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Chapter: 3

Credit Management Approval and recovery

3. Introduction

Comprehensive risk management is a core competence of EBL. EBL take a prudent and
conservative approach to risk that is fully aligned with their long-term strategy. The risk
framework combines centralized policy setting with board oversight supported by risk
execution and monitoring. It provides management with the ability to oversee the banks
large and highly diversified portfolio effectively and efficiently.
EBLs risk management systems are designed to identify and analyze risks management
processes by establishing a credit risk management policy, credit underwriting standards,
and credit risk rating methodology. It also established a Credit Risk Management Division,
which is independent from relationship management units to ensure proper controls on its

3.1 Procedures of granting credit

A credit review process is needed to ensure that a business does not grant credit to customers who are
unable to pay. The credit department handles all credit reviews. The department may receive paper copies
of sales orders from the order entry department, documenting each order requested by a customer. In this
manual environment, the receipt of a sales order triggers a manual review process where the credit staff
can block sales orders from reaching the shipping department unless it forwards an approved copy of the
sales order to the shipping manager.
The order entry procedure for a manual system is outlined below.


Receive sales order. The order entry department sends a copy of each sales order to the credit
department. If the customer is a new one, the credit manager assigns it to a credit staff person.
A sales order from an existing customer will likely be given to the credit person already assigned
to that customer.


Issue credit application. If the customer is a new one or has not done business with the company
for a considerable period of time, send them a credit application and request that it be completed
and returned directly to the credit department. This may be done by e-mail to speed the
application process.


Collect and review credit application. Upon receipt of a completed sales order, examine it to
ensure that all fields have been completed, and contact the customer for more information if
some fields are incomplete. Then collect a credit report, customer financial statements, bank
references, and credit references.


Assign credit level. Based on the collected information and the companys algorithm for granting
credit, determine a credit amount that the company is willing to grant to the customer. It may
also be possible to adjust the credit level if a customer is willing to sign a personal guarantee.


Hold order (optional). If the sales order is from an existing customer and there is an existing
unpaid and unresolved invoice from the customer for more than $___, place a hold on the sales
order. Contact the customer and inform them that the order will be kept on hold until such time
as the outstanding invoice has been paid.


Obtain credit insurance (optional). If the company uses credit insurance, forward the relevant
customer information to the insurer to see if it will insure the credit risk.


Verify remaining credit (optional). A sales order may have been forwarded from the order entry
department for an existing customer who already has been granted credit. In this situation, the
credit staff compares the remaining amount of available credit to the amount of the sales order,
and approves the order if there is sufficient credit for the order. If not, the credit staff considers a
one-time increase in the credit level in order to accept the order, or contacts the customer to
arrange for an alternative payment arrangement.


Approve sales order. If the credit staff approves the credit level needed for a sales order, it
stamps the sales order as approved, signs the form, and forwards a copy to the shipping
department for fulfillment. It also retains a copy.


File credit documentation. Create a file for the customer and store all information in it that was
collected as part of the credit examination process.

3.1.1Procedure of Application for loans

The party seeking a secured advance against any acceptable security must make an
application to the branch where he maintains his operative account. Disbursement may be
allowed only after getting a limit sanctioned by the authorized officials.
Conducting preliminary study: The credit proposal should be evaluated on the basis of the
following documents and parameters:
Borrower's application
Reports in confidence regarding the state of business of the intending borrower through
available means.
Report from Bangladesh Bank CIB regarding the applicant's status of
borrowings/exposure with other banks.
Statement of accounts of the borrower with own and other banks.
Statement of assets and liabilities ( in detail) .:. Balance sheet/profit & loss accounts (in
'case of limited company) for 3 years.
Memorandum & Articles of Association.
Approval of limit:
The sanctioning authority on receipt of the proposal shall scrutinize the same and ensure
The proposal bears all pertinent information relating to the advance and the borrower.
All necessary papers/documents have been enclosed with the proposal duly checked and
verified by the branch.
The proposal has been duly recommended.
The proposal does not fall within the existing credit
Minimum margin requirement against the advance is proposed.
The primary security has got easy marketability, durability and storability.
Valuation of the property offered as collateral security is judiciously assessed by the
engineer and branch manager as per proforma circulated by Head Office.
The intending borrower is not a defaulter of the Bank/other banks including DFIs.
3.1.2 Processing of Application for Credit
These documents are the main contents of the application form for opening Savings or
Current account in EBL:
For individual:
1) Name of the Applicant(s)

2) Fathers/ husbands Name

3) Present Address
4) Permanent Address
5) Number, Date of issue, Date of Expiry & Place of Issue of Passport (if any)
6) Date of Birth
7) Photocopy of Voter ID Card (Both the Party and Nominee)
8) Occupation
9) Nominee (s)
10) Special Instruction of Operation of the Account (if any)
11) Initial Deposit
12) Specimen Signature (s) of the Applicant (s)
13) Introducers Information (Name, Account Number, Specimen Signature)
14) Two copies of photographs of the Account Holder (s) duly attested by the Introducer
15) One copies of photograph of the Nominee duly attested by the Account Holder In
case of Join Account, bank needs these two contents too: a) Operation instruction of the
account. b) Signature. 64 Then, in Partnership Account a) Partners Signature.

b) Partners Name. Again, In case of Minors Account ,

1. Putting the word MINOR after the title of the account.
2. Recording special instruction of operation of the account.
3. The account opening form is to be filled in and signed by either of the parents or the
legal guardian appointed by the Court of Law & not by the Minor. After fulfilling the
above formalities, I submit those forms to the bank; then bank generally opens an account
against the account user & provides the customer a pay-in-slip book. Then Bank sends
Letter of thanks to Account Holder(s) and Introducer to be sent under registered post to
verify the address of the account holder. Risk areas in Account opening are 1. Account
holders identification: If account holders provide fake national identification number
(NID) or fake passport. It might be risk for bank. 2. Source of income: Legal income
source must. If account holders source of income illegal then money laundering must.]

3.1.3 Credit Approval

Credit approval authority to the proper body and/or executive is a precondition for ensuring smooth
and transparent credit operation in the Bank. Since inception, credit approval authority has been
delegated to different tiers of both the Board of Directors and the Management. Authorities who
enjoy delegation of business power i.e credit approval authority are as follows:


The Board of Directors


The Executive Committee of the Board


The Managing Director


Executives working as head of Branches.

Credit Approval Authority

Credit approval authority may be delegated to the following body/Executive:

The Board of Directors


The Executive Committee of the Board


Different tier of the Management

The Board of Directors: The Board of Directors will have the authority to sanction any loan for the
amount not exceeding the regulatory limit the Bank can provide to a single customer. Besides, all
proposals for waiver of interest, commission, charges etc and principal must be approved by the
Board of Directors. Any proposal for reduction of rate of interest by more than one percent from
minimum level of approved interest rate band must be approved by the Board.
The Executive Committee of the Board: The Executive Committee of the Board of Directors may
sanction any loan for the amount not exceeding the regulatory limit the Bank can provide to a single
customer. However, it will not have the authority to approve any proposal for waiver of interest,
commission; charges etc and principal must be approved by the Board of Directors. Any proposal
for reduction of rate of interest by one percent or less from the minimum level of approved interest
rate band may be approved by the Executive Committee of the Board. Any proposal beyond the
delegated authority of the Managing Director will be placed before the Executive Committee of the
Board for approval.
The Management: Different tier of the Management may be delegated credit approval authority to
ensure timely disposal of the credit proposals at root level. In the Management, the following
executives may be delegated credit approval authority:

The Managing Director


The Deputy Managing Director supervising Credit Division


Executives working at Credit Risk Management Unit, Credit Division


Executives working as Head of Branches

Composite Limit
Credit Limit to a single customer comprising of more than one facility/product will be treated as a
Composite Limit. Different tier of the Management may be delegated authority to sanction a
composite credit limit to a customer which the respective executive will exercise after complying
with all preconditions set in different chapters of this policy document and in the relevant circulars in
force. Specially, any executive having delegated authority to sanction a composite limit will exercise
this provided that the subject composite limit is covered by collateral security having forced sale
value which is at least 1.25 times of the total funded limit. However, the executives having approval
authority may sanction following facilities without taking collateral security within their authority:
SOD (FO), SOD (WO), SOD (EM), SOD (EDF), SOD (CI), FDBP, IDBP, Bid Bond and the
Managing Director may sanction following facilities without taking collateral security within his

authority: SOD (FO), SOD (WO), SOD (EM), SOD (EDF), SOD (CI), FDBP, IDBP, LIM, LTR and all
non-funded facilities. Different tiers of the Management may be delegated the following authority for
approving composite credit limit:

Fig. in Lac Tk




be Maximum



Managing Director





Deputy Managing Director





Senior Executive Vice President





Executive Vice President





Senior Vice President





Vice President





Senior Assistant Vice President





Assistant Vice President




Credit Risk Management (CRM) Department

The Credit Risk Management Department shall perform the following duties:

Assess risks inherent in the credit proposal sent by Corporate Division and also evaluate

proposed facility pricing based on risks, security, structuring and terms and conditions to suit the
business condition and to protect Banks interest.

Compliance to the existing rules and regulations of the Bank and all regulatory authorities

and laws of the country and to advise the Corporate Division for rectification, if required.

Advise the Corporate Division about changes, if required, in the structure and terms and

conditions of the proposed facility.


Process credit proposal for approval of the competent authority.


Issue sanctions advice for credit facilities or decline.


Maintain Limit Sanction Register.


Review the performance of the customer on Off-site Basis and prescribe appropriate

remedial measures, if required until the loan account becomes a Special Mention one.

Review/revise risk grading of the customer from time to time based on the Early Alert

Report and Downgrade Proposal submitted by Corporate Division.


Handover loan to the Recovery Department as and when it is degraded to Special

Mention or below.

3.1.4 Distribution of Credit

Personal Loan of Eastern Bank:

Sharing makes life perfect to make solution of personal Loan. There must have been
many occasions when you have had some money and needed some more for some
specific purpose. EBL Personal loan is the right Product for you, where you give some
and we share the rest with you making life simple for you. Eastern Bank believes in
relationship building and focuses on sustainable and long term growth both for the
bank, its clients and the community it operates in. Despite the constant threat of the
global economic recession and its subsequent effect on the Bangladesh. Eastern Bank
launched many products the Personal Loan is one loan product. Eastern Bank knows its

target customers and as such offers new products and services to cater to their
contemporary taste and need of Personal Loan. In the past couple of years the Bank
came up with several exciting products and service propositions. We wish for so many
things in life be it a little get away from the daily monotony, be it decorating the home, be
it securing our childs future by sending her overseas for studies, and so many other
things. Wow, there is a chance for you to make these wishes come true. Any person agree
to get loan then he or she are apply to EBLs and they get easy to their urgent
requirement full fill, EBLs are many branch of Bangladesh, for this reason most of the
people are apply to their requirement Personal Loan.

Features of Personal Loan of Eastern Bank:

Personal loan facility for any Consumer Needs.
Loan Amount Ranges from BDT 200,000 to BDT 1,000,000 or 10 times of Gross
Monthly Income, whichever is lower
EMI Based Loan Repayment Facility
Repayment tenure of 12 months to 60 months

Available in Two Versions of Personal Loan :

EBL Personal Loan 30- where you provide 30% of the applied Loan Amount in the
form of EBL FD; for example for a loan amount of 10 Lac, you need to provide BDT 3 lac
as security.
EBL Personal Loan 50- where you provide 50% of the applied Loan Amount in the
form of EBL FD; for example for a loan amount of 10 Lac, you need to provide BDT 5 lac
as security.
Attractive Loan Interest Rates
Automatic realization of Monthly Installments
One personal Guarantor needed; spouse can stand as a guarantor

Early Full and partial settlement allowed

Minimal documentations
No hidden charges
Shortest Loan Processing Time

Eligible of Personal Loan Customers:

Any credit worthy individuals like:
Salaried Executives: Minimum 2 year experience with 6 months employment with
present employer
Self Employed Professionals / Businessmen: Minimum 2 years experience

Age Limit of Personal Loan:

Minimum: 22 Years
Maximum: 60 years (For Salaried), 65 Years (For Others)

Minimum Gross Monthly Income of Personal Loan:

Salaried Executives: BDT 30,000
Self Employed Professionals/Businessman: BDT 40,000
Joint applicant allowed; Combined Gross monthly income should be minimum
BDT 40,000 per month

EBL Home Loan

EBL introduces the most convenient & practical Home Loan that suits your all home financing needs. Let it be for
apartment purchase, home construction, extension or renovation - EBL is here with the ultimate solution for you. With so
many attractive features in it - the home you wanted to buy, or to extend the existing one or renovate the same is no
longer a distant dream.
Home Loan for the purpose of
Flat/Apartment Purchase
House construction / Extension / Renovation / Up-gradation/ Face uplifting / Finishing work
Takeover of existing home loan from any bank / Financial institution

Loan Amount Ranges from BDT 500,000 to BDT 10,000,000 (or 50 times of Gross Monthly Income, whichever is lower)
Competitive interest rate
No Processing fee for Take over home loans from other Banks/ Financial Institutions
Repayment tenure of up to 20 years
Automatic realization of Monthly Installments
Early full and partial settlement allowed
Shortest Loan Processing Time
Interest Rate: 14% pa.

Eligible Customers
Any credit worthy individuals with a minimum of three (3) years experience like:
Salaried executives
Self Employed : Doctors, Architects, Engineers, Chartered Accountant and Certified Consultant & IT Professionals

Minimum : 25 Years
Maximum : 65 years

Minimum Gross Monthly Income:

Salaried Executives: BDT 30,000
Professionals/Self Employed: BDT 40,000
Businessman: BDT 50,000

Joint applicant allowed; Combined Gross monthly income should be minimum BDT 40,000 per month.

Property Features
Loan facility for both Lease hold and free hold properties.
TPA (Tri Partite Agreement) allowed for up to 18 months from the date of the loan disbursement

Small Segment Loan Products

EBL Asha
To be repaid within maximum 24 months (Next
loan is repayable within 60 months)

EBL Mukti
Credit facility up to BDT 300,000 (three lac) in
any legitimate business

EBL Nobodoy
Loan for agro based industry, loan amount
minimum BDT 2,00000 - maximum BDT

EBL Projukti
Loan will be extended to the owners up to 15
bighas cultivable land /7.5 bighas for potato &
sugarcane cultivation

3.2 Credit monitoring and recovery


Credit Monitoring

While financial institution have faced difficulties over the years for a multitude of
reasons, the major cause of serious banking problems continues to be directly related to
lax credit standards for borrowers and counterparties, poor portfolio risk management or
a lack of attention to changes in economic or other circumstances that can lead to a
deterioration in the credit standing of a banks counterparties. Credit risk is most simply
defined as the potential that a bank borrower or counterparty will fail to meet its
obligations in accordance with agreed terms. The goal of credit risk management is to

maximize a banks risk-adjusted rate of return by maintaining credit risk exposure within
acceptable parameters. Banks need to manage the credit risk inherent in the entire
portfolio as well as the risk in individual credits or transaction. Banks should also
consider the relationship between credit risk and other risks. The effective management
of credit risk is a critical component of a comprehensive approach to risk management
and essential to the long term success of any banking organization.

The sound practices set out in the document specially address the following areas:
Establishing an appropriate credit risk environment
.Operating under a sound credit granting process.
Maintaining an appropriate credit administration, measurement and monitoring
Ensuring adequate controls over credit risk.

To establish an appropriate credit risk management EBL maintains followings values:

The Board of Director has the responsibility for approving and periodically reviewing
the credit risk strategy and significant credit risk policies of the bank. The strategy
reflects banks tolerance for risk and the level of profitability the bank expects to achieve
for incurring various credit risk.
Senior management has the responsibility for implementing the credit risk strategy
approved by the Board of Directors and for developing standard policies and procedures
for identifying, measuring, monitoring and controlling credit risk. Such policies and
procedures address credit risk in all the banks activities and at both the individual credit
and portfolio levels.
Banks identify and manage credit risk inherent in all products and activities. Banks
ensure that the risk of products and activities new to them are subject to adequate
procedures and controls before being introduced or undertaken and approved in advance
by the Board of Directors or its appropriate committee. In order to streamline risk control

features in a more effective manner, UCBL has put in place in Standard Operating
Procedure (SOP) in line with internationally accepted best practices.


Credit Recovery

To maintain an appropriate credit administration, measurement and monitoring process

EBL maintains following values:
The bank has in place a system for the ongoing administration of various credit risk
bearing portfolios. Dedicated independent risk management units like credit risk
management units, credit administration department, credit monitoring ad recovery
department, internal audit division are developed for those purposes. Dedicated
committee at management level has been set up to monitor risk viz. credit risk through
credit review committee and risk management units.

The bank has in place a system for monitoring the condition of individual credits,
including determining the adequacy of provision and reserves. For NPL provisioning and
write off the guidelines established be Bangladesh Bank for CIB reporting, provisioning
and write off of bad doubtful debts and suspension of interest are followed in all cases.

The bank has in place a system for monitoring the overall composition and quality of
the credit portfolio. All credit extensions must comply with the requirements of the
banks memorandum and articles of the association, Bank Company Act, 1991 as
amended from time to time, Bangladesh Banks instruction circulars, guidelines and other
applicable laws, rules and regulations, Bans credit risk management policy, credit

operational manual and all relevant circulars in force. Any deviation from the internal
policy of the bank must be justified and well documented. The portfolio shall always be
well diversified with respect to sector, industry, geographical region, maturity, size,
economic purpose etc. Concentration of credit shall be carefully avoided to minimize
To minimize investment losses, monitoring procedures are system should be in place that provide
an early indication of the deteriorating financial health of a customer. At a minimum the following
are looked into.
Past due principal or profit payments, past due trade bills, account excesses, and branch of
investment covenants.
Investment terms and condition are monitored, financial statements are received on a regular basis,
and any covenant breaches or expectation are referred to IRM and the RM team for timely followup.
Timely corrective action is taken to address finding for any internal, external or regulator audit.
All customer relationship facilities are reviewed and approved through the submission of an
investment management at least annually.
Exception to be followed up on the corrective action taken in a timely manner before the account
deteriorates further.

3.3 Summary of the findings

During my internship period I have some findings related with Credit appraisal & credit
management system of Prime Bank Limited. The findings are shown in parts of credit appraisal,
credit recovery and credit default.
Findings on Credit appraisal

EBL uses credit appraisal technique comprising technical, market, financial, economic, and
management & organization analysis.

Credit appraisal technique is good enough itself, but the problems lie with personnel involves in
appraisal process
The main problems can be summarized in the following way:
One of the problems with credit appraisal is inadequate and inaccurate data.
Sponsors always tend to overstate their future cash flow, revenue and income and understate
the risk with capturing market and expenses.
Market dont remain same over the years especially over the time gap between loan sanction
and loan recovery.
Lengthy procedure and long time involved in the appraisal of project
Sometimes, there is pressure groups involvement in sanctioning loan.
Many viable projects do not get sanctioned loan due to absence of bribe and pressure from

political and other pressure group.

The personnel involve in project appraisal are either not quite expert in their respective field or

Physical verification is not rigorously done for every project that is why the project appraisal

techniques do to bring any outstanding results.

Sometimes, the amount of loan sanction is more than that is required by the project because of
over invoicing from the part of sponsors.

Findings about the Credit Recovery

Usually EBL inform the borrowers before 7 days of the scheduled date of payment about his/her
next upcoming installment due.
Visiting to the borrowers premises is hardly done before the loan is defaulted.
The recovery department cannot coerce or make bound to repay the loan because of pressure
from political and other higher management.
Sometimes sponsors do like to linger the repayment time to have the replacement facilities.
The recovery amount has been increasing for last 5 years, and the variance between recovery

Findings about Credit Defaults


The causes of the loan defaults are:

Willing defaults
Government policy, sometimes, causes a firm to stop business operation or due to

changes in the government policy a firm may incur loss.

Due to market changes firms may not get buyers to sell production resulting in a no

sale, no cash, and no repayment.

Technological change may also lead a firm to incur losses because of obsolete

technology cannot compete with modern technology resulting in less cash generation.
Sometimes, project is not implemented because the shortages of fund from the part

of borrower.
Lack of financial commitment from the part of borrower the result is the failure of


mobilization of equity. They divert their equity in other purposes after getting the loan amount
Default amount shows a down-ward trend during 5 years
Law department functions very slowly and follow a difficult bureaucratic process.
After enactment of the, the legal action has got speed and the number law suits have
Most of the cases settled outside the court.
There are some problems of taking over the company, like maintenance of the
property and selling the property.

It takes time to settle a suit, because the borrower has right to writ against the

Analytical Findings
Throughout credit analysis of Eastern Bank Limited some mentionable results are found Bank is doing well in its credit operation. The amount of interest earning shows the success.
The banks Net Interest Margin is in the decreasing trend.
EBL has good credit ratings. That is a plus point for it.
Strong financial condition helps the bank to be a market leader.
From regression analysis it has shown that loan amount of the bank is inversely related with
Interest rate.
EBL is mainly focusing on Industrial credit beside other type of credit.
A banker cannot sleep well with bad debts in his portfolio. The failure of commercial banks occurs
mainly due to bad loans, which occurs due to inefficient management of the loans and advances
portfolio. Therefore any banks must be extremely cautious about its lending portfolio and credit
policy. So far Eastern Bank Limited has been able to manage its credit portfolio skillfully and kept
the classified loan at a very lower rate thanks go to the standard and stringent credit appraisal
policy and practices of the bank.
But all things around us are changing at an accelerating rate. Today is not like yesterday and
tomorrow will be different from today. Given the fast changing, dynamic global economy and the
increasing pressure of globalization, liberalization, consolidation and disintermediation, it is
essential that Eastern bank limited has a robust credit risk management policies and procedures
that are sensitive to these changes.
Eastern bank Limited has an efficient & excellent credit management team and performing with
great expertise and care. There are some limitations that can be overcome by some measures to
make the performance outstanding. There are some suggestions for prime banks credit
management team from my observation.

In credit management, it is conventional that proposals of credit facilities must be supported by a

complete analysis of the proposed credit. More importance should be given on refund of loans out of
funds generated by the borrower from their business activities (cash flow) instead of realization of
money by disposing of the securities held against the advance, which is very much uncertain in

present context of Bangladesh, where a number of creditors are willful defaulters.

For commercial lending, most of the time clients are unable to submit audited financial
statements. The reason is no legal bounding to prepare audited financial statements for all
commercial organization. So the credit officer has to face difficulties about the reliability of financial

statements submitted. So there should be some flexibility for proprietorship concerns.

Credit officer measures the risk associated with the credit facility. He should not be liberal in this
respect; he should strictly follow the credit evaluation principle setup by the bank. It should improve in

file management system to faster the dealings with the clients proposal.
On the basis of that Return on Equity (ROE) model, risk and return of the bank is analyzed.
Prime Bank has a good return in the following years from its operation. But Bank should be careful in

its riskiness. It should improve its liquid assets to reduce the liquidity risk. It should also try to
increase its reserve.

Researchers support the fact that economic and financial development of a country are highly
correlated to the development of its banking and financial system. The more developed and
efficient the banking sector of a country is, the more developed is the business industry sectors will
With a view to improving the quality and soundness of loan portfolio, credit risk management
methods were updated in 2005. The Bank is now applying a new system of credit risk assessment
and lending procedures by striker separation of responsibilities between risk assessments and
lending decisions and monitoring functions. The Bank monitors its exposure to particular sectors of
economy on an ongoing basis. The Bank has undertaken the changes in policy of credit risk
management, credit risk administration and credit monitoring and recovery in line with the
guidelines of Bangladesh Bank, formulated in the last year.
Credit Appraisal system of this bank is pretty efficient. From the beginning of the process of credit
appraisal system the credit committee is sufficiently committed and caring. After received loan
application from the client, in-depth study of various related documents & gathering of information
from different banks and other sources are performed. The loan proposal that is prepared by the
credit officer and submitted to the higher authority for approval is the most important part of credit
appraisal system because based on this proposal the granting of credit decision is made. Credit
collection process of PBL is also strict and satisfactory.
We hope that EBL will lead by example by continuing its efficient lending policy in keeping the
banks financial performance indicators at above industrial average and contribute to countrys
economic development-thus attaining a middle income status in the world.

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