An Aggregate Score of 35 or less
based on the Risk Grade Scorecard.
At least top twenty-five clients/obligors of the Bank may preferably be rated by an outside credit
rating agency.
The Early Alert Process should be completed in a timely manner by the RM and forwarded to
CRM for approval to affect any downgrade. After approval, the report should be forwarded to
Credit Administration, who is responsible to ensure the correct facility/borrower Risk Grades are
updated on the system. The downgrading of an account should be done immediately when
adverse information is noted, and should not be postponed until the annual review process
Approval Authority
The authority to sanction/approve loans must be clearly delegated to senior credit executives by
the Managing Director/CEO & Board based on the executives knowledge and experience.
Approval authority should be delegated to individual executives and not to committees to ensure
accountability in the approval process. The following guidelines should apply in the
approval/sanctioning of loans:
Credit approval authority must be delegated in writing from the MD/CEO & Board (as
appropriate), acknowledged by recipients, and records of all delegation retained in CRM.
Delegated approval authorities must be reviewed annually by MD/CEO/Board.
The credit approval function should be separate from the marketing/relationship
management (RM) function.
The role of Credit Committee may be restricted to only review of proposals i.e.
recommendations or review of Banks loan portfolios.
Approvals must be evidenced in writing, or by electronic signature. Approval records
must be kept on file with the Credit Applications.
76

All credit risks must be authorized by executives within the authority limit delegated to
them by the MD/CEO. The pooling or combining of authority limits should not be
permitted.
Credit approval should be centralized within the CRM function. Regional credit centers
may be established, however, all large loans must be approved by the Head of Credit and
Risk Management or Managing Director/CEO/Board or delegated Head Office credit
executive.
The aggregate exposure to any borrower or borrowing group must be used to determine
the approval authority required.
Any credit proposal that does not comply with Lending Guidelines, regardless of amount,
should be referred to Head Office for Approval
MD/Head of Credit Risk Management must approve and monitor any cross border
exposure risk.
Any breaches of lending authority should be reported to MD/CEO, Head of Internal
Control, and Head of CRM.
It is essential that executives charged with approving loans have the relevant training and
experience to carry out their responsibilities effectively.

77

As a minimum, approving executives should have:


At least 5 years experience working in corporate/commercial Banking as a relationship
manager or account executive.
Training and experience in financial statement, cash flow and risk analysis.
A thorough working knowledge of Accounting.
A good understanding of the local industry/market dynamics.
Successfully completed an assessment test demonstrating adequate
Knowledge of the following areas:
Introduction of accrual accounting.
Industry / Business Risk Analysis
Borrowing Causes
Financial reporting and full disclosure
Financial Statement Analysis
The Asset Conversion/Trade Cycle
Cash Flow Analysis
Projections
Loan Structure and Documentation
Loan Management.
A monthly summary of all new facilities approved, renewed, enhanced, and a list of proposals
declined stating reasons thereof should be reported by CRM to the CEO/MD.

78

Segregation of Duties
Banks should aim to segregate the following lending functions:
Credit Approval/Risk Management
Relationship Management/Marketing
Credit Administration
The purpose of the segregation is to improve the knowledge levels and expertise in each
department, to impose controls over the disbursement of authorized loan facilities and obtain an
objective and independent judgment of credit proposals.
Internal Audit
Bas should have a segregated internal audit/control department charged with conducting audits
of all departments. Audits should be carried out annually, and should ensure compliance with
regulatory guidelines, internal procedures, Lending Guidelines and Bangladesh Bank
requirements.

PREFERRED ORGANISATIONAL STRUCTURE & RESPONSIBILITIES


The appropriate organizational structure must be in place to support the adoption of the policies
detailed in Section 1 of these guidelines. The key feature is the segregation of the
Marketing/Relationship Management function from Approval / Risk Management /
Administration functions. Credit approval should be centralized within the CRM function.
Regional credit centers may be established, however, all applications must be approved by the
Head of Credit and Risk Management or Managing Director /CEO /Board or delegated Head
Office credit executive.

79

Preferred Organizational Structure


The following chart represents the preferred management structure:
Managing Director/ CEO

Head

of

Credit

Risk

Management
(CRM

Head of Corporate /
Commercial Banking

Other Direct Report


Internal Audit, etc
Other Direct Reports

Credit Administration

Relationship

(Internal Audit, etc.)

(May report separately

Management /

Managing

to MD/CEO)

Marketing (RM)

CEO

Director

Business Development
Credit Approval

Business Development

(Includes regional credit


Centers if applicable)
Monitoring / Recovery
(includes

Other Direct Reports


(Internal Audit, etc.)
Managing

Director

CEO

regional

recovery
Monitoring/Recovery
centres
applicable)
(Includesifregional
recovery
centers if applicable)

Other Direct Reports


(Internal Audit, etc.)
Managing

Director

CEO
Other Direct Reports
(Internal Audit, etc.)
Managing

Director

CEO
Other Direct Reports
(Internal Audit, etc.)
Managing
CEO

Director

80
/

Other Direct Reports


(Internal Audit, etc.)
Managing
Key Responsibilities

Director

CEO

The key responsibilities of the above functions are as follows.


Credit Risk Management (CRM)
Oversight of the Banks credit policies, procedures and controls relating to all credit risks
arising from corporate/commercial/institutional Banking, personal Banking, & treasury
operations.
Oversight of the Banks asset quality.
Directly manage all Substandard, Doubtful & bad and Loss accounts to maximize recovery
and ensure that appropriate and timely loan loss provisions have been made.
To approve (or decline), within delegated authority, Credit Applications recommended by
RM. Where aggregate borrower exposure is in excess of approval limits, to provide
recommendation to MD/CEO for approval.
To provide advice/assistance regarding all credit matters to line management/ RMs.
To ensure that lending executives have adequate experience and/or training in order to
carry out job duties effectively.
Credit Administration:
To ensure that all security documentation complies with the terms of approval and is
enforceable.
To monitor insurance coverage to ensure appropriate coverage is in place over assets
pledged as collateral, and is properly assigned to the Ba.
To control loan disbursements only after all terms and conditions of approval have been
met, and all security documentation is in place.
To maintain control over all security documentation.
To monitor borrowers compliance with covenants and agreed terms and conditions, and
general monitoring of account conduct/performance.

81

Relationship Management/Marketing (RM)


To act as the primary Bank contact with borrowers.
To maintain thorough knowledge of borrowers business and industry through regular
contact, factory/warehouse inspections, etc. RMs should proactively monitor the financial
performance and account conduct of borrowers.
To be responsible for the timely and accurate submission of Credit Applications for new
proposals and annual reviews, taking into account the credit assessment requirements
outlined in Section 4. 1.2.1 of these guidelines.
To highlight any deterioration in borrowers financial standing and amend the borrowers
Risk Grade in a timely manner. Changes in Risk Grades should be advised to and approved
by CRM.
To seek assistance/advice at the earliest from CRM regarding the structuring of facilities,
potential deterioration in accounts or for any credit related issues.
Internal Audit/Control
Conducts independent inspections annually to ensure compliance with Lending Guidelines,
operating procedures, Bank policies and Bangladesh Bank directives. Reports directly to
MD/CEO or Audit committee of the Board.

82

PROCEDURAL GUIDELINES
This section outlines of the main procedures that are needed to ensure compliance with the
policies contained in Section 1.0 of these guidelines.
Approval Process
The approval process must reinforce the segregation of Relationship Management/ Marketing
from the approving authority. The responsibility for preparing the Credit Application should rest
with the RM within the corporate/commercial Banking department. Credit Applications should
be recommended for approval by the RM team and forwarded to the approval team within CRM
and approved by individual executives. Bas may wish to establish various thresholds, above
which, the recommendation of the Head of Corporate/Commercial Banking is required prior to
onward recommendation to CRM for approval. In addition, Bas may wish to establish regional
credit centers within the approval team to handle routine approvals. Executives in head office
CRM should approve all large loans.
The recommending or approving executives should take responsibility for and be held
accountable for their recommendations or approval. Delegation of approval limits should be such
that all proposals where the facilities are up to 15% of the Banks capital should be approved at
the CRM level, facilities up to 25% of capital should be approved by CEO/MD, with proposals
in excess of 25% of capital to be approved by the EC/Board only after recommendation of CRM,
Corporate Banking and MD/CEO.

83

The following diagram illustrates the preferred approval process:


Credit Application
Recommended by RM/ Marketing
1
2
Zonal Credit Officer (ZCO)
3

Head of Credit &


Head of Corporate Banking (HOBC)
5

Managing Director
7
7
Executive Committee/ Board
1. Application forwarded to Zonal Office for approved/decline
2. Advise the decision as per delegated authority (approved /decline) to recommending branches.
A monthly summary of ZCO approvals should be sent to HOC and HOCB to report the previous
months approvals sanctioned at the Zonal Offices. The HOC should review 10% of ZCO
approvals to ensure adherence to Lending Guidelines and Bank policies.
3. ZCO supports & forwarded to Head of Corporate Banking (HOCB) or delegate for
endorsement, and Head of Credit (HOC) for approval or onward recommendation.
4. HOC advises the decision as per delegated authority to ZCO
5. HOC & HOCB supports & forwarded to Managing Director
6. Managing Director advises the decision as per delegated authority to HOC & HOCB.
7. Managing Director presents the proposal to EC/Board
8. EC/Board advises the decision to HOC & HOCB
** Regardless of the delegated authority HOC to advise the decision (approval/decline) to
marketing department through ZCO

84

Recommended Delegated Approval Authority Levels


HOC/CRM Executives

Up to 15% of Capital

Managing Director/CEO

Up to 25% of Capital

EC/Board all exceed

25% of Capital

Appeal Process
Any declined credit may be re-presented to the next higher authority for reassessment/approval.
However, there should be no appeal process beyond the Managing Director.

Credit Administration
The Credit Administration function is critical in ensuring that proper documentation and
approvals are in place prior to the disbursement of loan facilities. For this reason, it is essential
that the functions of Credit Administration be strictly segregated from Relationship
Management/Marketing in order to avoid the possibility of controls being compromised or issues
not being highlighted at the appropriate level. Credit Administration procedures should be in
place to ensure the following:
Disbursement:
Security documents are prepared in accordance with approval terms and are legally
enforceable. Standard loan facility documentation that has been reviewed by legal counsel
should be used in all cases. Exceptions should be referred to legal counsel for advice based
on authorization from an appropriate executive in CRM.
Disbursements under loan facilities are only be made when all security documentation is in
place. CIB report should reflect/include the name of all the lenders with facility, limit &
outstanding. All formalities regarding large loans & loans to Directors should be guided by
Bangladesh Bank circulars & related section of Banking Companies Act. All Credit Approval
terms have been met.

85

Custodial Duties:
Loan disbursements and the preparation and storage of security documents should be
centralized in the regional credit centers.
Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets
pledged as collateral.
Security documentation is held under strict control, preferably in locked fireproof
storage.
Compliance Requirements:
All required Bangladesh Bank returns are submitted in the correct format in a timely
manner.
Bangladesh Bank circulars/regulations are maintained centrally, and advised to all
relevant departments to ensure compliance.
All third party service providers (valuers, lawyers, insurers, CPAs etc.) are approved and
performance reviewed on an annual basis. Bas are referred to Bangladesh Bank circular
outlining approved external audit firms that are acceptable.

86

Credit Monitoring
To minimize credit losses, monitoring procedures and systems should be in place that provides
an early indication of the deteriorating financial health of a borrower. At a minimum, systems
should be in place to report the following exceptions to relevant executives in CRM and RM
team:
Past due principal or interest payments, past due trade bills, account excesses, and breach of
loan covenants;
Loan terms and conditions are monitored, financial statements are received on a regular
basis, and any covenant breaches or exceptions are referred to CRM and the RM team for
timely follow-up.
Timely corrective action is taken to address findings of any internal, external or regulator
inspection/audit.
All borrower relationships/loan facilities are reviewed and approved through the submission
of a Credit Application at least annually.
Computer systems must be able to produce the above information for central/head office as well
as local review. Where automated systems are not available, a manual process should have the
capability to produce accurate exception reports. Exceptions should be followed up on and
corrective action taken in a timely manner before the account deteriorates further. Refer to the
Early Alert Process (section4.3.3.1).
Early Alert process:
An Early Alert Account is one that has risks or potential weaknesses of a material nature
requiring monitoring, supervision, or close attention by management. If these weaknesses are left
uncorrected, they may result in deterioration of the repayment prospects for the asset or in the
Banks credit position at some future date with a likely prospect of being downgraded to CG 5 or
worse (Impaired status), within the next twelve months.
Early identification, prompt reporting and proactive management of Early Alert Accounts are
prime credit responsibilities of all Relationship Managers and must be undertaken on a
continuous basis. An Early Alert report should be completed by the RM and sent to the
87

approving authority in CRM for any account that is showing signs of deterioration within seven
days from the identification of weaknesses. The Risk Grade should be updated as soon as
possible and no delay should be taken in referring problem accounts to the CRM department for
assistance in recovery.
Despite a prudent credit approval process, loans may still become troubled. Therefore, it is
essential that early identification and prompt reporting of deteriorating credit signs be done to
ensure swift action to protect the Banks interest. The symptoms of early alert are by no means
exhaustive and hence, if there are other concerns, such as a breach of loan covenants or adverse
market rumors that warrant additional caution, an Early Alert report should be raised.
Moreover, regular contact with customers will enhance the likelihood of developing strategies
mutually acceptable to both the customer and the Bank. Representation from the Bank in such
discussions should include the local legal adviser when appropriate.
An account may be reclassified as a Regular Account from Early Alert Account status when the
symptom, or symptoms, causing the Early Alert classification have been regularized or no longer
exist. The concurrence of the CRM approval authority is required for conversion from Early
Alert Account status to Regular Account status.

88

Credit Recovery
The Recovery Unit (RU) of CRM should directly manage accounts with sustained deterioration
(a Risk Rating of Sub Standard (6) or worse). Bas may wish to transfer EXIT accounts graded 45 to the RU for efficient exit based on recommendation of CRM and Corporate Banking.
Whenever an account is handed over from Relationship Management to RU, a Handover
/Downgrade Checklist should be completed.
The RUs primary functions are:
Determine Account Action Plan/Recovery Strategy
Pursue all options to maximize recovery, including placing customers into receivership or
liquidation as appropriate.
Ensure adequate and timely loan loss provisions are made based on actual and expected
losses.
Regular review of grade 6 or worse accounts.
The management of problem loans (NPLs) must be a dynamic process, and the associated
strategy together with the adequacy of provisions must be regularly reviewed. A process should
be established to share the lessons learned from the experience of credit losses in order to update
the lending guidelines.
NPL Account Management
All NPLs should be assigned to an Account Manager within the RU, who is responsible for
coordinating and administering the action plan/recovery of the account, and should serve as the
primary customer contact after the account is downgraded to substandard. Whilst some
assistance from Corporate Banking/Relationship Management may be sought, it is essential that
the autonomy of the RU be maintained to ensure appropriate recovery strategies are
implemented.

89

Account Transfer Procedures


Within 7 days of an account being downgraded to substandard (grade 6), a Request for Action
(RFA) and a handover /downgrade checklist should be completed by the RM and forwarded to
RU for acknowledgment. The account should be assigned to an account manager within the RU,
who should review all documentation, meet the customer, and prepare a Classified Loan Review
Report (CLR) within 15 days of the transfer. The CLR should be approved by the Head of Credit,
and copied to the Head of Corporate Banking and to the Branch/office where the loan was
originally sanctioned. This initial CLR should
highlight any documentation issues, loan structuring weaknesses, proposed workout strategy, and
should seek approval for any loan loss provisions that are necessary.
Recovery Units should ensure that the following is carried out when an account is classified as
Sub Standard or worse:
Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or advances
should be restricted, and only approved after careful scrutiny and approval from appropriate
executives within CRM.
CIB reporting is updated according to Bangladesh Bank guidelines and the borrowers Risk
Grade is changed as appropriate.
Loan loss provisions are taken based on Force Sale Value (FSV).
Loans are only rescheduled in conjunction with the Large Loan Rescheduling guidelines of
Bangladesh Bank. Any rescheduling should be based on projected future cash flows, and
should be strictly monitored.
Prompt legal action is taken if the borrower is uncooperative.
Non - Performing Loan (NPL) Monitoring.
On a quarterly basis, a Classified Loan Review (CLR) should be prepared by the RU Account
Manager to update the status of the action/recovery plan, review and assess the adequacy of
provisions, and modify the Banks strategy as appropriate. The Head of Credit should approve
the CLR for NPLs up to 15% of the Bas capital, with MD/CEO approval needed for NPLs in

90

excess of 15%. The CLRs for NPLs above 25% of capital should be approved by the MD/CEO,
with a copy received by the Board.
NPL provisioning and Write Off
The guidelines established by Bangladesh Bank for CIB reporting, provisioning and write off of
bad and doubtful debts, and suspension of interest should be followed in all cases. These
requirements are the minimum, and Bas are encouraged to adopt more stringent
provisioning/write off policies. Regardless of the length of time a loan is past due, provisions
should be raised against the actual and expected losses at the time they are estimated. The
approval to take provisions, write offs, or release of provisions/upgrade of an account should be
restricted to the Head of Credit or MD/CEO based on recommendation from the Recovery Unit.
The Request for Action (RFA) or CLR reporting format should be used to recommend
provisions, write-offs or release/upgrades.
The RU Account Manager should determine the Force Sale Value (FSV) for accounts grade 6 or
worse. Force Sale Value is generally the amount that is expected to be realized through the
liquidation of collateral held as security or through the available operating cash flows of the
business, net of any realization costs. Any shortfall of the Force Sale Value compared to total
loan outstanding should be fully provided for once an account is downgraded to grade 7. Where
the customer in not cooperative, no value should be assigned to the operating cash flow in
determining Force Sale Value. Force Sale Value and provisioning levels should be updated as
and when new information is obtained, but as a minimum, on a quarterly basis in the CLR.
Following formula is to be applied in determining the required amount of provision:
1.

Gross Outstanding

2.

Less: (i) Cash margin held or Fixed

XXX

Deposits /SP under lien.


(ii) Interest in Suspense Account
3.

(XXX)
(XXX)

Loan Value

(For which provision is to be created before considering


estimated realizable value of other security/collateral held)

XXX
91

4.

Less: Estimated salvage value of security/collateral held (XXX)


(See Note below)
Net Loan Value

XXX

Note: The amount of required provision may, in some circumstances, be reduced by an estimated
realizable forced sale value of (i.e. Salvage Value) of' any tangible collateral held (viz: mortgage
of property, pledged goods / or hypothecated goods repossessed by the Bank, pledged readily
marketable securities etc). Hence, in these situations, it will be advisable to evaluate such
collateral, estimate the most realistic sale value under duress and net-off the value against the
outstanding before determining the Net Loan value for provision purposes. Conservative
approach should be taken to arrive at provision requirement and Bangladesh Bank guideline to
be properly followed.
Incentive Program:
Bas may wish to introduce incentive programs to encourage Recovery Unit Account Managers to
bring down the Non Performing Loans (NPLs). The table below shows an indicative incentive
plan for RU account managers:
Recovery as a % of Principal plus

Recommended Incentive as % of

interest

Net recovery amount

76% to 100%
51% t0 75%
20% to 50%

If CG 7-8
1.00%
0.50%
0.25%

if written off
2.00%
1.00%
0.50%

Compliance of Bangladesh Bank Policies by Bank Asia Limited:


92

In the previous sections of this report we have critically analyzed Bangladesh Banks existing
best practices guidelines for managing credit risk. Comparing Bank Asia Limiteds current credit
risk management system with the Bangladesh Bank guidelines we can evaluate Bank Asia
Limiteds existing practices in Banking industry Credit Policies/ Lending Guideline:
In the above analysis we have seen that Bank Asia Limited possesses a newly introduced written
credit policy, which was prepared in accordance with Bangladesh Bank Guidelines. Corporate
Office sent CRM manual to every Branch Managers, Zonal Heads and all Departmental Heads
with a circular on 8th July 2004.

The purpose of this document was to provide guidelines to improve the credit risk management
and for the credit officers to take quick decision whether to accept or reject a project. The
lending guideline includesIndustry or business segment focus.
Types of loan facilities
Details of single borrower/ group limit
Lending caps
Discouraged business type
Loan facility parameters
Cross Border risk
As there was no written guideline before therefore Bank Asia Limited has just started
implementing the guidelines.

Credit Assessment & Risk Grading:


93

Proper credit processing and risk grading system is present here. Adoption of credit risk grading
system is required to ensure account management, structure and pricing to commensurate with
the risk involved. Still this grading system does not match completely i.e. lower interest rate for
lower risk and vice versa. Therefore pricing should commensurate while processing credit.
Approval Authority:
In Bangladesh Banks guideline it is written, Approval authority should be delegated to
individual executives and not to committees to ensure accountability in approval process.
But we see, in Bank Asia Limited, that every credit goes to the Board via credit committee.
As a result, wastage of time occurs and no one is held accountable for a bad loan.

Segregation of Duties:
According to Bangladesh Bank Guideline Banks should aim to segregate the following lending
functions to improve the knowledge levels and expertise in each department:
Credit Approval/ Risk Management
Relationship Management/ Marketing
Credit Administration
But in Bank Asia there is no such departmentalization or segregation of duties. But it has just
started its delegation of duties like formation of Credit Administration Division in the Corporate
Office. In small branches of Mutual Trust Bank only single loan officer do all the tasks relating
credit like loan marketing, risk assessing and credit administration.
Internal Audit:
Bank Asia Limited has a segregated internal audit/ control department charged with conducting
audit of all departments as suggested by Bangladesh Bank guideline.

94

Preferred Organizational Structure:


Bank Asia Limited is yet to follow the preferred management structure as suggested by
Bangladesh Bank guideline. The key feature in the preferred management structure is the
segregation

of

Marketing/

Relationship

function

from

approval/Risk

management/

Administration function.
Approval process:
According to Bangladesh Bank best practices guideline, the recommending or approving
executives should take responsibility for and be held accountable for their recommendations and
approval. The recommended delegated approval authority levels are as follows
Head of Credit/CRM Executives

up to 15% of capital

Managing Director/ CEO

Up to 25% of capital

EC/ Board

All exceed 25% of capital

But in Mutual Trust Bank we see that every credit proposal goes to Executive committee i.e.
board.

95

Credit Administration:
Bangladesh Bank guidelines suggest that Credit administration be strictly segregated from
relationship management/ marketing. As a result the possibility of controls being compromised
or issues not being highlighted at the appropriate level can be avoided. The credit administration
has the following functionsDisbursement
Custodial duties
Compliance requirement
In Bank Asia Limited credit officers under supervision of Branch Credit In-charge or Branch
Manager carry out all the three functions of credit administration. Therefore Credit Marketing
and Administration is yet to be segregated.
Credit Monitoring:
To minimize credit losses, monitoring procedures and systems should be in place that provides
an early indication of the deteriorating financial health of a borrower. Early identification,
prompt reporting and proactive management of Early Alert Accounts are prime credit
responsibilities of all relationship Managers. An early Alert Account is one that has risks or
potential weakness of a material nature requiring monitoring, supervision or close attention by
management.
In Bank Asia Ltd. credit monitoring is also done by Credit-In-Charge or branch managers. As
they be busy with their day-today activities Early Alert Accounts do not get that much attention
as needed.
Credit Recovery:
According to Bangladesh Bank guidelines the recovery unit (RU) of CRM should directly
manage accounts with sustained deterioration. On a quarterly basis, a Classified Loan Review
96

(CLR) should be prepared by the RU Account Manager to update the action/ recovery plan,
review and assess the adequacy of provisions, and modify as appropriate.
In Mutual Trust Bank the non-performing loan is very low (50, 43, 00,000 till December 31,
2006) and the recovery unit is yet to be formed. Even for personal loan program, Personal
Banking Division also lacks a recovery unit.
Account Transfer Procedures:
Bangladesh Bank guidelines suggested that within 7 days of an account being downgraded to
substandard, a Request for Action (RFA) and a handover/downgrade checklist should be
completed by RM and forwarded to RU for acknowledgement. An account manager is to be
assigned to review all documentation, meet the customer and prepare a Classified Loan Review
(CLR) report within 15 days of transfer.
This account transfer is yet to be followed as there is no official Recovery Unit (RU) for this
purpose. But at present branch officials perform these activities themselves. Besides according to
Bangladesh Bank guidelines, after classifying as substandard or worse actions like
withdrawal/restriction of facilities, updating CIB report, changing risk grade, rescheduling of
loans or even prompt actions are taken if the borrower is not cooperative.
Incentive Program:
The Bangladesh Bank guidelines also encourage Bas to introduce incentive programs for the
Recovery Unit Account Managers to bring down the Non Performing Loans (NPLs). Mutual
Trust Bank Limited currently has no such incentive program as it does not have such a Recovery
Unit.
Non-Performing Loan Account Management:
This also does not comply with Bangladesh Bank Guidelines as the officials for recovery unit is
yet to be prepared. The branch officials therefore consulting with higher management initiate
97

coordinating and administering the action plan/recovery of the account. The branch
officials/credit officer contacts with the client, tries to negotiate to recover the loan by reducing
the interest rate or even waiving the interest to recover the loan capital and finally finding no
other alternative goes for legal actions.
Custodial Duties:
Bangladesh Bank advises disbursement of loan and security documents to be kept centrally in
regionally credit centers, maintain insurance coverage and security documents to keep in locked
fireproof storage. In Bank Asia Ltd. security documents are kept in locked in the vault in their
own branches and proper insurance coverage is maintained.
Compliance Requirement:
Bangladesh Bank suggests submitting all required documents in correct format, maintain
circulars, review performance of third party service providers (valuers, lawers, insurers, etc.).
Bank Asia Ltd. sends documents as required by Bangladesh Bank; keep circulars provided by
Bangladesh Bank but third party providers are not reviewed as advised.
Analysis of Other Parameters:
According to Bangladesh Bank guidelines before sanctioning any loan some other important
parameters like borrower analysis, industry analysis, supplier/buyer analysis, historical financial
analysis, projected parameters, account conduct, security, loan structure etc. have to be done
extensively. We have found all of these parameters presence in Bank Asia Limiteds loan
proposal format and also the existence in reality.
CIB Checklist:
According to the Bangladesh Bank guideline, Bank has to send every borrowers CIB
undertaking after every two months, whoever the borrower is, either a person or an
organizational entity.
98

Bank Asia Ltd. does not have any alarming system that CIB of which customer is expired today
or going to be expired within a few days. Employees have to keep a closer look everyday on this
matter and have to check regularly these huge numbers of accounts. There is a chance to miss
some of this inquiry anytime by human mistake and may forget to take CIB for months.
In some cases changes in the company directorship makes clash in taking the regular CIB for that
company. Most often the refusal comes from the Bangladesh Bank for not matching the spelling
of the name of the borrower person or the directors of the company.
If there is an automated system in the Bank Asia connected with the Bangladesh Bank and a
proper alarming system, then it would be easier for the employees to be regularly updated.
Acceptance in risk rating:

According to Bangladesh Bank risk rating grade definition, a Bank can provide the credit till the
grade 6 what is named as substandard. Bank Asia Ltd. is a risk averse Bank in this respect and
prefers to be in between the 1st two grades and do not like to be bellow good.

99

Compliance of Bangladesh Bank Policy by Agrani Bank Limited:


Monitoring policy controlling money supply of a country through open market operation by
purchase & sale of bills & securities & movement of bank rate depend on Agrani bank. Ltd.
Money supply can be monitored through expansion& reduction of credit through central bank
operation. Economic development of a country largely depends on expansion of industry sector
& growth of export. Since expansion of credit increase money supply Agrani bank. Ltd has to
pursue & optional credit flow in order to keep the inflation within desired range to ensure price
stability & economic growth of a country.
At present Agrani bank. Ltd is pursuing a policy of moderate credit expansion. Following this
policy emphasis is given to ensure flow of credit to private sector since GOB has adapted a
policy of export led growth through privet sector with globalization. Agrani bank. Ltd has
withdrawn all interest on deposit & has given complete freedom to bank to set own interest on
lending. To ensure smooth credit flow Agrani bank. Ltd puts emphasis on stability of financial
sector.
Agrani bank. Ltd monitors its credit policy through introduction of stringent rules & regulation
etc. Enactment of bank company act, program for classification of loans & advances &
provisioning thereof, exercising lending risk analysis (LRA). Large loan monitoring cell & credit
information bureau are the tools of control credit policy. All this help Agrani bank. Ltd to
supervise its credit policy which is turn help them to strengthen financial sector discipline as a
whole.
Credit
Credit is a promise of future payment in kind or in money given in exchange for present money,
goods or services. In general credit means the granting of a period of time by a creditor to a
debtor at the expiration of which the latter must pay the debt due.
The word CREDIT is derived from Latin word credo that means I believe and is usually
defined as the ability to buy with a promise to pay.
Loans or credits compromise the most important asset as well as the primary source of earning
for the bank. Bank lending is important for the economy in the sense that it can simultaneously

100

finance all of the sub-sectors of financial arena, which comprises agriculture, commercial and
industrial activities of a nation.

The Cs of Good & Bad Loan


When a prospective customer requests a loan, bankers analyze all available information to
determine whether the loan meets the banks risk-return objectives. Credit analysis is essentially
default risk analysis in which a loan officer attempts to evaluate borrowers ability willingness to
repay. Therefore, bankers need to perform qualitative analysis which has been classified
according to the Cs of credit.
Character
The outcome of analyzing the character is to have overall idea about the integrity, experience,
and business sense of the borrower. Two variables; Interaction/interview, and Market Research
are used to analyze the character of the borrower.
1. Interaction/interview:
The indicators area) Prompt and consistent information supply, information given has not been found false.
b) CIB also reveals business character.
c) Willingness to give owns stake/equity & collateral to cover.
d) Tax payer.
2. Market Research:
a) Information on business is verified.
b) Dealing with supplier and or customer as supplier is also a kind of lender; the payment
character can also be verified.
Capital:
For identifying the capital invested in the business can be disclosed using the following
indicators.
a) Financial Statements.
101

b) Receivable 0r Payable statements to practically assess the business positions.


c) Net worth through financial statements or from declaration of Assets & Liabilities.
Capacity (Competence)
Capability of the borrower in running the business is highly emphasized in the time of selecting a
good borrower. As the management of the business is the sole authority to run the business that is
use the fund efficiently, effectively and profitably. The indicators help to identify the capacity of
the borrower.
a) Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization.
b) Management competencies both marketing and products detail, ability to take decision.
c) Resilience or shock absorption: Connection, Back up.
Collateral
Make sure that there is a second way out of a credit, but do not allow that to drive the credit
decision.
Cash Follow
Cash flow is the vital factor that is used to identify whether the borrower will have enough cash
to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The relationship
managers try to identify the annual cash flow from the submitted statements.
Conditions
Understanding the business and economic conditions can and will change after the loan is made.
Complacency
Do not rely on past history to continue. Stay alert to what can go wrong in any loan.

102

Carelessness
Remember that documentation, follow-up and consistent monitoring are essential to high quality
loan portfolios.
Communication
Share credit objectives and credit decision making both vertically and laterally within the bank.
Contingencies
Make sure that you understand the risks, particularly the downside possibilities and that you
structure and price the loan consistently with that understanding.
Competition
Do not get swept away by what others are doing.
Credit Query
The loans and advance department gets a form filled up by the party seeking a lot of information.

Credit planning
There are some objectives behind a written credit policy of Agrani bank. Ltd that are as follows.
Provide a guideline for giving loan.
To prompt response to the customer need.
Shorten the procedure of giving loan.
Reduce the volume of work from top level management.
Delegation of authority of work from top level of management.
To check and balance the operational activities

103

Essential Components of a Sound Credit Policy


There can be some variations based on the needs of a particular organization, but at least the
following areas should be covered in any comprehensive statement of credit policy and Agrani
banks. Ltd policy also covers these areas:
1. Legal consideration: The banks legal lending limit and other constraints should be set forth
to avoid inadvertent violation of banking regulations.
2. Delegation of authority: Each individual authorized to extend credit should know precisely
how much and under what conditions he or she may commit the banks funds. These authorities
should be approved, at least annually, by written resolution of the board of directors and kept
current at all times.
3. Types of credit extension: One of the most substances parts of a loan is a delineation of
which types of loans are acceptable and which type are not.
4. Pricing: In any profit motivated endeavor, the price to be charged for the goods or services
rendered is of paramount without it, individuals have few guidelines for quoting retag or fees,
and the variations resulting from human nature will be a source of customer dissatisfaction.
5. Market Area: Each bank should establish its proper market area, based upon, among other
things, the size and sophistication of its organization its capital standpoint, defining ones market
area is probably more important in the lending function than in any other aspect of banking.
6. Loan Standard: This is a definition of the types of credit to be expended; where in the
qualitative standards for acceptable loans are set forth.

CREDIT RISK
Risk is inherent in all commercial operations. For banks and financial institutions credit risk is an
essential factor, which needs to be managed properly. Credit risk virtually is the possibility that a
borrower will fail to repay debt in accordance with the terms of sanction. Credit risk therefore
arises from the banks lending operations. In the present days state of deregulation and
globalization banks range of activities have increased, so also are the bank. Expansion of bank
104

lending operations covering new products have focused the bank to confront newer risk areas
and therefore to work out proper risk addressing devices. Credit risks are so exhaustive that a
single device cannot encompass all the risk.
As Mutual Trust bank is providing credit facility out of its total available funds, it has to manage
these credits very efficiently. An efficient credit management system comprises many things and
this cover the pre-sanction activities to post-sanction activities. Credit management is important
as it helps the banks and financial institutions to understand various dimensions of risk involved
in different credit transactions.
At the pre-sanction stage, credit management 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-sanctioning stage, the bank can decide about the depth of the review of renewal,
frequency of review, periodicity of the grading, and other precautions to be taken.

Credit Assessment
A thorough credit and risk assessment should be conducted prior to the granting of loans, and at
least annually thereafter for all facilities. The results of this assessment should be presented in a
Credit Application that originates from the relationship manager/account officer (RM), and is
approved by Credit Risk Management (CRM). The RM should be the owner of the customer
relationship, and must be held responsible to ensure the accuracy of the entire credit application
submitted for approval. RMs must be familiar with the banks Lending Guidelines and should
conduct due diligence on new borrowers, principals, and guarantors. It is essential that RMs
know their customers and conduct due diligence on new borrowers, principals, and guarantors to
ensure such parties are in fact who they represent themselves to be. All banks should have
established Know Your Customer (KYC) and Money Laundering guidelines which should be
adhered to at all times. Credit Applications should summaries the results of the RMs risk
assessment and include, as a minimum, the following details-

105

Amount and type of loan(s) proposed.


Purpose of loans.
Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
Security Arrangements
(a) Borrower Analysis. The majority shareholders, management team and group or affiliate
companies should be assessed. Any issues regarding lack of management depth, complicated
ownership structures or intergroup transactions should be addressed, and risks mitigated as
Industry Analysis. The key risk factors of the borrowers industry should be assessed. Any issues
regarding the borrowers position in the industry, overall industry concerns or competitive forces
should be addressed and the strengths and weaknesses of the borrower relative to its competition
should be identified.
(b) Supplier/Buyer Analysis. Any customer or supplier concentration should be addressed, as
these could have a significant impact on the future viability of the borrower.
(c) Historical Financial Analysis. An analysis of a minimum of 3 years historical financial
statements of the borrower should be presented. Where reliance is placed on a corporate
guarantor, guarantor financial statements should also be analyzed. The analysis should address
the quality and sustainability of earnings, cash flow and the strength of the borrowers balance
sheet.
(d) Projected Financial Performance. Where term facilities (tenor & gt; 1 year) are being
proposed, a projection of the borrowers future financial performance should be provided,
indicating an analysis of the sufficiency of cash flow to service debt repayments. Loans should
not be granted if projected cash flow is insufficient to repay debts.
(e) Account Conduct. For existing borrowers, the historic performance in meeting repayment
obligations (trade payments, cheques, interest and principal payments, etc) should be assessed.
(f) Adherence to Lending Guidelines. Credit Applications should clearly state whether or not
the proposed application is in compliance with the banks Lending Guidelines. The Banks Head
106

of Credit or Managing Director/CEO should approve Credit Applications that do not adhere to
the banks Lending Guidelines.
(g) Mitigating Factors. Mitigating factors for risks identified in the credit assessment should be
identified. Possible risks include, but are not limited to: margin sustainability and/or volatility,
high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or
expansion; new business line/product expansion; management changes or succession issues;
customer or supplier concentrations; and lack of transparency or industry issues.
(h) Loan Structure. The amounts and tenors of financing proposed should be justified based on
the projected repayment ability and loan purpose. Excessive tenor or amount relative to business
needs increases the risk of fund diversion and may adversely impact the borrowers repayment
ability.
(i) Security. A current valuation of collateral should be obtained and the quality and priority of
security being proposed should be assessed. Loans should not be granted based solely on
security. Adequacy and the extent of the insurance coverage should be assessed.
(j) Name Lending. Credit proposals should not be unduly influenced by an over reliance on the
sponsoring principals reputation, reported independent means, or their perceived willingness to
inject funds into various business enterprises in case of need. These situations should be
discouraged and treated with great caution. Rather, credit proposals and the granting of loans
should be based on sound fundamentals, supported by a thorough financial and risk analysis.

Tools of credit & risk management


For credit management, a firm may use tools available to them. Such tools include Credit & Risk
Grading (CRG) and Financial Spread Sheet (FSS). Credit risk grading is an important for credit
& risk management as it helps the banks and 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 branch.
107

The Lending Risk Analysis (LRA) manual introduced in 1993 by the Bangladesh Bank has been
in practice for mandatory use by the banks and financial institutions for loan size of BDT 1.00
crore and above. However, the LRA manual suffers from a lot of subjectivity, sometimes creating
confusion to the lending bankers in terms of selection of credit proposals on the basis of risk
exposure. Meanwhile in 2003 end, Bangladesh Bank provided guidelines for credit & risk
management of banks wherein it recommended, the introduction of Risk Grade Score Card for
risk assessment of credit proposals.
Bangladesh Bank expects all commercial banks to have a well defined credit & risk management
system which delivers accurate and timely grading. In practice, a banks credit & risk grading
system should reflect the complexity of its lending activities and the overall level of risk
involved.

Risk Management in Commercial Banks


Risk is the fundamental element that drives financial behavior. Without risk, the financial system
would be vastly simplified. However, risk is omnipresent in the real world. Financial
Institutions, therefore, should manage the risk efficiently to survive in this highly uncertain
world. The future of banking will undoubtedly rest on risk management dynamics. Only those
banks that have efficient risk management system will survive in the market in the long run.
Credit risk is the oldest and biggest risk that a bank, by virtue of its very nature of business,
inherits. This has, however, acquired a greater significance in the recent past for various reasons.
Foremost among them is the wind of economic liberalization that is blowing across the globe.
India is no exception to this swing towards market-driven economy. Better credit portfolio
diversification enhances the prospects of the reduced concentration credit risk as empirically
evidenced by direct relationship between concentration credit risk profile and NPAs of public
sector banks.

108

Credit Risk Rating Grade


Superior Low Risk (Grade 1) Facilities are fully secured by cash deposits, government bonds
or a counter guarantee from a top tier international bank. All security documentation should be in
place.

Good Satisfactory Risk (Grade2) The repayment capacity of the borrower is strong. The
borrower should have excellent liquidity and low leverage. The company should demonstrate
consistently strong earnings and cash flow and have an unblemished track record. All security
documentation should be in place.
Acceptable Fair Risk (Grade3) Adequate financial condition though may not be able to
sustain any major or continued setbacks. These borrowers are not as strong as Grade 2
borrowers, but should still demonstrate consistent earnings, cash flow and have a good track
record. A borrower should not be graded better than 3 if realistic audited financial statements are
not received. These assets would normally be secured by acceptable collateral (1st charge over
stocks / debtors / equipment / property). Borrowers should have adequate liquidity, cash flow and
earnings.
Marginal - Watch list (Grade 4) Grade 4 assets warrant 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. Facilities should be downgraded to 4 if the borrower incurs a loss, loan
payments routinely fall past due, account conduct is poor, or other untoward factors are present.
Special Mention (Grade 5) Grade 5 assets have potential weaknesses that deserve
managements close attention. If left uncorrected, these weaknesses may result in a deterioration
of the repayment prospects of the borrower. Facilities should be downgraded to 5 if sustained
deterioration in financial condition is noted (consecutive losses, negative net worth, excessive
leverage), if loan payments remain past due for 30-60 days, or if a significant petition or claim is
lodged against the borrower. Full repayment of facilities is still expected and interest can still be
taken into profits.
109

Substandard (Grade 6) financial condition is weak and capacity or inclination to repay is in


doubt. These weaknesses jeopardize the full settlement of loans. Loans should be downgraded to
6 if loan payments remain past due for 60-90 days, if the customer intends to create a lender
group for debt restructuring purposes, the operation has ceased trading or any indication
suggesting the winding up or closure of the borrower is discovered. Not yet considered nonperforming as the correction of the deficiencies may result in an improved condition, and interest
can still be taken into profits.
Doubtful and Bad (non-performing) Grade 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 Loss. Assets should be downgraded to 7 if loan payments remain past due in excess
of 90 days, and interest income should be taken into suspense (non-accrual). Loan loss
provisions must be raised against the estimated unrealizable amount of all facilities. The
adequacy of provisions must be reviewed at least quarterly on all non-performing loans, and the
bank should pursue legal options to enforce security to obtain repayment or negotiate an
appropriate loan rescheduling. In all cases, the requirements of Bangladesh Bank in CIB
reporting, loan rescheduling and provisioning must be followed.
Loss (non-performing) Grade 8 Assets graded 8 are long outstanding with no progress in
obtaining repayment (in excess of 180 days past due) or in the late stages of wind up/liquidation.
The prospect of recovery is poor and legal options have been pursued. The proceeds expected
from the liquidation or realization of security may be awaited. The continuance of the loan as a
bankable asset is not warranted, and the anticipated loss should have been provided for. This
classification reflects that it is not practical or desirable to defer writing off this basically
worthless asset even though partial recovery may be affected in the future. Bangladesh Bank
guidelines for timely write off of bad loans must be adhered to. At least top twenty-five
clients/obligors of the Bank may preferably be rated by an outside credit rating agency.
The Early Alert Process should be completed in a timely manner by the RM and forwarded to
CRM for approval to affect any downgrade. After approval, the report should be forwarded to
Credit Administration, who is responsible to ensure the correct facility/borrower Risk Grades are
110

updated on the system. The downgrading of an account should be done immediately when
adverse information is noted, and should not be postponed until the annual review process.

Lending Risk Analysis (LRA)


The Financial Sector Reform Project (FSRP) has designed the LRA package, which provides a
systematic procedure for analyzing and quantifying the potential credit risk. Bangladesh Bank
has directed all commercial bank to use LRA technique for evaluating credit proposal amounting
to Tk. 10 million and above. The objective of LRA is to assess the credit risk in quantifiable
manner and then find out ways & means to cover the risk. However, some commercial banks
employ LRA technique as a credit appraisal tool for evaluating credit proposals amounting to Tk.
5 million and above. Broadly LRA package divides the credit risk into two categories, namely (a)
Business Risk & (b) Security Risk. A detail interpretation of these risks and the procedure for
evaluating the credit as followsBusiness risk
It refers to the risk that the business falls to generate sufficient cash flow to repay the loan.
Business risk is subdivided into two categories.
Industry risk
The company fails to repay for the external reason that is Industry risk. It is subdivide into
supplies risk and sales risk.
Supplies risk
It indicates that the business suffers from external disruption to the supply of imputes.
Components of supplies risk are as raw material, Labor, power, machinery, equipment, factory
premises etc. Supply risk is assessed by a cost breakdown of the inputs and then assessing the
risk of disruption of supplies of each item.
Sales risk
This refers to the risk that the business suffers from external disruption of sales. Sales may be
disrupted by changes to market size, increasing in competition, and change in the regulation or
111

the loss of single large customer. Sales risk is determined by analyzing production or marketing
system, industry situation, Government policy, and competitor profile and companies strategies.
Company risk
This refers to the risk that the company fails for internal reasons. Company risk is subdivided
into company position risk and Management risks.
Company position risk
Within an industry each and every company holds a position. This position is very competitive.
Due to the weakness in the company's position in the industry, a company is the risk for failure.
That means, company position risk is the risk of failure due to weakness in the companys
position in the industry. It is subdivided into performance risk and resilience risk.
Performance risk
This risk refers to the risk that the companys position is so weak that it will be unable to repay
the loan even under Favor able external condition. Performance risk assessed by SWOT
(Strength, Weakness, Opportunity and Threat) analysis, Trend analysis, Cash flow forecast
analysis and credit report analysis (i.e. CIB repot from Bangladesh Bank).
Resilience risk
Resilience means to recover early injury, this refers to risk that the company falls due to
resilience to unexpected external conditions. The resilience of a company depends on its
leverage, liquidity and strength of connection of its owner or directors. The resilience risk is
determined by analyzing different financial ratio, flexibility of production process, shareholders
willingness to support the company if need arise and political and private affiliation of owners
and key personnel.

112

Management risk
The management risk refers to the risk that the company fails due to management not exploiting
effectively the companys position. Management risk is subdivided into management competence
risk and integrity risk.
Management competence risk
This refers to the risk that falls because the management is incompetent. The competence of
management depends upon their ability to manage the company's business efficiently and
effectively. The assessment of management competence depends on management ability and
management team work. Management ability is determined by analyzing the ability of owner or
board of the members first and then key personnel for finance and operation. Management team
work is determined by analyzing management structure and its strength and weakness.

Credit policy of Agrani bank

Ltd

Bangladesh Bank as the central bank of the country is entrusted with maintains price stability of
the country pursuing popper Credit
Monitoring policy controlling money supply of a country through open market operation by
purchase & sale of bills & securities & movement of bank rate depend on Agrani bank. Ltd.
Money supply can be monitored through expansion& reduction of credit through central bank
operation. Economic development of a country largely depends on expansion of industry sector
& growth of export. Since expansion of credit increase money supply Agrani bank. Ltd has to
pursue & optional credit flow in order to keep the inflation within desired range to ensure price
stability & economic growth of a country.
At present Agrani bank. Ltd is pursuing a policy of moderate credit expansion. Following this
policy emphasis is given to ensure flow of credit to private sector since GOB has adapted a
policy of export led growth through privet sector with globalization. Agrani bank. Ltd has
withdrawn all interest on deposit & has given complete freedom to bank to set own interest on
lending. To ensure smooth credit flow Agrani bank. Ltd puts emphasis on stability of financial
sector.
113

Agrani bank. Ltd monitors its credit policy through introduction of stringent rules & regulation
etc. Enactment of bank company act, program for classification of loans & advances &
provisioning thereof, exercising lending risk analysis (LRA). Large loan monitoring cell & credit
information bureau are the tools of control credit policy. All this help Agrani bank. Ltd to
supervise its credit policy which is turn help them to strengthen financial sector discipline as a
whole.
Credit
Credit is a promise of future payment in kind or in money given in exchange for present money,
goods or services. In general credit means the granting of a period of time by a creditor to a
debtor at the expiration of which the latter must pay the debt due.
The word CREDIT is derived from Latin word credo that means I believe and is usually
defined as the ability to buy with a promise to pay.
Loans or credits compromise the most important asset as well as the primary source of earning
for the bank. Bank lending is important for the economy in the sense that it can simultaneously
finance all of the sub-sectors of financial arena, which comprises agriculture, commercial and
industrial activities of a nation.

The Cs of Good & Bad Loan


When a prospective customer requests a loan, bankers analyze all available information to
determine whether the loan meets the banks risk-return objectives. Credit analysis is essentially
default risk analysis in which a loan officer attempts to evaluate borrowers ability willingness to
repay. Therefore, bankers need to perform qualitative analysis which has been classified
according to the Cs of credit.

Character
The outcome of analyzing the character is to have overall idea about the integrity, experience,
and business sense of the borrower. Two variables; Interaction/interview, and Market Research
are used to analyze the character of the borrower.
114

1. Interaction/interview: The indicators area) Prompt and consistent information supply, information given has not been found false.
b) CIB also reveals business character.
c) Willingness to give owns stake/equity & collateral to cover.
d) Tax payer.
2. Market Research:
a) Information on business is verified.
b) Dealing with supplier and or customer as supplier is also a kind of lender; the payment
character can also be verified.

Capital:
For identifying the capital invested in the business can be disclosed using the following
indicators.
a) Financial Statements.
b) Receivable 0r Payable statements to practically assess the business positions.
c) Net worth through financial statements or from declaration of Assets & Liabilities.

Capacity (Competence)
Capability of the borrower in running the business is highly emphasized in the time of selecting a
good borrower. As the management of the business is the sole authority to run the business that is
use the fund efficiently, effectively and profitably. The indicators help to identify the capacity of
the borrower.
a) Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization.
b) Management competencies both marketing and products detail, ability to take decision.
c) Resilience or shock absorption: Connection, Back up.

115

Collateral
Make sure that there is a second way out of a credit, but do not allow that to drive the credit
decision.

Cash Follow
Cash flow is the vital factor that is used to identify whether the borrower will have enough cash
to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The relationship
managers try to identify the annual cash flow from the submitted statements.

Conditions
Understanding the business and economic conditions can and will change after the loan is made.

Complacency
Do not rely on past history to continue. Stay alert to what can go wrong in any loan.

Carelessness
Remember that documentation, follow-up and consistent monitoring are essential to high quality
loan portfolios.

Communication
Share credit objectives and credit decision making both vertically and laterally within the bank.

Contingencies
Make sure that you understand the risks, particularly the downside possibilities and that you
structure and price the loan consistently with that understanding.

116

Competition
Do not get swept away by what others are doing.

Credit Query
The loans and advance department gets a form filled up by the party seeking a lot of information.

Credit planning
There are some objectives behind a written credit policy of Agrani bank. Ltd that are as follows.
Provide a guideline for giving loan.
To prompt response to the customer need.
Shorten the procedure of giving loan.
Reduce the volume of work from top level management.
Delegation of authority of work from top level of management.
To check and balance the operational activities

Essential Components of a Sound Credit Policy


There can be some variations based on the needs of a particular organization, but at least the
following areas should be covered in any comprehensive statement of credit policy and Agrani
banks. Ltd policy also covers these areas:
Legal consideration: The banks legal lending limit and other constraints should be set forth to
avoid inadvertent violation of banking regulations.
Delegation of authority: Each individual authorized to extend credit should know precisely how
much and under what conditions he or she may commit the banks funds. These authorities
should be approved, at least annually, by written resolution of the board of directors and kept
current at all times.
Types of credit extension: One of the most substances parts of a loan is a delineation of which
types of loans are acceptable and which type are not.

117

Pricing: In any profit motivated endeavor, the price to be charged for the goods or services
rendered is of paramount without it, individuals have few guidelines for quoting retag or fees,
and the variations resulting from human nature will be a source of customer dissatisfaction.
Market Area: Each bank should establish its proper market area, based upon, among other
things, the size and sophistication of its organization its capital standpoint, defining ones market
area is probably more important in the lending function than in any other aspect of banking.
Loan Standard: This is a definition of the types of credit to be expended; where in the
qualitative standards for acceptable loans are set forth.

Credit risk
Risk is inherent in all commercial operations. For banks and financial institutions credit risk is an
essential factor, which needs to be managed properly. Credit risk virtually is the possibility that a
borrower will fail to repay debt in accordance with the terms of sanction. Credit risk therefore
arises from the banks lending operations. In the present days state of deregulation and
globalization banks range of activities have increased, so also are the bank. Expansion of bank
lending operations covering new products have focused the bank to confront newer risk areas
and therefore to work out proper risk addressing devices. Credit risks are so exhaustive that a
single device cannot encompass all the risk.
As Mutual Trust bank is providing credit facility out of its total available funds, it has to manage
these credits very efficiently. An efficient credit management system comprises many things and
this cover the pre-sanction activities to post-sanction activities. Credit management is important
as it helps the banks and financial institutions to understand various dimensions of risk involved
in different credit transactions.
At the pre-sanction stage, credit management 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-sanctioning stage, the bank can decide about the depth of the review of renewal,
frequency of review, periodicity of the grading, and other precautions to be taken.

118

Credit Assessment
A thorough credit and risk assessment should be conducted prior to the granting of loans, and at
least annually thereafter for all facilities. The results of this assessment should be presented in a
Credit Application that originates from the relationship manager/account officer (RM), and is
approved by Credit Risk Management (CRM). The RM should be the owner of the customer
relationship, and must be held responsible to ensure the accuracy of the entire credit application
submitted for approval. RMs must be familiar with the banks Lending Guidelines and should
conduct due diligence on new borrowers, principals, and guarantors. It is essential that RMs
know their customers and conduct due diligence on new borrowers, principals, and guarantors to
ensure such parties are in fact who they represent themselves to be. All banks should have
established Know Your Customer (KYC) and Money Laundering guidelines which should be
adhered to at all times. Credit Applications should summaries the results of the RMs risk
assessment and include, as a minimum, the following detailsAmount and type of loan(s) proposed.
Purpose of loans.
Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
Security Arrangements
(a) Borrower Analysis. The majority shareholders, management team and group or affiliate
companies should be assessed. Any issues regarding lack of management depth, complicated
ownership structures or intergroup transactions should be addressed, and risks mitigated as
Industry Analysis. The key risk factors of the borrowers industry should be assessed. Any issues
regarding the borrowers position in the industry, overall industry concerns or competitive forces
should be addressed and the strengths and weaknesses of the borrower relative to its competition
should be identified.

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(b) Supplier/Buyer Analysis. Any customer or supplier concentration should be addressed, as


these could have a significant impact on the future viability of the borrower.
(c) Historical Financial Analysis. An analysis of a minimum of 3 years historical financial
statements of the borrower should be presented. Where reliance is placed on a corporate
guarantor, guarantor financial statements should also be analyzed. The analysis should address
the quality and sustainability of earnings, cash flow and the strength of the borrowers balance
sheet. Specifically,
cash.flow,.leverage.and.profitability.must.be.analyzed.
(d) Projected Financial Performance. Where term facilities (tenor & gt; 1 year) are being
proposed, a projection of the borrowers future financial performance should be provided,
indicating an analysis of the sufficiency of cash flow to service debt repayments. Loans should
not be granted if projected cash flow is insufficient to repay debts.
(e) Account Conduct. For existing borrowers, the historic performance in meeting repayment
obligations (trade payments, cheques, interest and principal payments, etc) should be assessed.
(f) Adherence to Lending Guidelines. Credit Applications should clearly state whether or not
the proposed application is in compliance with the banks Lending Guidelines. The Banks Head
of Credit or Managing Director/CEO should approve Credit Applications that do not adhere to
the banks Lending Guidelines.
(g) Mitigating Factors. Mitigating factors for risks identified in the credit assessment should be
identified. Possible risks include, but are not limited to: margin sustainability and/or volatility,
high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or
expansion; new business line/product expansion; management changes or succession issues;
customer or supplier concentrations; and lack of transparency or industry issues.
(h) Loan Structure. The amounts and tenors of financing proposed should be justified based on
the projected repayment ability and loan purpose. Excessive tenor or amount relative to business

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needs increases the risk of fund diversion and may adversely impact the borrowers repayment
ability.
(i) Security. A current valuation of collateral should be obtained and the quality and priority of
security being proposed should be assessed. Loans should not be granted based solely on
security. Adequacy and the extent of the insurance coverage should be assessed.
(j) Name Lending. Credit proposals should not be unduly influenced by an over reliance on the
sponsoring principals reputation, reported independent means, or their perceived willingness to
inject funds into various business enterprises in case of need. These situations should be
discouraged and treated with great caution. Rather, credit proposals and the granting of loans
should be based on sound fundamentals, supported by a thorough financial and risk analysis.

Tools of credit & risk management


For credit management, a firm may use tools available to them. Such tools include Credit & Risk
Grading (CRG) and Financial Spread Sheet (FSS). Credit risk grading is an important for credit
& risk management as it helps the banks and 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 branch.
The Lending Risk Analysis (LRA) manual introduced in 1993 by the Bangladesh Bank has been
in practice for mandatory use by the banks and financial institutions for loan size of BDT 1.00
crore and above. However, the LRA manual suffers from a lot of subjectivity, sometimes creating
confusion to the lending bankers in terms of selection of credit proposals on the basis of risk
exposure. Meanwhile in 2003 end, Bangladesh Bank provided guidelines for credit & risk
management of banks wherein it recommended, the introduction of Risk Grade Score Card for
risk assessment of credit proposals.
Bangladesh Bank expects all commercial banks to have a well defined credit & risk management
system which delivers accurate and timely grading. In practice, a banks credit & risk grading
system should reflect the complexity of its lending activities and the overall level of risk
involved.
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Risk Management in Commercial Banks


Risk is the fundamental element that drives financial behavior. Without risk, the financial system
would be vastly simplified. However, risk is omnipresent in the real world. Financial
Institutions, therefore, should manage the risk efficiently to survive in this highly uncertain
world. The future of banking will undoubtedly rest on risk management dynamics. Only those
banks that have efficient risk management system will survive in the market in the long run.
Credit risk is the oldest and biggest risk that a bank, by virtue of its very nature of business,
inherits. This has, however, acquired a greater significance in the recent past for various reasons.
Foremost among them is the wind of economic liberalization that is blowing across the globe.
India is no exception to this swing towards market-driven economy. Better credit portfolio
diversification enhances the prospects of the reduced concentration credit risk as empirically
evidenced by direct relationship between concentration credit risk profile and NPAs of public
sector banks.

Process of Credit Management


Credit Management Policy for any commercial bank must have been prepared in accordance
with the Policy Guidelines of Bangladesh Banks focus group on Credit and Risk Management
with some changes to meet particular banks internal needs.
Credit management must be organized in such a process that the bank can minimize its losses for
payment of expected dividend to the shareholders. The purpose of this process is to provide
directional guidelines that will improve the risk management culture, establish minimum
standards for segregation of duties and responsibilities, and assist in the ongoing improvement of
concerned bank.
The guidelines for credit management may be organized into the following sections:
Policy guidelines
a.

Lending guidelines
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b. Credit assessment and risk grading


c. Approval authority
d. Segregation of duties
e. Internal control and compliance
Program Guidelines
a. Approval process
b. Credit administration
c. Credit monitoring
d. Credit recovery

Policy guidelines
a. Lending guidelines: The lending guidelines include the following
Industry and Business Segment Focus
Types of loan facilities
Single borrowers/ group limits/ syndication
Lending caps
Discouraged business types
As a minimum, the followings are discouragedMilitary equipment/ weapons finance
Highly leveraged transactions
Finance of speculative investments
Logging, mineral extraction/ mining, or other activity that is ethically or
environmentally sensitive
Lending to companies listed on CIB black list or known
Counter parties in countries subject to UN sanctions
Lending to holding companies.

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b. Credit Assessment and Risk Grading:


A thorough credit and risk assessment should be conducted prior to the granting of loans, and at
least annually thereafter for all facilities.
Credit Applications should summaries the results of the risk assessment and include, as a
minimum, the following details:

Environment or social risk inputs


Amount and type of loan (s) proposed
Purpose of loans
Loan structure ( tenor, covenants, repayment schedule, interest)
Security arrangement
Any other risk or issue
Risk triggers and action plan-condition prudent, etc.

Risk is graded as per Lending Risk Analysis (LRA), Bangladesh Banks Guidelines of
classification of loans and advances.
c. Approval Authority:
Approval authority may be as the following:
Credit approval authority has been delegated to Branch Manager, Credit Committee
by the MD/ Board
Delegated approval authorities shall be reviewed annually by MD/ Board.
MD/ Board:
Approvals must be evidenced in writing. Approval records must be kept on file with
credit application.
The aggregate exposure to any borrower or borrowing group must be used to
determine the approval authority required.

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d. Segregation of Duties:
Banks should aim at segregating the following lending function:
Credit approval/ risk management
Relationship management/ marketing
Credit administration
e. Internal Control and Compliance:
Banks must have a segregated internal audit/ control department charged with conducting audits
of all branches.

Program Guidelines
(a) Approval process: The following diagram illustrates an example of the approval process:

Credit application recommended by Branch Manager /


Relationship Manager / Corporate

Head Office, Corporate Banking


Division
Head Office Credit Committee

Executive Committee of Board of Directors


Figure 3: Credit Approval process.
b. Credit administration: The credit administration function is critical in ensuring that proper
documentation and approvals are in place prior to the disbursement of loan facilities.
c. Credit monitoring: To minimized credit losses, monitoring procedures and systems should be
in place that provides an early indication of the deteriorating financial health of borrower.
d. Credit recovery: The recovery unit of branch should directly manage accounts with sustained
deterioration (a risk rating of sub-standard or worse). The primary functions of recovery unit are:
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Determine account action plan/ recovery strategy.


Pursue all options to maximize recovery, including placing customers into
receivership or

liquidation as appropriate.

Ensure adequate and timely loan loss provisions are made based on actual and
expected losses.

Credit Evaluation Process of Agrani bank Ltd


Agrani bank Ltd will follow the following evaluation process:
Prevailing credit practices in the market.
Credit worthiness, background and track records of the borrower.
Financial standing of the borrower supported by financial statement and other
documentary evidence.
Legal jurisdiction and implications of applicable laws.
Effect of any applicable regulations and laws.
Purpose of the loan/facility.
Tenure of the loan/facility.
Viability of the business concern.
Cash flow analysis and also projection thereof.
Quality value and adequacy of security if available.
Risk taking capacity of the borrower.
Entrepreneurship and managerial capability of the borrower.
Reliability of the source of repayment.
Volume of risk in relation to the risk taking capacity of the bank.
Profitability of the personal to the bank or company concerned.
Credit risk grading.
Yield from the facility.
Market aspect.
Total global expansion of the borrower.
CIB status.
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Credit Management planning


There are some objectives behind a written credit policy of Agrani bank Ltd that are as
follows:
To provide a guideline for giving loan.
Prompt response to the customer need.
Shorten the procedure of giving loan.
Reduce the volume of work from top level management.
Delegation of authority of work from top level of management.
To check and balance the operational activities

Agrani bank Ltd leading products


This section details fundamental credit management policies that are recommended for adoption
by all banks in Bangladesh. As the bank has a rate of non-performing loans. Banks risk taking
applied should be contained and our focus should be to maintain a credit portfolio keeping in
mind of banks capital adequacy and recovery strength. Thus banks strategy will be invigorating
loan processing steps including identifying , measuring , containing risks as well as maintaining
a balance portfolio through minimizing loan concentration, encouraging loan diversification,
expanding product range , streamlining security , insurance etc. as buffer again unexpected.

Types of Credit
Credit may be classified with reference to elements of time, nature of financing and provision
base.
On the basis of elements of time, bank credit may be classified into three heads, viz.
(1) Continuous loans or Advance
These are the advances having no fixed repayment schedule but have an date at which it is
renewable on satisfactory performance of the clients. Continuous loan mainly includes "Cash
credit both hypothecation and pledge" and "Overdraft".

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(2) Term loans


These are the advances made by the bank with a fixed repayment schedule. Terms loans mainly
include "Consumer credit scheme", "Lease finance"," Hire purchase", and "Staff loan". The term
loans are defined as follows:

Short term loan: Up to 12 months.

Medium term loan: More than 12 months & up to 36 months.

Long term loan: More than 36 months.

Continuous loan or advance


Advances are two types1. Cash Credit
2. Secured Overdraft or SOD
1..Cash.credit
Cash credit or continuing credit are those that continuous debit & credit up to a limit & have an
expiration date. A service charge that is effect an interest charge is normally made as percentage
of the value of purchases. This credit may be of the nature of pledged &hypothecated & bank
should report this is separate heads incorporated under the main head cash credit. A detailed
explanation of pledge &hypothecation is given below.
(a) Cash credit (pledge):
Under this agreement a cash credit is sanctioned against pledge of goods or raw material. By
singing the latter of pledge, the borrower surrenders the physical position of the goods under the
bank effective control as security for payment of the dues. The ownership of the goods however
remains with the borrower. The pledge creates an implied lien in favor of the bank on the
underlying merchandise. In the events of failure of the borrower to honor his commitment the

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bank can sell the goods for recovery of the advance. No collateral security normally asked for
grant of such credit.
(b) Cash credit (hypothecation) or CC (H):
Cash credit (hypothecation) is sanctioned against raw material or finished goods. The letter of
hypothecation creates a charge against the goods in favor of the bank but neither the ownership
nor its possession is passed on to it. Only a right or interest in the goods is created in favor of
bank & borrower binds himself to give possession of the goods to the bank when called upon to
do so. When the possession is handed over the charge is converted in to pledge. This type of
facility is generally given to the reputed borrowers of undoubted integrity.
2..Secured.Over.Draft.or.SOD
Secured over draft is a loan facility sanctioned against on a customer currents account at a bank
permitting account holder to over draw up to a certain agreed limit for an agreed period. The
terms of the loan are normally that it is repayable or demand on at the expiration date of
agreement. Secured overdraft may below

Secured over draft on financial obligation (FO)


Secured over draft on others

Demand loan
A bank advance for a specific period repaid with interest under fixed schedules. Period of this
loan is very short mainly three or four month. Followings are demand loan Cash against Document: This is the loan facility up to a satisfactory limit to the
traders or customers by a bank against export document. Bank deals with foreign
exchange for this loan. When loan amount is repaid then document is handover to the

client.
Loan against trust receipt: Import merchandiser takes this type of loan. This is the
loan facility up to a satisfactory limit to the traders or customers by a bank against
security of the value of the imported merchandise.

Term loan or term finance


A bank advance for a specific period repaid with interest under fixed schedules. Mainly gives
this loan for industry building & machinery purchase purpose. 40 to 50% value of the machinery
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may give on term loan. Its mainly give for industrial purpose so some times its called industrial
term loan. The term loan may be

Short term: Up to or including 12 month.


Medium term: More than 12 month & up to 60 month.
Long term: More than 60 month.

The interest rate of term loan for small and medium enterprise 13%.The term loans are
following(a) Lease finance:
An entrepreneur under this scheme may avail of the lease facilities to procure industrial
machinery (Without having to purchase it by down payment) with easy repayment schedule. The
clients also get special rebate in their income tax payment under the scheme. Lease finances are
two types Lease finance (Monthly)
Lease finance (Quarterly)
(b) Agrani bank Ltd :
It is one kinds of SME loan. It provides for small business purpose only for women. For example
this type of loan provide for make biotic shop or parlor.
(c) Industrial loan:
Term loan that provide for industrial purpose is called industrial loan. Mainly given to
Garments, Plastic Industry, construction purpose, machinery purchase etc.40 to 50% loan is
sanctioned against industry. It is given for 3 years at equal monthly installment. Interest rate is 13
%.grace period is allowed depending on types of project. To facilitate the industrial growth this is
given.

Staff loan scheme

Loan that provide only for the staff or employee of the Agrani bank Ltd is called staff
loan. Various types of staff loan provided by MTBL are below(a) Staff house building loan:
Ones have a dream of a home of their own. Agrani bank Ltd sanctioned loan for house
building purpose to its employee in less security & more facility.
Loan amount under this scheme is 120 times of the basic salary of the employee of Agrani

banks Ltd interest rate that provides against employee FDR or Short term deposit 2% above
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interest is charged to the employee against loan. That may be 13% to 13.75%.Repayment is
adjusted from their monthly salary. Repayment is made at equal monthly installment.

(b) Staff loan against provident fund:


Mutual trust bank provides these types of loan to employee against provident fund. Loan amount
under this scheme is 10% of the basic salary is contributed by employee in every month. 105 of
basic salary are also contributed to the provident fund by the bank. Repayment is adjusted from
their monthly salary. Maximum Sanction from Provident Fund1 to 5 years confirmed service
50%
Own contribution
5 to 7 years confirmed service
60%
Total contribution
7 to 10 years confirmed service
70%
Total contribution
Above 10 years confirmed service
80%
Total contribution
Table12: Sanction against Provident Fund.

(c)Car loan:
To own a car is everyone's dream as well as a part of today's living, which enhances standard and
quality of life. Agrani bank Ltds employee get extra facility form car loan. Employee can
easily take this loan fulfill their dream.

Agrani bank Ltd provides car loan for its employee who is executive level. That depends on
their basic salary. It is given for 3 years at equal monthly installment. Interest rate is 14 %.

Consumer loan Scheme


In order to make a significant contribution in the living standards of the people of medium and
low income category, Agrani bank Ltd has introduced a scheme called "Consumer
Loan Scheme". With a view to materialize the dreams of those who are unable to make one time
investment from their own savings, one can now afford to buy necessary household equipments
and thus improve the standard of living.
All sorts of household durables example Television, Refrigerators, Computers, Air Conditioners,
Video Cameras, Washing/ Drying Machines and Furniture are allowed under this scheme. One
can buy Motorcycle too under this program. The collateral security is minimum level and the
interest rates are one of the lowest in the market.

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Agrani bank Ltd main target is consumer satisfaction. Thats why it provides various types
of consumer loan. All loans without staff is consumer loan. Above show various types of
consumer loan such as demand loan, continuous loan, term loan etc. Consumer credit scheme
provide different facility to their customer by maintaining modern Banking criteria.

Funded & Non-Funded Credit


There are mainly two types of Consumer Credit scheme as follows.
(a) Funded Credit:
Any type of credit facility that involves direct outflow of Banks fund on account of borrower is
termed as funded credit. Over draft and most of the loan comes under this section. By taking
collateral from the borrower bank allow to take over draft facility is a continuous process.
Borrow has to pay interest on the withdrawn money.
(b) Non- Funded Credit:
There is no cash amount involved in this kind of loan. BLC (bill for L/C) and bank guarantee
falls in this kind of loan. In case of BLC foreign exchange department mainly deals with it.

Funded credit products


Various products are provided in this scheme. They are bellow(a) House Building Loan:
Home Loan Scheme has been introduced to facilitate people to fulfill their dream of a home of
their own. It has been designed o help people to get home loans on easy terms and without any
hassle.

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Loan amount under this scheme is maximum Tk. 50 lac. Salaried executives, professionals,
businessmen and govt. Officials are eligible to avail this loan scheme.The loan is to be repaid by
monthly equal installments including interest within the period ranging from 5 years to 15 years
depending on the size of loan.
The interest rate for housing loan is vary
For commercial purpose interest rate is 14.5%.
For residential purpose interest rate may be For general is 13%.
For wage earners12.5%.

(b) Home repair loan:


Home Repair/ Renovation Loan Scheme has been designed with a view to help the owners of
house/ building/ flat to mitigate their financial need for repair/ renovation of their house/
building/ flat. Only the genuine residential house owners will be eligible to avail the loan
facilities to repair or renovate their own house/ building/ flats according to their needs.
Maximum loan under the scheme will be up to Tk. 5.00 lac commensurations the monthly
income. The loan is to be repaid by monthly equal installments including interest within
maximum 60 months. The interest rate of home repair is 13%.

(b) Auto Loan:


To own a car is everyone's dream as well as a part of today's living, which enhances standard and
quality of life. Auto Loan scheme has been designed to help materialize your long cherished
dream of a car of your own. Purchases of new/ reconditioned cars are allowed under this scheme.
Salaried executives, professionals, businessmen, govt. officials or self employed persons are
eligible to avail this loan.
Loan amount under this scheme is 70% of car value but maximum of Tk. 20 lac. The interest rate
of Auto loan is 14%.

(c) Educational Loan scheme:

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Agrani bank Ltd provide these types of loan scheme to student for educational purpose.
Such as For higher educational purposes.
To purchase of Computer, tuition fees or other Educational purpose.
Service charge and risk fund 1% each i.e. 2% on sanctioned amount to be recovered once at the
time of disbursement
By equal monthly installment ranging 12 to 48 which convenience of the borrower selects that
range. The repayment will start from the following month of disbursement.
Loan amount

Int. Rate
12 month

1,00,000/-

13%

9000

Monthly installment
24 month
36 month
4800

3500

48 month
2800

Table 13: Installment of Education Loan Scheme.

(d) Salary against Loan:


Any permanent salaried officer or employees aged between 20 to 50 years are usually eligible for
this kind of loan. An eligible person can get one to One lac taka under this loan scheme. The loan
is repayable by monthly equal installment including interest within maximum 5 years. Interest
Rate 16% (here 1% service charge and 1% risk fund also be included)

(e) Agrani bank Ltd life lines:

Agrani bank Ltd life line is a complete series of personal credit facilities from Agrani
bank Ltd. It is a purpose unsecured and terminating loan facility for any legitimate purpose.
Bank would finance against gross monthly income of any credit worthy individual. To meet life
style needs of the credit worthy individuals & to capitalize the vast market gap, this loan is a
suitable unsecured consumer loan product. Agrani bank Ltd provide the following types of
life line facilitiesHealth Line: This loan provide for Hospitalization or other emergency medical needs.
To purchase body fitness equipment.
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Professional Line: Agrani bank Ltd life line is also for Professionals.
Professionals need because Purchase of Professional equipment.
For office renovation or decoration.
Marriage Line: Agrani bank Ltd life line is provided for marriage purpose. Such
as To meet marriage expenses for him or her.
Marriages in the family.
Travel Line: Another type of facilities is provided for Honeymoon trip.
Family trip in abroad or in the country.
Festival Line: This loan provide for To enjoy festive period.
Gift for the family, in law or relatives.
Dreams Comes True Line: Agrani bank Ltd life line provide this facilities for To purchase TV, Fridge, Furniture, Home Theater, Motor Cycle, AC etc.
To decorate or renovate own home or Car.
Care Line: This is another facility provided in Agrani bank Ltd Life line. Such as Loan of fulfillment of parents dream.
To purchase economy car (Second hand car) for the family.

(f) Small business loan scheme (SME):


With the objective of extending financial support to small businessmen, this loan scheme has
been introduced. It has been designed to get business loans on easy terms and without any hassle.
Only the genuine businessmen have entrepreneurship quality and honesty, to run and expand
their business smoothly.
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Maximum loan under the scheme will be up to Tk. 50 lac. No collateral security is required up to
Tk. 5 lac. Collateral security is required for loan 5 lac above.

(g) Microfinance scheme:

Agrani bank Ltd has formulated and launched a number of products under Small Enterprise
& Consumer financing program in accordance with the prudential regulation or guidelines of
Bangladesh bank. The products are small business loan, consumer loan, home loan, home repair
& renovation and Auto loan. These products are now deal with SME division of the bank loan
products.
Now to diversify the banks product as well as make profitability, the bank may introduce new
product for lending in the potential macro finance sector. Micro finance loan is now a demanding
and lucrative product. Most of the Nationalized Commercial Banks (NCBs), Private commercials
banks (PCBs) and also the foreign commercial banks (FCBs) are lending the microfinance
institutions (MFIs) as wholesale credit under specific product program. The product as proposed
for microfinance lending under microfinance scheme may be dealt with SME division as
specialized product.
Microfinance market is now most potential market for lending. Microfinance NGOs have
recorded high performance with excellent recovery rate. Agrani bank Ltd may penetrate this
market & contribute to poverty alleviation as corporate social responsibility of the bank.

(h) Best investment plan:


Best Invest offers you efficient high return investment plan. This plan helps you to build up a
sizeable income in easy and affordable installments. This plan allows owning 5 times the initial
invested amount. Best Invest offers two separate and convenient term deposit periods for 4 years
and 6 years respectively.
Best Invest is available in units worth Tk.50,000/- each. Invest Tk.10,000/- as down payment for
purchasing 1 (one) unit and the Bank will provide loan for Tk.40, 000/-. The customer also has
the option to buy units in multiples of Tk. 50,000/- but maximum up to Tk. 1,00,00,000/- (one
crore).This is a unique high return plan catering to all income group. Investment can be open in
multiples of TK.50,000/-and maximum 1 crore.

Best invest plan


Down payment (20%)
Bank loan (80%)
Monthly installment
Maturity value

50,000/1,000/4,00,000/1,054/71,883/-

1,00,000/20,000/80,000/2,108/1,43,766/-

5,00,000/1,00,000/4,00,000/10,540/7,18,830/-

10,00,000/2,00,000/8,00,000/21,080/14,37,660/-

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Table 14: The down payment & maturity value of best invest plan.
(j) Bills Purchased:
Local Documentary bills purchased (LDBP):
Payment made against documents representing sell of goods to local export oriented industries
that are deemed as exports and which are denominated in local currency/foreign currency falls
under this head.

Foreign Documentary bills purchased (FDBP):


Payment made to a party through purchase of foreign documentary bills fall under this head. This
temporary advance is adjustable from the proceeds of negotiable shipping/export documents. It
falls category Export credit.

Non-Funded Credit Scheme


Various types of non-funded or non-cash credit scheme are provided by Agrani bank Ltd L.
They are following(a) Import Financing:
The import financing is following1. Loan against imported merchandise (LIM):
The temporary loan, which is allowed to the importer against their imported goods, is called
Loan against Imported Merchandise (LIM). Validity of the will be allowed as per sanction letter.
LIM is generally disbursed once. Interest rate of this loan is higher and it is charged on monthly
basis. Control over the imported goods to be absolutely maintain by the bank.
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2. Payment against Documents (PAD):


Bank against a letter of credit (L/C), then issuing bank goes through that shipping discernment
for scrutiny. After scrutiny of the shipping documents, if the issuing bank finds the shipping
documents in order, i.e. as per L/C terms, then issuing bank open a loan account on account of
importer. This total process may be defined as Payment against Document (PAD). Two types of
payment against document are belowPayment against document (Cash) / PAD (Cash)
Payment against document (Back to Back) / PAD (Back to Back)
(b) Export financing:
Continuous loan are involved in export financing. In export financing involve the pre-shipment
credit financing.
Pre-shipment.credit.financing:
Pre-shipment credit is given to finance the activities of an exporter prior to the actual shipment of
goods. It is essentially a short term credit and liquidated by negotiation or purchase of export
bills covering the merchandise. It may be followings:
1. Packing Credit (P.C.)
In this case, credit facilities are extended against security of master L/C. the amount of loan is
ten to fifteen percent of FOB value of master L/C. interest rate of PC is seven percent as per
Bangladesh bank, which is followed by Agrani bank Ltd.
2. Export cash credit against trust Receipt:
In this case, credit limit is sanctioned against trust receipt. Here, exporter is required to execute a
stamped trust receipt in favor of the bank, wherein a declaration is made that receiving bill from
buyer bank adjust the liability.
(c) Bank guarantee:
The bank is very often requested by his customer to issue guarantees on their behalf to a third
party committing to make an unconditional payment of certain amount of money to the third
party, if the customer (On whose behalf it gives guarantee) become liable, or creates any loss or

138

damage to the third party. It is a contingent liability for the bank.3% commission is charged for
this. After the expiry of the period bank is no longer liable to the third party.
Guarantee is generally issued by banker for payment of tender. Paying custom duty, sales tax,
insurance premium guarantees are also issued on behalf of his customer. Bank guarantees are
three types, they are belowBid Bond: Bid Bond guarantee is issued while dropping tender for work. Bid bond guarantee
has a time limit.
Performance Guarantee: It is issued when customer gets a specific Mutual trust work order.
Here bank guarantees that his customer is willing and able to complete the required work,
and bank takes the responsibility of completing the contracted work. No time limit for
performance guarantee.
Perpetual Guarantee: Perpetual guarantee is issued for customs. There is no specific time
limit.

Process of loan
Overall loan process is following(a) Application: Applicant applies for the loan in the prescribe form of the bank describing the
types & purpose of the loan.
(b) Sanction: Have to collected credit information about the applicant to determine the credit
worthiness of the borrower. If everything is in accordance the loan is sanction. Sources of
informationPersonal investigation, confidential report from other bank, head office, branches,
chamber of commerce.
CIB (central information bureau) report from Central Bank (Bangladesh Bank).
Evaluation of compliance with its lending policy.
Evaluating the proposed securities.
If loan amount exceeds 50 lac then bank goes for LRA (Lending Risk Analysis).
(c)Documentation: Then the bank prepares a loan proposal which contains terms & conditions
of the loan for approval of H.O (Head office) or manager. Then have to takes the necessary
papers & signatures from borrower.
(d) Disbursement: A loan account is opened. Where customer account is Debit & respective
loan account is credit.
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Supervision & Control of loan & advance


Inspection & verification: Inspection of the securities & verification of the documents are to be
done regularly. If any irregularity is found immediate step is to be taken for regularization or
rectification same with intimation to head office or regional office.
Latter of acceptance: About the terms & conditions lay down in sanction advice documentary
paper note (depending on the types of borrowers).

There are other documents are to be obtained depending on the types of advance or loan. Such
asa. In case of loan:
If the clients want to get loan then this types of document will be required Demand promissory note.
Letter of disbursement.
Letter of authority.
Letter of agreement/arrangement.
Letter of Hypothecation (When goods are hypothecation as security).
Insurance policy (If required).
Any other document as stated in sanction advice.
b. In case of Over Draft:
If the client want to get Over Draft then this types of document will be required Demand promissory note.
Letter of disbursement.
Letter of Continuity.
Letter of authority (If required).
Letter of agreement/arrangement.
Letter of Hypothecation (When goods are hypothecation as security).
Insurance policy (If required).
Any other document as stated in sanction advice.
c. In case of Cash Credit
The following types of document may needed for cash credit Demand promissory note.
Letter of disbursement.
Letter of Continuity.
Letter of authority (If required).
Letter of agreement/arrangement.
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Letter of Pledge/Hypothecation.
Insurance policy under banks mortgage clause.
Letter of disbursement in case of renewed go down.
Any other document as stated in sanction advice.

d. Advance against lien of FDR


The clients want to get advance against lien of FDR then this types of documents are needed Letter of lien (1st party/ 3rd party Latter).
Letter of authority (If required).
Any other document as stated in sanction advice.
e. Legal Mortgage
For legal mortgage this types of documents may needed Mortgage deed (Certified copy)
Registration received original.
Chain of documents for title (Original if available)
C.S, S.A & R.S parcha.
Up to date Rent Received.
Non-encumbrance certificate.
Power of Attorney (If asked for)
Legal opinion
Valuation certificate
Location plan or site plan etc.
f. Equitable Mortgage:
When clients want loan against equitable mortgage this types of documents are needed.
Chain of original documents for title.
Original title deed.
C.S, S.A & R.S parcha.
Up to date Rent Received.
Memorandum of deposit of title deed.
Registered Power of Attorney.
Legal opinion.
Valuation Certificate.
Location plan or site plan etc.

Creation of charges for securing loan


For the safety of loan, bank requires security from the loan holder so that it can recover the loan
by selling security if borrower fails to repay. Creation of a charge means making it available as a
cover for an advance or loan. The method of charging should be legal, perfect and complete.
Importances of charging securities are below141

Protection of interest
Ensuring the recovery of the money lent
Provision against unexpected change
Commitment of the borrower

Security:
Security is an insurance or cushion to fall back upon in emergency. Securities are two types.
(a) Primary security: Security deposited by the borrower himself to cover the loan-FDR, CC
(H), CC (Pledge) easily cashable item.
(b) Collateral security: In narrow sense security is deposited by a third party to secure the
advances for the borrower. In wider sense any types of security on which the creditor has a
personal right of action on the debtor in respect of advance.

Charges of security in different Modes


(a) Lien: It is the right of banker to hold the debtors property until the debt is discharged
generally retained by the bank in its own custody or to the hands of third party with lien marked,
cash collateral and documents of the title to the goods. In case of bank needs the permission from
the court to sell the property.
(b) Assignment: Borrower transfers the right of property or debt to the bank life insurance
policies, supply bills, book debt of the borrower can be assigned.
(c) Pledge: Pledge is also lien but bank enjoys more right. The securities are moveable stock of
raw materials, finished goods, and merchandise. Bank can sell the property without the
intervention of any court, in case of default on loan.
(d) Hypothecation: Goods remain in the hands of debtor, but documents of title to goods are
handed over to the banker. This method is also called Equitable charge. The securities are
moveable stock of raw materials, finished goods, and merchandise. Bank inspects the goods
regularly to judge its the quality and quantity for the maximum safety of its loan.
(e) Mortgage: Mortgage is the transfer of Mutual trust immovable property like land, building,
and plant etc. most common types of mortgage is legal mortgage in which ownership is
transferred to the bank by registration of the mortgage deed. Another method called equitable
mortgage is also used in bank for creation of charge. Here more deposit of title to goods is
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sufficient for creation of charge. Registration is not required. In both cases the mortgaged
property is retained in the hand of borrower.
(f) Trust Receipt: It is used in foreign exchange business. The securities are intangible asset
such as goodwill.

Different types of loans & advances amount:


Different types of loans & advances maintained by the credit department of the Mutual Trust
Banks principal branch are belowS.
No.
1

Types of loan
Cash against document

Amounts(Tk)

Amounts(Tk)

Amounts(Tk)

31.12.2008
48.789

31.12.2007
15.196

31.12.2006
3.875

Car loan

1.721

1.000

.800

House building loan

117.971

123.391

95.344

Loan general

204.493

182.142

177.375

Loan against trust receipt

3333.018

2290.171

3154.473

Consumer financing

26.844

5.784

1.261

Small & medium

1.286

1.871

.986

enterprise loan (SME)


Bestinvest loan

1.132

2.433

3.679

Secured overdraft (FO)

360.674

266.578

343.821

10

Secured overdraft

194.782

125.707

98.568

11

(others)
Term loan

1649.378

1322.108

1030.394

12

Cash credit (Hypo)

1059.419

1046.220

859.968

13

PDA (Cash)

485.263

397.361

462.099

Total

7484.67

5779.962

6232.643

Table 15: Different types of loan amount in different years of Agrani bank Ltd
(Principal br).

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Figure 4: The amounts of different loan in different years of Agrani bank Ltd (Principal
Br).

Figure 5: Total loan & advance amount in different years of Agrani bank Ltd (Principal
Br).

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Compliance of Bangladesh Bank Policy by Premier Bank Limited:

Credit Management is a branch of accountancy, and is a function that falls under the label of "Credit and
Collection' or 'Accounts Receivable' as a department in many companies and institutions. They will
usually deal with the credit vetting of customers, the resolution of any invoice queries or disputes,
allocations of payments or cash application, internal fund movements, reconciliations and also
maintaining positive working relationships with customer during the debt collection or credit review and
approval process.
A key requirement for effective revenue and receivables management is the ability to intelligently and
efficiently manage customer credit lines or credit limits. In order to minimize exposure to bad debt, overreserving, and bankruptcies, companies must have greater insight into customer financial strength, credit
score history and changing payment patterns. Likewise, the ability to penetrate new markets and
customers hinges on the ability of a company to quickly make well informed credit decisions and set
appropriate lines of credit.

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Credit Management has evolved now from being a pure accounting function into a front-end customer
facing function. It involves screening of customers and only those who are credit worthy are allowed to
do business. A sound review of the financial position of the customer, and understanding of their business
model is the first step in ensuring that the company does not end up selling to a customer who ends up
seriously delinquent or in default.
Hence, before the sales function commences its business with the particular customer, the credit
management role begins. Later as the customer starts dealing with the company, the accounts receivable
function is used to ensure recovery as per agreed terms of credit is followed.

Existing Credit Policy of Premier Bank Limited


Components of the Lending operations maintained by the Bank
Written Loan Policy
One of the most important ways a bank can make sure its loans meet regulatory standards and are
profitable is to establish a written loan policy. Such a policy gives loan officers and the banks
management specific guidelines in making individual loan decisions and in shaping the banks overall
loan portfolio. The actual make up of a banks Loan portfolio should reflect what its loan policy says.
Otherwise, the loan policy is not functioning effectively and should be either revised or more strongly
enforced by senior management.
1. A goal statement for the banks loan portfolio (i.e., statement of the characteristics of a good loan
portfolio for the bank in terms of types, maturities, sizes, and quality of loans)
2. Specification of the lending authority given to each loan officer and loan committee (measuring
the maximum amount and types of loan that each person and committee can approve and what
signatures are required).

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3. Lines of responsibility in making assignments and reporting information within the loan
department.
4. Operating procedures for soliciting, reviewing, evaluating, and making decisions on customer
loan applications.
5. The required documentation that is to accompany each loan application and what must be kept in
the banks credit files (required financial statements, security agreements etc.).
6. Lines of authority within the bank, detailing who is responsible for maintaining and reviewing the
banks credit files.
7.

Guidelines for taking, evaluating, and perfecting loan collateral.

8.

A presentation of policies and procedures for setting loan interest rates and fees and the terms

for repayment of loans.


9.

A statement of quality standards applicable to all loans.

10. A statement of the preferred upper limit for total loans outstanding (i.e. the maximum ratio of
total loans to total assets allowed).
11. A description of the banks principal trade area, from which most loans should come.
12. A discussion of the preferred procedures for detecting, analyzing, and working out

problem loan situation.


Appraisal of credit proposal
Any types of lending procedure starts with building up relationship with customer through account
opening. Control of credit operations is done at branch and Corporate Office Level.

Step-One: Loan Application


Most bank loans to individuals arise from a direct request from a customer who approaches a member of
the banks staff and asks to fill out a loan application. Business can requests, on the other hand, often arise
from contacts the banks loan officers and sales representatives make as they solicit new accounts from
firms operating in the banks market area. Sometimes loan officers will call on the same company for
months before the customer finally agrees to give the bank a try by filling out a loan application.
A loan procedure starts with a loan application from a client who must have an account with the Bank. At
first it starts form the branch. Branch receives application from client for a loan facility. In the application
client mention what type of credit facility he/she wants form the Bank including his personal information
and business information. Branch Manager or regarding Officer- in charge of credit department conducts
the initial interview with the customer.
Once a customer decides to request a loan, an interview with a loan officer usually follows right away,
giving the customer the opportunity to explain his or her credit needs. That interview is particularly

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important because it provides an opportunity for the banks loan officer to assess the customers character
and sincerity of purpose.

Step-Two: Credit investigation


After receiving the loan application form, sends a letter to Bangladesh Bank for obtaining a credit report
of the customer from there. This report is called CIB (Credit information Bureau) report. This report is
usually collected if the loan amount exceeds Tk. 50 thousands. The purpose of this report is to be
informed that whether the borrower has taken loan from any other Bank or not; if yes then whether these
loans are classified or not.

Step-Three: Document Collection


If Bangladesh Bank sends positive CIB report on that particular borrower and if the Bank thinks that the
prospective borrower will be a good one, then the Bank will scrutinize the documents. Required
documents are;

Incase of Corporate Client Financial documents of the company of last three to five years. If the
company is new then projected financial data are required.
Personal net worth of the borrower/Borrowers.
In this stage, the Bank will look whether the documents are properly filled up and signed. Credit in
charge of the relevant branch is responsible to know about the ins and outs of the clients business
through discussing with him.

Step-Four: Inspection
If a business or mortgage loan is applied for, a site visit is usually made by an officer of the bank to assess
the customers location and the condition of the property and to ask clarifying questions. The loan officer
may contact other creditors who have previously loaned money to this customer to see what their
experience has been.Project for which the loan is applied is inspected by Bank officials. Projects
existence, distance from Bank office, viability, monitoring cost and other possibilities are also examined.

Step-Five: Evaluation of Credit


If all is favorable to this point, the customer is asked to submit several crucial documents the bank needs
in order to fully evaluate the loan request, including complete financial statements and, in the case of a
corporation, board of directors resolutions authorizing the negotiation of a loan with the bank. Once all
documents are on file, the credit analysis division of the bank conducts a thorough financial analysis of
them aimed at determining whether the customer has sufficient cash flows and backup assets to repay the
loan. The credit analysis division then prepares a brief summary and recommendation, which goes to the
loan committee for approval.

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Any loan proposal needs to be evaluated on the Basis of financial information provided by the applicant.
Credit Risk Grading (CRG) is a technique by which the risk of the loan is calculated. Banker must
analyze CRG when loan application is above 1 crore. Experienced people of Credit department in the
branch do this analysis. It is a ranking whose total score is 140. Among this score, 120 is for Total
Business Risk and 20 for Total Security Risk.
In CRG, following aspects are analyzed:

Financial Risk

Business/Industry Risk

Management Risk

Security Risk

Relationship Risk

Step-Six: Collateral Collection


If the loan committee approves the customers request, the loan officer or the credit committee will
usually check on the property or other assets to be pledged as collateral in order to ensure that the bank
has immediate access to the collateral or can acquire title to the property involved if the loan agreement is
defaulted. This is often referred to as perfecting the banks claim to collateral. Once the loan officer and
the banks loan committee are satisfied that both the loan and the proposed collateral are sound, the note
and other documents that make up a loan agreement are prepared and are signed by all parties to the
agreement, whether those are properly submitted regular and up to date or else those documents will be
asked to regularize by the client.

Step-Seven: Issuance of Sanction letter to client:


If the proposal meets PBLs lending criteria and is within the managers discretionary powers, the credit
line disapproved. The manager and the sponsoring officer sign the credit line proposal and issue a
sanction letter to client.
If the value of the credit line is above the branch managers limit then it is send to head office for final
sanction with detailed information regarding clients, business or purpose of the loan, security papers.

Step-Eight: Review of Credit Proposal by Credit Committee:


Head office processes the credit proposal and afterwards puts up a memorandum to credit committee. The
credit committee reviews the credit proposal and accepts or rejects the proposal.

Step- Nine: Loan Approval

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After approval by the Credit Committee head office gives an approval letter to the branch and branch
gives a sanction letter. The client should accept sanction advice with seal which will prove his agreement
with the terms and condition offered by the Bank.

Step-Ten: Collection of charge document:


After the sanction advice, bank will collect necessary charge document. Charge documents vary on the
basis of types of facility, types of collateral. Generally the following charge documents are required as per
the nature of the loan.
1.

D.P. Note (Demand Promissory Note)

2.

GLCA (General Loan & Collateral Agreement)

3.

Letter of Continuity

4.

Letter of Lien [In case of loan against any instruments or documents]

5.

Continuing Guarantee

6.

Letter of Hypothecation

7.

Hypothecation of Debts & Assets

8.

Counter Indemnity

9.

Trust Receipt

10.

Authority for Borrowing Limited Liability Company.

Step-Eleven: Loan Disbursement


Finally loan is disbursed and monitoring of loan starts as well.

Selection of borrowers, credit investigation including CIB


The division of the bank responsible for analyzing and recommendations on the fate of most loan
applications is the credit department. Experience has shown that this department must satisfactorily
answer three major questions regarding each loan application:
1. Is the borrower creditworthy? How do you know?
2. Can the loan agreement are adequately protected and the customer has a high
probability of being able to service the loan without excessive strain?
3. Can the bank perfect its claim against the assets or earnings of the customer so that, in
the event of default, bank funds can be recovered rapidly at low cost and with low risk?

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Lets look in turn at each of these three key issues in the yes or no decision a bank must make on
every loan request.

Eligibility of getting loan: Whom the bank Grant Credit, Is the Borrower Creditworthy?
The question that must be dealt with before any other is whether or not the customer can service the loanthat is, pay out the credit when due, with a comfortable margin for error. This usually involves a detailed
study of six aspects of the loan application- character, capacity, cash, collateral, conditions, and control.
All must be satisfactory for the loan to be a good one from the lenders point of view.

Character
The loan officer must be convinced that the customer has a well-defined purpose for requesting bank
credit and a serious intention to repay. If the officer is not sure exactly why the customer is requesting a
loan, this purpose must be clarified to the banks satisfaction.
Responsibility, truthfulness, serious purpose, and serious intention to repay all monies owed make up
what a loan officer calls character.
Capacity
The loan officer must be sure that the customer requesting credit has the authority to request a loan and
the legal standing to sign a binding loan agreement. This customer characteristic is known as the capacity
to borrow money. For example, in most states a minor (e.g., under age 18 or 21) cannot legally be held
responsible for a credit agreement; thus, the bank would have great difficulty collectors on such a loan.
Cash
This key feature of any loan application centers on the question: Does the borrower have the ability to
generate enough cash, in the form of cash flow, to repay the loan? In general, borrowing customers have
only three sources to draw upon to repay their loans: or (a) cash flows generated from sales or income, (b)
the sale or liquidation of assets, or (c) funds raised by issuing debt or equity securities. Any of these
sources may provide sufficient cash to repay a bank loan.
Collateral
In assessing the collateral aspect of a loan request, the loan officer must ask, does the borrower possess
adequate net worth or own enough quality assets to provide adequate support for the loan? The loan
officer is particularly sensitive to such features as the age, condition, and degree of specialization of the
borrowers assets.

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Conditions
The loan officer and credit analyst must be aware of recent trends in the borrowers line of work or
industry and how changing economic conditions might affect the loan.
Control
The last factor in assessing a borrowers creditworthy status is control which centers on such questions as
whether changes in law and regulation could adversely affect the borrower and whether the loan request
meets the banks and the regulatory authorities standards for loan quality.
Can the Loan Agreement Be Properly Structured and Documented?
The six Cs of credit aid the loan officer and bank credit analyst in answering the broad question: Is the
borrower creditworthy? Once that question is answered, however, a second issue must be faced: Can the
proposed loan agreement be structured and documented to satisfy the needs of both borrower and bank?
A properly structured loan agreement must also protect the bank and those it represents- principally its
depositors and stockholders- by imposing certain restrictions (covenants) on the borrowers activities then
these activities could threaten the recovery of bank funds. The process of recovering the banks fundswhen and where the bank can take action to get its funds returned-also must be carefully spelled out in a
loan agreement.
Needs for Collateral
Most Borrowers at one time or another will be asked to pledge some of their assets or to personally
guarantee the repayment of their loans. Getting a pledge of certain borrower assets as collateral behind a
loan really serves two purposes for a lender. If the borrower cannot pay, the pledge of collateral gives the
lender the right to seize and sell those assets designated as loan collateral, using the proceeds of the sale
to cover what the borrower did not pay back. Secondly, collateralization of a loan gives the lender a
psychological advantage over the borrower. The goal of a bank taking collateral is to precisely define
which borrower assets are subject to seizure and sale and to document for all other creditors to see that the
bank has a legal claim to those assets in the event of nonperformance on a loan.

Sources of Information about Loan Customers


The bank relies principally on outside information to assess the character, financial position, and
collateral of a loan customer. Such an analysis begins with a review of information supplied by the
borrower in the loan application. The bank may contact other lenders to determine their experiences with

152

this customer. Were all scheduled payments in previous loan agreements made on time? Were deposit
balances kept at high enough levels? How much was borrowed previously and how well were those
earlier loans handled? Is there any evidence of slow or delinquent payments? Has the customer ever
declared bankruptcy?
Sources of Information about the Loan customers

Physical Investigations

Customer financial statements

Experience of other lenders with this customer

Customer Annual Report

Local or regional credit bureaus

Local Newspapers

Local chamber of commerce

Credit policy is the guideline for the banks credit division. It generally aims at firstly creating healthy
loan assts to ensure good interest earnings for the bank, secondly ensuring ultimate safety through good
selection of assets based on its salability and thirdly improving discipline on use of resources. It providing
limit to total loan of a bank in relation to its deposit funds, limits of its exposure to different sectors, limits
of risk assets on types of security, limits of loans to single borrower entity and limits of loan approval
authority at different tiers is the single most important document of guidance to managers and executives
of a bank.

Loan Structuring
Premier Bank is a new bank, it successfully run their business through a standard credit policy. From the
very beginning, the initiator of the Bank decided not to encourage the defaulters to obtain credit from this
esteem bank. On the other hand, they want to deal with limited customer who has established their
business with integrity. With this view, the board of directors and the higher executives of the Bank
structured their credit policy, which covers the following important aspects:
1. Loan limits
2. Sectoral allocation of loan
3. Loan pricing
4. loan approval Authority

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5. Restrictions of loans.
6. Loan Renewal and Follow-up.
7. Loan Classification & Provisioning

Loan Limits:
As Bangladesh Bank requires the banks to keep 5% deposit in cash reserve ratio and 15% in investment
against eligible securities towards statutory liquidity reserve, in the absence further guidelines Premier
Bank can extend credit up to 80% of deposits.But in practice it invest 87.18% of deposit.

Sectoral allocation of Loans:


After determining the total extendable limit of loan in the policy, it becomes essential for PREMIER Bank
to fix limits of loans for disbursing the loans in the different sector to diversify the risk. Premier Bank.
Premier Bank emphasis in the following sector to disbursement of their loan.

Loan Pricing:
Another important aspect of credit policy is pricing of loans. PREMIER banks management determine
rate of interest through considering the cost of their allocated fund. Banks management proves their skill
by determining their loan pricing which reflects on their high rate of profitability. Comparing to the newly
established Banks, PREMIER banks loan pricing is competitive.

Loan Approval Authority:


At the initial stage, Concerned Branch manager has the Authority to consider whether the bank is going to
give loan to the particular borrower. After submitting the proposal to the Head office, it is their
responsibility to take the final decision to disburse the loan.

Restrictions of Loans:
Premier bank follows some restriction to disburse the loan according to the Bangladesh Banks rules and
regulation. For example:

Bank does not provide loan against security of its own share.

Bank does not provide loan to a minor or a company where a minor is holding majority share.

Bank does not make loans against accommodation bills.

Bank does not approve loan in favor of customers who have unpaid loans with another bank with
out no objection certificate from the later.

Bank does not make loan to borrowers whose integrity is questionable.

154

It is prohibited by Bangladesh Bank in 2005 not to provide loan to the members of Board of
Directors of the respective Bank.

Bank does not provide loan in the case when the business is located cross-boarder area.

Bank does not allow any loan against illegal purpose.

Monitoring and follow up of loans and advance


The objective of monitoring and follow up is to control end use of funds, to prevent diversion of fund to
ensure that the borrower observes financial discipline. This is achieved through post sanction care, control
and monitoring till the advance is fully repaid.

Follow up is exercised with the regard to the following aspects:

1. Terms of sanctions
2. Documentation
3. Disbursal
4. Operations in the account
5. Financial statements, up dating credit information
6. Inspection of security
7. Renewal of limit

Terms of sanctions:
The borrower should be informed about the sanction of the proposal in writing, along with the terms of
sanction, and acknowledgement from the borrower should be obtain. The sanction terms include
(i)

Amount of sanction with sub limits

(ii)

Margin

(iii)

Rate of interest

(iv)

Name of guarantors

(v)

Repayment schedule

(vi)

Insurance

155

(vii)

Security

(viii)

Date of renewal

(ix)

Any other special terms and conditions.

Documentation:
The borrowing power of the company is verified and necessary resolution regarding the borrowing is
obtained from the company. No advance is made unless documentation is complete both with regard to
the borrower as well as with regard to guarantor/s

Disbursal:
Disbursal of advance made in such a way that the end use of the funds as per the terms of sanction of the
advance is ensures. For instance in case of term loans against machinery payment is made directly to the
suppliers by means of pay order. No disburse is made in cash or otherwise.

Operation in the account:


Once the advance has been disbursed, a watch is kept over operation in the account. A close scrutiny of
the entries in the account will give information regarding the nature of the transactions, sales and
purchase.
Here are some indicator which is closely enquire by the bank,

Decline in the number of operation

Frequent return of cheques issued by the borrower or failure in retiring bills drown on him

Frequent return of cheque / bills deposited by the borrower

Withdrawal of large amounts in cash.

Recovery and follow up:


If a borrower fails to make repayment of the dues, Premier bank considers the following steps to recover
the stuck up advances.
1. Exerting Moral Pressure
The Bankers visit the borrowers place of business and find out the causes of non-payment of the
banks dues. The banker may also request some influential of the area to exert pressure on the
borrower to clear banks dues.

156

2. Notice:
In case the borrower does not adjust the account as desired, the only course left open to the bank
would be to sent a notice by registered post to the last known address of the borrower and the
guarantor, if any, preferably through a lawyer.

Loan Classifications and Provisioning


Loan classification is required to have a real picture of the loan and advances provided by the Bank. It
helps to monitor and take appropriate decision regarding each loan account like other Banks, all types of
loans of BA fall into following four scales:

1.

Unclassified : Repayment is regular

2.

Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement.

3.

Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial recover.

4.

Bad/Loss: very little chance of recovery.

Loan Type

Unclassified
(Month

Continuous Loan

Expiry up to 5

Substandard

Doubtful (Month)

(Month)
6 to 8 month

Bad
(Month)

9 to 11 month

12 month+

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Demand Loan

month

Term loan up to 5

0 to 5 month

6 to 11 month

12 to 17 month

18 month+

0 to 11 month

12 to 17 month

18 to 23 month

24 month+

0 to 11 month

12 to 13 month

36 to 59 month

60 month+

year
Term Loan more
then 5 years
Micro Credit

Loan Provisioning:
A Certain amount of money is kept for the purpose of provisioning. This percentage is set following
Bangladesh Bank rules.
Type of Classification

Rate of Provision

Unclassified

1%

Substandard

20%

Doubtful

50%

Bad debt

100%

Loan follow-up means the technique of supervision (of loan). The branch manager keep a close and
constant watch on all their loans and advances to ensure that timely action is initiated in each case for
adjustment of account or its renewal, if it is decided to continue the facility. For this purpose each branch
maintain a diary or card in prescribed format in which the due date of expiry of loan facilities are noted
down. At least thirty days before the date of expiry of any loan facility, a notice send to the borrower
reminding him of the due date of repayment and making formal demand of repayment are renewal as the

158

case may be. Vigorous follow up actions there after taken by issuing repeated reminders and putting
pressures on the borrower by calling on him personall
Early alert process:
An early alert account is one that has risks or potential weakness of material nature requiring monitoring,
supervision, or close attention by management, if these weakness are left uncorrected, they may result in
deterioration of the repayment prospect for the asset or in the banks credit position at some future date.
Early identification, prompt reporting and proactive management of early alert accounts are prime credit
responsibilities of all relationship manager and be undertaken on a continuously basis.
Despite of a prudent credit approval process, loans may still become troubled. Therefore, it is essential
that early identification and prompt reporting of deteriorating credit signs be done to ensure swift action
to protect the bank interest. Moreover, regular contact with the customer will enhance the like hood of
developing strategies mutually acceptable to both the customer and the bank. An account may be
reclassified as regular account from early alert account status when the symptom, symptoms causing the
early alert classification have been regularized or no longer exist.

Early Warning System Department (EWSD)


PBL has a special department called EWSD who are responsible for all accounts classified in the banks
portfolio. Actually they have work like CID officers. However EWSDs responsibility will cover the areas
of

1.

Monitoring and controlling the classified accounts through monthly reporting and quarterly
review.

2.

Actively follow the borrowers for recovery.

3.

Negotiate and reschedule the debts.

4.

If the client dont utilize the new offer than it is the EWSDs responsibility to file suit against
the client.

EWSD will also prepare a Consolidated Report of all bad loans written-off on a quarterly.
Early alert account: As a part of ongoing monitoring process, an account may be found to have some
weakness which clearly indicates the symptom of nonpayment of loan. This type of account reported as
early alert account.The purpose of introducing early alert account is as follows:
(I)Detect the weakness of the client earlier
(II)Ensure proper monitoring
(III) Take appropriate measure at appropriate time

159

(IV) Maintain the health of the credit in all time good condition
(V) Ensure timely repayment of loan
(VI) Finally prevent the loan from being stuck up and quality asset.

When and how the account will be treated as early alert is briefly stated below:
Table: 2
S L No

Risk Concern

Symptoms

Industry concern

(i)

1.
(ii)
(iii)

2.

Ownership/
management concern

(i)
(ii)
(iii)

3.

Balance sheet
weakness

(i)
(ii)
(iii)

if the industry or sector itself is


deteriorating
if the industry is already saturated and
there is no scope of further growth
if there is possibility of cyclical down
turn

Early alert
rating
EA- 1

if problem arises for existing management to


efficiently run the business
if there is lack of commitment among the
management
if the key person changes in the management
structure

EA-2

delay in preparing and submission of financial


statement
operating result i.e. sales and profit is
decreasing
quality of asset is deteriorating

EA-3

160

Cash flow concern

(i)
(ii)
(iii)

if there is liquidity crisis


if bank loan limit is limited or totally absent
if there is evidence of misusing of fund

EA-4

Account performance

(i)
(ii)

if account turn over decline drastically


if the interest is not served within 15 days of
being charged
if there is adverse report in CIB

EA-5

if the credit facility remains expired more than


one month and the client does not approached
for renewal
if the three installment remains overdue
if the documentation formalities remain
incomplete for more than 3 month

EA-6

4.

5.

(iii)

6.

Expired limit
\pending
documentation

(i)
(ii)
(iii)

Credit recovery and ABL account management legal and non legal measure
The Premier bank loan recovery policy aim to give details of the strategies to adopted for recovery of
dues, period wise targeted level of reduction in ABLs, norms for entering into compromised proposals
involving sacrifice\ waiver, factors to be taken into account before considering the waiver
1. Repayment of loans:
Repayment of loan depends on income generating capacity of the borrowing concern. A unit not earning
profit will not be able to repay the term loan. Therefore, it is necessary to fix the repayment schedule for
term loan according to the income generating capacity of the unit.
2. Rehabilitation of potentially viable unit:
If a sick unit is potentially viable, necessary efforts are made to finalize the rehabilitation package without
loss of time.
3. Acquisition of sick unit by healthy units:

161

If a sick unit is acquired by a healthy unit, the outstanding loan amount of sick unit may be transferred to
a healthy unit and entire loan amount may even be wiped off. Therefore, the bank encourage merger\
acquisition of sick units whenever they feel it may reduce the NPL s. banks may even help the sick unit
to get suitable buyer.
4. Negotiation with the borrower:
A negotiation may be called as a compromise formula or amicable settlement in which the borrower
agrees to pay a certain amount to the bank after getting certain concessions. Compromise proposal now a
days being considered to be a very effective measure which in most of the cases work well instead of
resorting to expensive recovery proceedings spread over a long period.
5. Follow -up for recovery of ABLs, stuck up and classified loans and advance:
To keep a close follow up and monitoring, the recovery of the overdue and classified loans and advance,
the head of the branches take serious initiative and make efforts involving the officer and staff of all level
for recovery of the over due\ stuck-up and classified loans and advances. The head of branch create team
and assign the follow up responsibility for specific client. The team members will call on the defaulting
clients\ borrower and guarantors for following up the recovery of the over due, classified loan and will
submit call report on the progress of follow-up actions the developments as reported in the call report will
reflected in the remarks column of past due statement submitted to the head office. The call report will be
placed in the files of the respective client for review. The call report must be reviewed by the manager and
sub manager jointly and should assess objectively the progress of recovery.
6. Calling up the advance & filing of civil suits:
If it is not possible to revive a unit or enter into a reasonable settlement with the borrower, it is better to
recall the advance at an early stage instead of waiting for a long time which may result in deterioration of
the security available. Further if it is not possible to sell the security under artho rin adalat or without
obtaining any courts order, civil suit may be filed against such borrower who is not likely to come to a
reasonable settlement.
7. Settlement of claim with ECGS:
If ECGS covers are available, bank should submit the proposal for same with necessary details. Proper
follow-up with sadharan bima corporation is necessary for settlement of claims and reducing the NPLs to
certain extent.

162

8. Special mention account:


Before classification of loan, a period review and follow-up will have to be carried out and the loan
account which is not being properly performed \serviced or have remained overdue \ expired for certain
period will have to be treated special mentioned account. Interest earned on this account cannot be taken
into income rather to be retained in the interest suspense account. Even provision @ 5.00% will have to
be created against this account. The procedure laid down in the circular issued by the Bangladesh bank
will have to be followed in transferring the loan account to special mentioned account.
9. Write -off the out standings:
If all the efforts for recovery fail, bank may have to write off the advance. Such write-off should be done
after exhausting all other remedies. In this regard specific guidelines already issued and to be issued by
the Bangladesh bank will have to be followed.

Findings:
After analyzing the credit management practice of Premier bank we find the followings:

The asset quality of PBL was good and its size was in line with its peer. At YE2007, the Banks
total asset size was TK. 32,573.19 million which was Tk. 27170.45 million at YE2006. The
growth rate of total asset base was 19.88% which was almost 50% more than YE 2005. As on 31
December 2007 the total assets of PBL was mostly created through deposit collection (83.57%)
and the rest of the volume was financed by borrowings (5.43%), other liabilities (2.70%) and
stockholders equity (8.73%).

Premier Bank possesses a standard credit procedure; from the existing credit condition we have
seen that the Credit of Premier Bank is increase in 2007 than the 2006. Total loan of the premier
bank has increase over the year, in Year 2007 it is 2367.61million TK and 18032.5 million tk in
2006 the rate of growth of loan and advance from the Year 2006 to Year 2007is 31%.

The upward tendency of the credit show increase in profit. In the year 2007 the operating profit
stood 998.11 million which is 942.07 million in the year 2006. That means the bank is able to

163

investment money in the suitable sector. The bank gives priority of trade finance in loan approval.
The bank also encourages Ready made Garments.

PBLs NPL (Non-performing Loan) has increased to TK 1405.37 million as on December 31,
2007 from TK 885.97 million at YE2006. The high gross NPL ratio (5. 96%) of the bank sign of
weakness in credit portfolio, which must be reduced to 1%.

The banks recovery of credit is satisfactory. Premier Bank Ltd. has a quite good credit approval
process which brings 84% recovery of credit.

The bank also follows Bangladesh Bank order in case of credit approval.

For minimizing risk Bangladesh Bank introduced credit risk grading, the bank also follows this
approach accurately.

The bank does not provide loan to the person or business who is below acceptable. Premier bank
maintains a standardized framework for the approval of credit.

There exists some difference between Banks policy and practice in case of credit management at premier
bank

Small loans are neglected, which is another shortcomings of Premier bank credit management
approaches,

Credit policy is not properly cared in practice.

Credit deposit ratio is 87.18%, which shows PBL utilize large amount of its deposit in lending.

Small loans are given without following CRG strictly.

Directors reference in credit approval hampers the credit appraisal procedure.

In crediting Premier Bank doesnt have any proper sector wise planning.

New and small entrepreneurs dont get priority in having loan from the bank for the lack of strong
guaranty.

164

Ratio Analysis
(Bank Asia Limited)
For the Year 2008.
Bank Profitability Ratios.

Return of Assets (ROA):

ROA = Net Income (NI) Average Total Assets (ATA)


ROA = TK 686,704,045 TK 45,899,550,000
ROA = 0.1496%
# Average Total Assets (ATA)

165

ATA = (Total Assets of 2008+Total Assets of 2007) / 2


ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Return on Equity (ROE):

ROE = Net Income (NI) Average Shareholders Equity (ASE)


ROE = TK 686,704,045 TK 2,985,682,860
ROE = 22.99 %
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Profit Margin (PM):

PM = Net Income (NI) Operating Income (OI)


PM = 686,704,045 2,892,535,557
PM = 23.74 %

Return of Deposit (ROD):

ROD = Net Income (NI) Average Total Customers Deposit


ROD = 686,704,045 35,649,317,740
ROD = 1.92 %

Return on Shareholders Capital (ROSC):

166

ROSC = Net Income (NI) Shareholders Contributed Capital


ROSC = 686,704,045 1,743,750,000
ROSC = 39.38%

Net Operating Margin (NOM):

NOM = Operating Income (OI) Interest Income


NOM = 2,892,535,557 1,234,094,656
NOM = 2.34
Bank Efficiency Ratios.

Interest Income to Expenses (IIE):

IIE = Interest Income Average Total Loans & Advances


IIE = 1,234,094,656 34,215,971,380
IIE = 3.60%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Operating Expenses to Assets (OEA):

OEA = Operating Expenses Average Total Assets


OEA = 987,656,984 45,899,550,000
OEA = 2.15%
# Average Total Assets (ATA)

167

ATA = (Total Assets of 2008+Total Assets of 2007) / 2


ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Operating Income to Assets (OIA):

OIA = Operating Income Average Total Assets


OIA = 2,892,535,557 45,899,550,000
OIA = 6.30%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Operating Expenses to Revenue (OER):

OER = Operating Expenses Operating Income


OER = 987,656,984 2,892,535,557
OER = 34.14%

Assets Turnover (AT):

AT = Interest Income Average Total Assets


AT = 1,234,094,656 45,899,550,000
AT = 2.68%
# Average Total Assets (ATA)

168

ATA = (Total Assets of 2008+Total Assets of 2007) / 2


ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,00
Assets-Quality Indicators.

Provision to Earning Assets (PEA):

PEA = Provision for Loan Losses Average Total Loans & Advances
PEA = 404,707,240 34,215,971,380
PEA = 1.18%
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380

Adequacy of Provision for Loans (APL):

APL = Allowance for Loans Losses Average Total Loans & Advances
APL = 0 34,215,971,380
APL = 0
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380

Write-Off Ratio (WR):

169

WR = Write-Off of Loans during the year Average Total Loans & Advances
WR = 0 34,215,971,380
WR = 0
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380

Loan Ratio (LR):

LR = Average Total Loans & Advances Average Total Assets


LR = 34,215,971,380 45,899,550,000
LR = 74.54%

#Average Total Loans & Advances (ATLA):


ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Loans to Deposits (LTD):

170

LTD = Average Total Loans & Advances Average Total Customers Deposits
LTD = 34,215,971,380 35,649,317,740
LTD = 0.959
Liquidity Ratios.

Cash to Assets (CTA):

CTA = Cash Average Total Assets


CTA = 3,018,782,633 45,899,550,000
CTA = 6.57%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Cash to Deposit (CTD):

CTD = Cash Average Total Customers Deposits


CTD = 3,018,782,633 35,649,317,740
CTD = 8.46%

Deposits to Assets (DTA):

DTA = Average Total Customers Deposits Average Total Assets


DTA = 35,649,317,740 45,899,550,000
DTA = 77.66%

Equity Multiplier (EM)

171

EM = Average Total Assets Average Shareholders Equity


EM = 45,899,550,000 2,985,682,860
EM = 15.37
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Equity to Deposits (ETD):

ETD = Average Shareholders Equity Average Customers Deposits


ETD = 2,985,682,860 35,649,317,740
ETD = 8.37%
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Total Liabilities to Equity (TLE):

172

TLE = Average Total Liabilities Average Shareholders Equity


TLE = 42,913,867,220 2,985,682,860
TLE = 14.37
#Average Total Liabilities (ATL):
ATL = (Total Liabilities of 2008 + Total Liabilities of 2007) / 2
ATL = (TK 50,038,289,716 + TK 35,789,444,721) / 2
ATL = TK 42,913,867,220
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Total Liabilities to Shareholders Capital (TLSC):

TLSC = Average Total Liabilities Shareholders Contributed Capital


TLSC = 42,913,867,220 1,743,750,000
TLSC = 24.61
# Average Total Liabilities (ATL):
ATL = (Total Liabilities of 2008 + Total Liabilities of 2007) / 2
ATL = (TK 50,038,289,716 + TK 35,789,444,721) / 2
ATL = TK 42,913,867,220
# Retained Earnings to Total Assets (RETA):

173

RETA = Retained Earnings Average Total Assets


RETA = 405,555,558 45,899,550,000
RETA = 0.8835%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

For the Year 2009.


Bank Profitability Ratios.

Return of Assets (ROA):

ROA = Net Income (NI) Average Total Assets (ATA)


ROA = TK 1,327,184,458 TK 61,017,223,520
ROA = 2.17%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Return on Equity (ROE):

ROE = Net Income (NI) Average Shareholders Equity (ASE)


174

ROE = TK 1,327,184,458 TK 4,143,550,952


ROE = 32.03 %
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Profit Margin (PM):

PM = Net Income (NI) Operating Income (OI)


PM = 1,327,184,458 4,129,503,653
PM = 32.13%

Return of Deposit (ROD):

ROD = Net Income (NI) Average Total Customers Deposit


ROD = 1,327,184,458 23,621,250,940
ROD = 5.61 %

Return on Shareholders Capital (ROSC):

ROSC = Net Income (NI) Shareholders Contributed Capital


ROSC = 1,327,184,458 2,144,812,500
ROSC = 0.6187

Net Operating Margin (NOM):

NOM = Operating Income (OI) Interest Income


NOM = 4,129,503,653 1,749,478,127
NOM = 2.36
Bank Efficiency Ratios.

Interest Income to Expenses (IIE):

IIE = Interest Income Average Total Loans & Advances


IIE = 1,749,478,127 45,121,458,090
IIE = 3.87%%
175

#Average Total Loans & Advances (ATLA):


ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK 50,267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030

Operating Expenses to Assets (OEA):

OEA = Operating Expenses Average Total Assets


OEA = 1,512,465,951 61,017,223,520
OEA = 2.47%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Operating Income to Assets (OIA):

OIA = Operating Income Average Total Assets


OIA = 74,129,503,653 61,017,223,520
OIA = 1021%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Operating Expenses to Revenue (OER):

OER = Operating Expenses Operating Income


OER =1,512,465,951 4,129,503,653
OER = 36.62%

Assets Turnover (AT):

AT = Interest Income Average Total Assets


AT = 1,749,478,127 61,017,223,520
176

AT = 2.86%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520
Assets-Quality Indicators.

Provision to Earning Assets (PEA):

PEA = Provision for Loan Losses Average Total Loans & Advances
PEA = 247,419,670 45,121,458,030
PEA = 0.947%
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50,267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030

Adequacy of Provision for Loans (APL):

APL = Allowance for Loans Losses Average Total Loans & Advances
APL = 0 45,121,458,030
APL = 0
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50,267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030

Write-Off Ratio (WR):

WR = Write-Off of Loans during the year Average Total Loans & Advances
WR = 0 45,121,458,030
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50,267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030
177

Loan Ratio (LR):

LR = Average Total Loans & Advances Average Total Assets


LR = 45,121,458,030 61,017,223,520
LR = 73.94%
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50,267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Loans to Deposits (LTD):

LTD = Average Total Loans & Advances Average Total Customers Deposits
LTD = 45,121,458,030 23,621,250,940
LTD = 1.910%
Liquidity Ratios.

Cash to Assets (CTA):

CTA = Cash Average Total Assets


CTA = 3,760,368,749 61,017,223,520
CTA = 6.16%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Cash to Deposit (CTD):

CTD = Cash Average Total Customers Deposits


CTD = 3,760,368,749 23,621,250,940
CTD = 15.91%

Deposits to Assets (DTA):


178

DTA = Average Total Customers Deposits Average Total Assets


DTA = 23,621,250,940 61,017,223,520
DTA = 38.71%

Equity Multiplier (EM)

EM = Average Total Assets Average Shareholders Equity


EM = 61,017,223,520 4,143,550,952
EM = 14.72
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Equity to Deposits (ETD):

ETD = Average Shareholders Equity Average Customers Deposits


ETD = 4,143,550,952 23,621,250,940
ETD = 17.54%
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Total Liabilities to Equity (TLE):

TLE = Average Total Liabilities Average Shareholders Equity


TLE = 59,873,672,560 4,143,550,952
TLE = 14.44
#Average Total Liabilities (ATL):
ATL = (Total Liabilities of 2009 + Total Liabilities of 2008) / 2
ATL = (TK 63,709,055,419 + TK 50,038,289,716) / 2
179

ATL = TK 59,873,672,560
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Total Liabilities to Shareholders Capital (TLSC):

TLSC = Average Total Liabilities Shareholders Contributed Capital


TLSC = 59,873,672,560 2,144,812,500
TLSC = 27.91
#Average Total Liabilities (ATL):
ATL = (Total Liabilities of 2009 + Total Liabilities of 2008) / 2
ATL = (TK 63,709,055,419 + TK 50,038,289,716) / 2
ATL = TK 59,873,672,560

Retained Earnings to Total Assets (RETA):

RETA = Retained Earnings Average Total Assets


RETA = 869,945,964 61,017,223,520
RETA = 1.42%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

180

Regression Analysis:
Regression analysis is very important statistical tools, for calculating regression analysis I collects
information of few borrower of term loan from premier bank, Savar Bazaar Stand branch, the distribution
of the data are as follows

Borrower

Recovery
Amount
in lac tk

Loan
Amount
in lac
TK

A
B
C
D
E
F
G
H
I

10
8
11
5
4,
7
3.50
5
6

10
8
11.5
5
5
7.50
3.50
5
6

Maturity of
the loan
(Year)

Rate of
interest(%)

5
5
4
3
3
8
5
5
7

16
17
18
16
18
14.5
16
16.5
14.5

Age of the
Business
(Year)

10
8
12
10
4
15
5
8
12

Profit of the
business in lac
TK

1.5
2
2.3
1
0.5
1.53
1.6
0.8
1.5

Cedit
Grade
obtained

89
85
82
90
80
95
85
88
92

181

10

18

0.75

85

For calculating the regression analysis I use SPSS software and input data in to the soft ware and the out
put is shown in the appendix, From the regression analysis we find the required equation,

Y= b0+b1X1+b2X2+b3X3+b4X4+b5X5+b6X6
Y= - 62.160 -.026X1+.352 X2 +2.17 X3+.345 X4+1.649 X5 +0.314 X6
Y = Recovery (Dependent Variable)
Independent Variables are as follows

X1 = Loan amount
X2 = Maturity of the loan
X3 = Rate of Interest
X4 = Age of the Business
X5 = Profit of the Business
X6 = Credit Grade Obtained

From the regression analysis we find the required equation, here in the equation constant is
- 62.106 that is the intercept, b1= 0.026, the beta of loan amount indicates that if we reduce sanctioning
loan of TK. 0.026 thousand then the recovery increase by 1 thousand Tk, holding all other variable
constant , b2 = .352 X2 indicates that if the maturity of the loan increase the by one year then the recovery
amount increase
B3= Rate of interest. the positive beta indicates that if we increase the loan amount 2.71thousad then the
recovery Amount increase. Holding all other variable constant
B4 = 2.17 indicates that Age of the business increase by 1 year than the recovery amount increase. B 5 =
1.69 indicates if the profit of the business increase by tk 1 lac for a business then the recovery amount
increase by TK1.69 and finally if the borrower credit grading increase by.314 points then the recovery
amount of the bank increase by1Tk holding all other variable constant
r= 0.921 indicates a very high degree of positive relationship between recovery and loan amount,
Maturity of the loan, interest rate, Age of the business profit, credit rating grade obtained

182

The explanatory power of the independent variable can be assessed by the coefficient of determination
(r2), r2 =

0.841

indicates that 84.1% of the variation in the recovery of loan can be explained by

the variation in the loan amount, Maturity of the loan, interest rate, Age of the business profit, credit
rating grade obtained, an examination of the correlation matrix in the appendix shows that that maturity of
the loan, interest of the loan, age of the business, profit of the business and credit grade obtained by the
firm are positively related to recovery and has good predicting ability.
ANOVA test ( F test) , the result of Anova table indicates that the relationship among the recovery and
independent variables are statistically significant as the test calculated F value is 2.78. The calculated
value is less than the table value of 8.74 at 6 d.f and at 95% confidence level. So the relationship among
the recovery and independent variables are statistically significant
T test, the result of t table indicates that the relationship among the recovery and loan are statistically
significant as the test calculated t value is -1.069The calculated value is less than the table value of 1.833
at 9 d.f and at 95% confidence level. So the relationship among the recovery and loan is statistically
significant.
the relationship among the recovery and Maturity of loan are statistically significant as the test calculated
t value is .86 The calculated value is less than the table value of 1.833 at 9 d.f and at 95% confidence
level. So the relationship among the recovery and maturity of loan is statistically significant.

Agrani Bank Limited


For the Year 2008.
Bank Profitability Ratios.

Return of Assets (ROA):

ROA = Net Income (NI) Average Total Assets (ATA)


ROA = TK 686,704,045 TK 45,899,550,000
ROA = 0.1496%
# Average Total Assets (ATA)

183

ATA = (Total Assets of 2008+Total Assets of 2007) / 2


ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Return on Equity (ROE):

ROE = Net Income (NI) Average Shareholders Equity (ASE)


ROE = TK 686,704,045 TK 2,985,682,860
ROE = 22.99 %
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Profit Margin (PM):

PM = Net Income (NI) Operating Income (OI)


PM = 686,704,045 2,892,535,557
PM = 23.74 %

Return of Deposit (ROD):

ROD = Net Income (NI) Average Total Customers Deposit


ROD = 686,704,045 35,649,317,740
ROD = 1.92 %

Return on Shareholders Capital (ROSC):

184

ROSC = Net Income (NI) Shareholders Contributed Capital


ROSC = 686,704,045 1,743,750,000
ROSC = 39.38%

Net Operating Margin (NOM):

NOM = Operating Income (OI) Interest Income


NOM = 2,892,535,557 1,234,094,656
NOM = 2.34
Bank Efficiency Ratios.

Interest Income to Expenses (IIE):

IIE = Interest Income Average Total Loans & Advances


IIE = 1,234,094,656 34,215,971,380
IIE = 3.60%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Operating Expenses to Assets (OEA):

OEA = Operating Expenses Average Total Assets


OEA = 987,656,984 45,899,550,000
OEA = 2.15%
# Average Total Assets (ATA)

185

ATA = (Total Assets of 2008+Total Assets of 2007) / 2


ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Operating Income to Assets (OIA):

OIA = Operating Income Average Total Assets


OIA = 2,892,535,557 45,899,550,000
OIA = 6.30%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Operating Expenses to Revenue (OER):

OER = Operating Expenses Operating Income


OER = 987,656,984 2,892,535,557
OER = 34.14%

Assets Turnover (AT):

AT = Interest Income Average Total Assets


AT = 1,234,094,656 45,899,550,000
AT = 2.68%
# Average Total Assets (ATA)

186

ATA = (Total Assets of 2008+Total Assets of 2007) / 2


ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45, 899, 550, 00
Assets-Quality Indicators.

Provision to Earning Assets (PEA):

PEA = Provision for Loan Losses Average Total Loans & Advances
PEA = 404,707,240 34,215,971,380
PEA = 1.18%
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380

Adequacy of Provision for Loans (APL):

APL = Allowance for Loans Losses Average Total Loans & Advances
APL = 0 34,215,971,380
APL = 0
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380

Write-Off Ratio (WR):

187

WR = Write-Off of Loans during the year Average Total Loans & Advances
WR = 0 34,215,971,380
WR = 0
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380

Loan Ratio (LR):

LR = Average Total Loans & Advances Average Total Assets


LR = 34,215,971,380 45,899,550,000
LR = 74.54%

#Average Total Loans & Advances (ATLA):


ATLA = (Loans & Advances of 2008 + Loans % Advances of 2007) / 2
ATLA = (TK 39,974,998,635 + TK 28,456,944,137) / 2
ATLA = 34,215,971,380
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Loans to Deposits (LTD):

188

LTD = Average Total Loans & Advances Average Total Customers Deposits
LTD = 34,215,971,380 35,649,317,740
LTD = 0.959
Liquidity Ratios.

Cash to Assets (CTA):

CTA = Cash Average Total Assets


CTA = 3,018,782,633 45,899,550,000
CTA = 6.57%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

Cash to Deposit (CTD):

CTD = Cash Average Total Customers Deposits


CTD = 3,018,782,633 35,649,317,740
CTD = 8.46%

Deposits to Assets (DTA):

DTA = Average Total Customers Deposits Average Total Assets


DTA = 35,649,317,740 45,899,550,000
DTA = 77.66%

Equity Multiplier (EM)

189

EM = Average Total Assets Average Shareholders Equity


EM = 45,899,550,000 2,985,682,860
EM = 15.37
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Equity to Deposits (ETD):

ETD = Average Shareholders Equity Average Customers Deposits


ETD = 2,985,682,860 35,649,317,740
ETD = 8.37%
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Total Liabilities to Equity (TLE):

190

TLE = Average Total Liabilities Average Shareholders Equity


TLE = 42,913,867,220 2,985,682,860
TLE = 14.37
#Average Total Liabilities (ATL):
ATL = (Total Liabilities of 2008 + Total Liabilities of 2007) / 2
ATL = (TK 50,038,289,716 + TK 35,789,444,721) / 2
ATL = TK 42,913,867,220
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2008 + Shareholders Equity of 2007) / 2
ASE = (TK 3,332,957,347 + TK 2,638,408,373) / 2
ASE = TK 2,985,682,860

Total Liabilities to Shareholders Capital (TLSC):

TLSC = Average Total Liabilities Shareholders Contributed Capital


TLSC = 42,913,867,220 1,743,750,000
TLSC = 24.61
# Average Total Liabilities (ATL):
ATL = (Total Liabilities of 2008 + Total Liabilities of 2007) / 2
ATL = (TK 50,038,289,716 + TK 35,789,444,721) / 2
ATL = TK 42,913,867,220
# Retained Earnings to Total Assets (RETA):

191

RETA = Retained Earnings Average Total Assets


RETA = 405,555,558 45,899,550,000
RETA = 0.8835%
# Average Total Assets (ATA)
ATA = (Total Assets of 2008+Total Assets of 2007) / 2
ATA = (TK 53,371,247,063 + TK 38,427,853,094) / 2
ATA = TK 45,899,550,000

For the Year 2009.


Bank Profitability Ratios.

Return of Assets (ROA):

ROA = Net Income (NI) Average Total Assets (ATA)


ROA = TK 1,327,184,458 TK 61,017,223,520
ROA = 2.17%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Return on Equity (ROE):

ROE = Net Income (NI) Average Shareholders Equity (ASE)


192

ROE = TK 1,327,184,458 TK 4,143,550,952


ROE = 32.03 %
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Profit Margin (PM):

PM = Net Income (NI) Operating Income (OI)


PM = 1,327,184,458 4,129,503,653
PM = 32.13%

Return of Deposit (ROD):

ROD = Net Income (NI) Average Total Customers Deposit


ROD = 1,327,184,458 23,621,250,940
ROD = 5.61 %

Return on Shareholders Capital (ROSC):

ROSC = Net Income (NI) Shareholders Contributed Capital


ROSC = 1,327,184,458 2,144,812,500
ROSC = 0.6187

Net Operating Margin (NOM):

NOM = Operating Income (OI) Interest Income


NOM = 4,129,503,653 1,749,478,127
NOM = 2.36

Bank Efficiency Ratios.

Interest Income to Expenses (IIE):

IIE = Interest Income Average Total Loans & Advances


IIE = 1,749,478,127 45,121,458,090
193

IIE = 3.87%%
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK 50,267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030

Operating Expenses to Assets (OEA):

OEA = Operating Expenses Average Total Assets


OEA = 1,512,465,951 61,017,223,520
OEA = 2.47%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Operating Income to Assets (OIA):

OIA = Operating Income Average Total Assets


OIA = 74,129,503,653 61,017,223,520
OIA = 1021%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Operating Expenses to Revenue (OER):

OER = Operating Expenses Operating Income


OER =1,512,465,951 4,129,503,653
OER = 36.62%

Assets Turnover (AT):

AT = Interest Income Average Total Assets


AT = 1,749,478,127 61,017,223,520
AT = 2.86%
# Average Total Assets (ATA)
194

ATA = (Total Assets of 2009+Total Assets of 2008) / 2


ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Assets-Quality Indicators.

Provision to Earning Assets (PEA):

PEA = Provision for Loan Losses Average Total Loans & Advances
PEA = 247,419,670 45,121,458,030
PEA = 0.947%
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50, 267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030

Adequacy of Provision for Loans (APL):

APL = Allowance for Loans Losses Average Total Loans & Advances
APL = 0 45,121,458,030
APL = 0
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50, 267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030

Write-Off Ratio (WR):

WR = Write-Off of Loans during the year Average Total Loans & Advances
WR = 0 45,121,458,030
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50, 267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030

Loan Ratio (LR):


195

LR = Average Total Loans & Advances Average Total Assets


LR = 45,121,458,030 61,017,223,520
LR = 73.94%
#Average Total Loans & Advances (ATLA):
ATLA = (Loans & Advances of 2009 + Loans % Advances of 2008) / 2
ATLA = (TK50, 267,917,439 + TK 39,974,998,635) / 2
ATLA = 45,121,458,030
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Loans to Deposits (LTD):

LTD = Average Total Loans & Advances Average Total Customers Deposits
LTD = 45,121,458,030 23,621,250,940
LTD = 1.910%

Liquidity Ratios.

Cash to Assets (CTA):

CTA = Cash Average Total Assets


CTA = 3,760,368,749 61,017,223,520
CTA = 6.16%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Cash to Deposit (CTD):

CTD = Cash Average Total Customers Deposits


CTD = 3,760,368,749 23,621,250,940
CTD = 15.91%
196

Deposits to Assets (DTA):

DTA = Average Total Customers Deposits Average Total Assets


DTA = 23,621,250,940 61,017,223,520
DTA = 38.71%

Equity Multiplier (EM)

EM = Average Total Assets Average Shareholders Equity


EM = 61,017,223,520 4,143,550,952
EM = 14.72
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Equity to Deposits (ETD):

ETD = Average Shareholders Equity Average Customers Deposits


ETD = 4,143,550,952 23,621,250,940
ETD = 17.54%
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Total Liabilities to Equity (TLE):

TLE = Average Total Liabilities Average Shareholders Equity


TLE = 59,873,672,560 4,143,550,952
TLE = 14.44
#Average Total Liabilities (ATL):
197

ATL = (Total Liabilities of 2009 + Total Liabilities of 2008) / 2


ATL = (TK 63,709,055,419 + TK 50,038,289,716) / 2
ATL = TK 59,873,672,560
# Average Shareholders Equity (ASE)
ASE = (Shareholders Equity of 2009 + Shareholders Equity of 2008) / 2
ASE = (TK 4,954,144,557 + TK 3,332,957,347) / 2
ASE = TK 4,143,550,952

Total Liabilities to Shareholders Capital (TLSC):

TLSC = Average Total Liabilities Shareholders Contributed Capital


TLSC = 59,873,672,560 2,144,812,500
TLSC = 27.91
#Average Total Liabilities (ATL):
ATL = (Total Liabilities of 2009 + Total Liabilities of 2008) / 2
ATL = (TK 63,709,055,419 + TK 50,038,289,716) / 2
ATL = TK 59,873,672,560

Retained Earnings to Total Assets (RETA):

RETA = Retained Earnings Average Total Assets


RETA = 869,945,964 61,017,223,520
RETA = 1.42%
# Average Total Assets (ATA)
ATA = (Total Assets of 2009+Total Assets of 2008) / 2
ATA = (TK 68,663,199,976 + TK 53,371,247,063) / 2
ATA = TK 61,017,223,520

Findings:

198

From the above data of ratios we see that overall ratio position and company current situation in
2009 is better than 2008. Return on Assets, Return on Equity, Profit Margin is more than in the
year 2008. Some components like Deposits to Assets, Retained Earnings to Total Assets, Asset
Turnover, Operating Income to Assets, and Operating Expenses to Revenue are greater than
2009.

SWOT Analysis.
SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. It involves specifying
the objective of the business venture or project and identifying the internal and external factors
that are favorable and unfavorable to achieving that objective. The technique is credited to Albert
Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from
Fortune 500 companies.
A SWOT analysis must first start with defining a desired end state or objective. A SWOT
analysis may be incorporated into the strategic planning model. Strategic Planning, including
SWOT and SCAN analysis, has been the subject of much research.

199

Strengths: attributes of the person or company that is helpful to achieving the objective.

Weaknesses: attributes of the person or company that is harmful to achieving the objective.

Opportunities: external conditions that is helpful to achieving the objective.

Threats: external conditions which could do damage to the objective.

SWOT Analysis of Bank Asia.


Strengths.

Bank Asias expanded business. During the year, the bank expanded the horizon of its
business operations; establishing new branches, introducing brokerage business, expanding
its ATM network and broadening its retail line of products.

The capital adequacy as per Basel II of the Bank is 10.01 percent, which is above the
stipulated rate of 8 percent.

Its aim to assist low income earning people by providing loan facilities to establish fisheries,
poultry farms, small and cottage industries, village transport and small engineering
workshops has met with huge success.
200

Bank Asia introduced Islamic Banking alongside the conventional banking in 2008 to give its
clients total satisfaction and freedom to choose

The steady progress of Bank Asia in its line of businesses is a testimony of the Banks
creativity, commitment and care for stakeholders.

Weaknesses.

Disbursement of industrial loans by the bank is slow due to some internal problems of
management.

Expenses incurred during the banking business by Bank Asia increase 27.16 during the last
financial year.

Some of the top level managers are not interested in banks growth.

Bank Asia needs to work more progressively on agricultural finance and poverty mitigation.

Bank must maintain an optimum level of liquidity through appropriate money market
operations.

Opportunities.

Despite many challenges, the opportunities are ample for the Bank to operate in international
market.

Further consolidation provided by the government has meant more freedom and liberty for
Bank Asia to flourish its business.

Governments commitment to and undertaking of necessary measures to discourage loan


default.

Country wide boom in property business has resulted in more potential people interested to
seek home loans.
201

Threats.

Lucrative offers by other banks encourage experienced bankers to switch to other banks.

This problem has its roots in stiff competition among banks in banking sector of Bangladesh.

Undue political and owner group pressure in snatching loan.

Political unrest.

Strengths of Premier Bank in Credit Management:


Every Banks has its own credit appraisal procedure. Premier Bank possesses a standard credit
procedure. The strength of Premier bank credit management practices are as follows:

Premier Bank possesses a standard credit procedure

From the existing credit condition we have seen that the Credit of Premier Bank is
increase in 2007 than the 2006.

The upward tendency of the credit show increase in profit. That means the bank is able
to investment money in the suitable sector.

202

The bank gives priority of trade finance in loan approval. The bank also encourages
Ready made Garments.

The banks recovery of credit is satisfactory. Premier Bank Ltd. has a quite good credit
approval process which brings 84% recovery of credit.

The bank also follows Bangladesh Bank order in case of credit approval.

For minimizing risk Bangladesh Bank introduced credit risk grading, the bank also
follows this approach accurately.

The bank does not provide loan to the person or business who is below acceptable.
Premier bank maintains a standardized framework for the approval of credit.

Weaknesses of Premier bank in credit management:


It has observed that Premier bank is not much different from other commercial bank of
Bangladesh. It follows the same practice and procedure which is followed by its elders. But one
thing should be mentioned new loan reformation have slightly changed the approval procedure.
This Credit Risk Grading makes the procedure better than previous

But there exists a Some difference between Banks policy and practice in case of credit
management
203

Small loans are neglected, which is another shortcomings of Premier bank credit
management approaches,

Credit policy is not properly cared in practice.

Credit deposit ratio is 87.18%, which shows PBL utilize large amount of its deposit in
lending.

Small loans are given without following CRG strictly.

Directors reference in credit approval hampers the credit appraisal procedure.

In crediting Premier Bank doesnt have any proper sector wise planning.

New and small entrepreneurs dont get priority in having loan from the bank for the lack
of strong guaranty.

CHAPTER-05
Recommendations & conclusion

204

Policy implications:
What should be done to improve the credit management practices of these banks?
More training should be conducted for the bankers to improve their analytical ability and
professional standard regarding the use of CRG and other tools and techniques in selecting the
borrowers and analyzing the loan proposals.
Authority should be delegated to the lower level with adequate measures for the necessary control
and follow-up for making the lending decision and recovery
One proper standard procedure should be developed for all types of clients and no interpersonal
relationship should be involved in approve a loan
Banks should fixed-up specific types of client strategy according to the different character of
client.

205

Interest income occupies the major part of the total earnings of a bank and banks profitability
mainly depends on interest earning capacity, so bank should establish a research and development
cell for the purpose of lending analysis and recovery of loans.
At first the banks should find out the way to Reduce its bad loan amount further, to improve is
loan quality.
If the banks assign score on specific loan criteria it will become easier for the approval

officers to assess the loans. Scoring system will help to reduce bad applications
automatically and the burden on approval officer will be reduced. On the other hand
strength of a loan will be stemmed out from scoring system. However, the assessment
procedure should remain same.
Banks should increase their loan investment because increase the loan investment will maximize
the interest income of the Bank. So the investment, which will give the expected return, should be
increased. And for that they should strictly follow the factors considering before sanction of any
loan.
If the loan and advance is large then the credit risk is also high because a chance of not getting the
money back is higher in loan investment then the investment in securities. Because securities,
plant, equipment can provide a certain return with very minimum risk. But default risk in loan
investment is very high. So a bank, which has high amount of provision for loan losses, should
not expand its loan portfolio without proper consideration of all the factor of loan sanctioning.
They can diversify the loan portfolio in to the securities. And should give more

emphasize in the foreign exchange and remittance services to maximize income.

In order to increase the profitability and reduce the credit risk, PBL, BAL and ABL should maintain a
well-balanced portfolio. For example, instead of focusing on just corporate banking and high profile
business loan and leasing, it should also give equal importance to retail banking. The more diversified the
portfolio is the lesser the risk of losses.

206

Conclusion:
There is basic framework of regulations and policies regarding Credit management, that are exist in
Bangladesh. Regulators and market participants need to evaluate comprehensive set of factors to
determine which ones constrain their markets growth and how to deal with them. Every Bank has its own
credit appraisal procedure. Banks possesses a standard credit procedure. It has observed these banks are
not much different from other commercial bank of Bangladesh. It follows the same practice and
procedure which is followed by its elders. The banks do not provide loan to the person or business that is
below acceptable. The banks recovery of credit is satisfactory. PBL, ABL and BAL have a quite good
credit approval process which brings 84% recovery of credit. These banks maintain a standardized
framework for the approval of credit. But one thing should be mentioned new loan reformation have
slightly changed the approval procedure in order to remain successful and profitable in the future.

207

Bibliography:

[1]
[2]

Annual Report of Bank Asia Limited, 2008, 2009.


Annual Report of Premier Bank Limited, 2008, 2009.
Annual Report of Agrani Bank Limited, 2008, 2009.
The Official Website of BAL < http://www.bankasia-bd.com/>
The Official Website of PBL < http://www.premierbankltd.com/>
The Official Website of PBL < http://www.agranibank.org/>

[3]

Collyer Gary, ICC Uniform Customs And Practice For Documentary Credits ,
3rdEdition, International Chamber Of Commerce, ICC Publication No.600

[4]

Kinnear, C. Thomas and James R. Taylor. Marketing Research: An Applied


Approach. 5th ed. New York: McGraw Hill, 1996.

[5]
[6]

Zikmund, William G. Business Research Methods. 6th ed. Florida: Harcourt Inc.,
2000.
Premier Bank credit policy manual, pp# 01.

[7]

Madura, Jeff, Credit Risk Management financial market and institutions, 6th
208

edition chapter # 21,pp #600.


[8]

BB (2006) Financial Sector Review, Volume 2, Number 1, Research


Department, Bangladesh Bank: Policy Analysis Unit.

Appendix:

ADP
ALCO
CRM
BB
BRPD
CD
EC
DOS
GDP
FY
FDR
ECAI
IFDD
IBCA
IBDA
IFBC
IMP
LCA
LIC

: Annual Development Program


: Asset-Liability Management Committee
: Credit Risk Management
: Bangladesh Bank
: Bangladesh Regulatory & Policy Department
: Current Deposit
: European Community
: Department of Off-site Supervision
: Gross Domestic Product
: Financial Year (July June)
: Fixed Deposit Receipt
: External Credit Assessment Institute
: Issuance of Foreign Demand Draft
: Inter Branch Credit Advice
: Inter Branch Debit Advice
: Inward Foreign Bills for Collection
: Import
: Latter of Credit Authorization
: Low Income Countries
209

LIBOR
BAL
PBL
ABL
OBC
OD
PAD
PO
STD
TC
TT
BB
SWIFT

WWR
WTO
UCP

: Local Bill Purchase


: Bank Asia Limited
: Premier Bank Limited
: Agrani Bank Limited
: Outward Bill Collection
: Over Draft
: Payment against Document
: Payment Order
: Short Term Deposit
: Travelers Cheques
: Telegraphic Transfer
: Bangladesh Bank
: Society for Worldwide Inter Bank Financial Telecommunication
: World Wide Recycling
: World Trade Organization
: Uniform Customs and Practice

210