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Prime Bank Limited

a bank with a difference

Chapter: 1

Introduction
Introduction

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Prime Bank Limited


a bank with a difference

1.1 INTRODUCTION:
The Credit Operations Department will primarily service the lending teams in Shanghai and also
serve as the repository of best practices and act as a consultant to all branches for any queries
they may have on credit operations matters. These include ensuring effective delivery of credit
services and products to customers, monitoring credit limits, providing proper mechanism for
document tracking and capturing and maintaining credit-related information in the recording
systems.

1.2 OBJECTIVES OF THE REPORT:


The main objective of the study is to analysis the credit operations of Prime Bank Limited.
To achieve this, the following are the specific objectives:
To identify different services of Credit operation in Prime Bank Limited.
To identify different Type of Loans and its amounts.
To know about the Credit operation functions of Prime Bank Limited.

1.3 METHODOLOGY OF THE REPORT:


1.3.1 Research Design:
Exploratory research has been conducted for gathering better information that will give a
better understanding on credit department. Both primary and secondary sources of data
collection procedure have been used in the report. Primary data has been collected mainly
through the writers observation of the approval process and monitoring techniques, informal
interviews of executives, officers and employees of Prime Bank Limited.

1.3.2 Sources of Data Collection

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Prime Bank Limited


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To make the Report more meaningful and presentable, two sources of data and
information have been used widely.
Source of Data

PRIMARY
DATA

SECONDARY
DATA

Figure 1.1: Sources of data


Both primary and secondary data sources were used to generate the report.
The "Primary sources" are as follows
*

Face-to-face conversation with the respective officers and staffs of Prime Bank.

Informal conversation with the clients.

Practical work exposures from the different desks of the departments of the
department.

Study of the relevant files as instructed as instructed by the officers concerned.

The "Secondary Sources" of data and information are*

Annual reports of PBL and other Banks.

Training materials available at the Internet.

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Prime Bank Limited


a bank with a difference

1.4 LIMITATIONS OF THE STUDY


The limitations of the study are as follows:
i)

The credit policies and manuals of PBL are of confidential nature and thus it is difficult to
collect the necessary literature and documents within this short time.

ii)

The bank officials though helpful in every respect do not have much time to explain the
internal procedures.

iii)

Many operations relating to the credit extension run simultaneously by different credit
officials and it is difficult to capture the sequence of any particular credit proposal.

iv)

A structured filing procedure is often neglected which also poses difficulty in understanding
the sequential procedure.

v)

Borrowers do not often have the time to cooperate in the information gathering process.

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Prime Bank Limited


a bank with a difference

Chapter: 2

Overview
Overviewofofthe
theBank
Bank

2.1 Evolution of the Word Bank:


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Prime Bank Limited


a bank with a difference

The word bank is originated from Italian word Banca. Banca means long tool. In ancient time
Italian Jews merchant used to do business of lending money by sitting on the tools. To meet the
expense of war of 1171 one type credit certificate was launched in Italy at an interest rate of 5%
which was called as Monte in Italian language and Banke in German language. Then the German
language was widely used in Italy. As a result the word Banke gradually changed to the word
Banca from which the word Bank originated.

2.2 Walkway of Banking:


The linguistics and etymology suggest an interesting story about banking origins. Both the old
French word Banque and the Italian word Banca were used centuries ago to mean a bench or
moneychangers table. The historians have identified the first bankers who lived more than 2000
years ago. They were money changers seated usually at tables or in a small shop in the
commercial district, aiding travellers who came to the town by exchanging foreign coins for
local money or discounting commercial notes for a fee in order to supply merchants with
working capital.
The first bankers probably used their own capital to fund their activities but it was not long
before the idea of attracting deposit and securing temporary loans from wealthy customers.
Loans were then made to merchants shippers and landowners at rates of interests low as 6
percent per annum to as high as 48 percent a month for the riskiest ventures. Most of the early
bank was Greek in origin.
The banking industry gradually spread outward from the classical civilizations of Greece and
Rome into northern and western Europe. The early bank in Europe was placed for safe keeping
of valuable items (such as gold and silver bullion) as people came to fear the loss of their asset
due to war, theft, or expropriation by government. When colonies were established in North and
South America, the old world banking practice was transferred to the new world.

2.3 Development of Bank in Bangladesh:

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Bank system was practiced in Indian subcontinent by the Indian subcontinent merchants;
Goldsmith Moneylenders were the primary bankers. During the mughal period banking and
credit business was enchanted rapidly.
Indigenous banking in Bangladesh is as old as banking in other parts of the world. During
mughal period, indigenous banking flourished. The Subarna Banik, the bullion trading
community used to do banking in the then Bengal.
Banking in Bangladesh was gradually taken over by the upcountry bankers who were known as
Seth, Shah etc. But Subarna Banik continued to operate in rural Bengal. The British gradually
came to Bengal and operated

banking in the form of agency house and exchanging houses

started to flourish in Calcutta. Entry of the Bengalese into

banking started in the part of this

century especially in the period of the Swadeshi movement.


In 1700 AD Hindustan bank was established as the first joint stock bank. In 1784 Bengal
bank and in 1786 general bank of India were launched. Then both the banks absolved
respectively in 1793 and 1832.
During the early period of nineteenth century the three banks Bank of Bombay, Bank of
Madras and Bank of Bengal merged to Imperial bank of India.
In 1947 after the separation of Bengal, bank business faced a severe disaster as non-Muslim
bankers migrated to India. In order to rebuild the bank business State bank of Pakistan was
established as a central bank of Pakistan in 1948.
In 1971 Bangladesh became independent. After liberation Bangladesh bank was automated
with the assets and liabilities of former State bank of Pakistan

2.4 Background of Prime Bank Limited:


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Prime Bank Limited


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The Prime Bank Limited (PBL) is a national banking group that is incorporated on February 12,
1995 as a consequence of persistent efforts of a group of entrepreneurs having excellence of
experience exposure in the different fields of industry, trade and commerce of the country. It
started operation as a commercial bank on April 17, 1995 with a branch at Motijheel. At present,
the bank has 110 branches spread all over the country. It renders all types of commercial banking
services to the customers of all strata in the society within the stipulations laid down the bank
company act 1991 and rules and regulations formed by Bangladesh Government from time to
time. Diversification of products and services and innovation of products suited to the needs of
the customers in keeping with relevant rules and laws have made it different from other
commercial banks of the country.
PBLs national business in personal banking, corporate banking and its markets are its special
strengths. It maintains correspondent relationship with all over the banks in countries. Prime
Bank Limited is a forward looking and modern local bank with a record of sound performance. It
is discarding its erstwhile conservative mould and in response to the current dynamic trends in
locally financial activities, adopting an aggressive customer focused system. The effort that
Prime Bank makes in order to portray the bank as a brand image is very strong and successful.
The general image is that it is trustworthy, efficient, helpful and committed. The logo of the
bank depicts the merger of confidence.
Prime Bank Ltd. has already made significant progress within a very short period of its
existences. The bank has been graded as a top class bank in the country through internationally
accepted CAMEL rating. The bank made satisfactory progress in all areas of business operation
in 2010.
Prime Bank Limited was designed to provide commercial and investment banking services to all
types of customer ranging from small entrepreneur to big business firms. Besides investment in
trade and commerce, the bank participates in the socioeconomic development through the
participation in priority sectors like agriculture, industry, housing, and self-employment. Prime
Bank Limited wants to establish, maintain, and conduct all types of banking, investments and
businesses in Bangladesh and abroad with superior service quality and performance.

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Prime Bank Limited


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2.4.1 General Statement of Prime Bank Ltd.:


Prime Bank Ltd. has pursued pragmatic policies and strategies depending on the prevailing
business scenario. It focuses on the emerging needs of the market and has positioned itself
accordingly. High quality customer service through competent workforce remains uppermost in
Prime Banks thinking and action plan. Integration of technology in business functions is an
important strategy for PBL (Prime Bank Ltd.) to attain opportunities and to provide value-added
services to the customers.
Prime Bank Ltd. has had consistent growth over the years. Management of PBL has put in place
the necessary business initiatives, which are to ensure success as Prime Bank Ltd. moves towards
the new millennium. Its guiding principles are rendering of service to customers more efficiently
and effectively than other competitors, concentrating on core business and building selfstrengths. Customer services of Prime Bank Ltd. are acknowledged to be one of the best in the
industry and for this high quality Prime Bank Ltd. is rated as a top-performing bank.

Prime Bank Ltd. has planned to improve its customer services further through diversity in
products and services. Offering customers a variety of options to fulfill their banking needs will
remain an important component of PBLs long-term business plans. Exercise will continue to
reform the systems and to develop back-office support capabilities. Management has decided to
focus more on small and medium sized enterprises by providing a broad range of financial
options. PBL has further deepened its stack in retail banking by introducing new products.
Efforts in Merchant banking are further intensified to generate more profits as Prime Bank Ltd.
has acquired Merchant-banking license.

Prime Bank Ltd. is able to remain competitive and enjoyed continued growth, which in some
extent depends on financial sector reforms of the government. Prime Bank Ltd. is in complete
agreement with Bangladesh Bank's plans to review and to asses thoroughly the financial sector
and to set the future framework for the industry. Prime Bank Ltd. is willing to support all

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Prime Bank Limited


a bank with a difference

constructive reforms that are in the national interest and encourage more competition and choice
for the people. This Bank always stays tuned to the realities of rapidly changing markets.
Management of PBL strongly believes that this bank will grow and prosper in the days to come.
Ongoing researches to innovate products and to fine-tune the existing products will lead to
advantageous position. MasterCard credit cards business and newly introduced ONLINE
banking have opened up new possibilities not only for improved customer service but several
windows for profit generation. Installation of SWIFT and integration of treasury functions in
both local money market and international foreign exchange market are expected to yield better
growth in volume and earnings.
While banking is undergoing changes to accommodate increasing needs of customers,
technology is considered as a key element for achieving competency based on reliability. PBL is
working to further improve its computer system in order to provide clients with new IT products
and services such as ATM, Online Banking and Point of Sales transactions. From PBLs
perspective, Technology will help Prime Bank Ltd. to operate more efficiently and improve its
productivity. Therefore, investment in technology infrastructure receives highest priority. While
technology takes care of much of the routine functions, employees will have more time to spend
with their customers providing greater range of advice and services.
At present Prime Bank Ltd. has a small network of branches and therefore manages these
branches in a manner, which maximizes profit and brings added values for shareholders.

2.4.2 Goals & Objectives of Prime Bank Ltd.


To build up strong pillar of capital.
To promote trade, commerce and industry.
To discover strategies for achieving systematic growth.
To improve and broaden the range of product and services.
To develop human resource by increasing employment opportunities.
To enhance asset of shareholders.

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To offer standard financial services to the people.


To create congenial atmosphere so that the clients become interested to deal in with the
prime bank limited.
To keep business morality.
To develop welfare oriented banking service.
To offer highest possible benefit to customers.
To let the viewers cast their very first look at it.
To carry on the business of discounting and dealing in exchange of securities and all
kinds of mercantile banking.
To provide for safe-deposit vaults and the safe custody of valuables of all kinds.
To carry on business as financiers, promoters, capitalists, financial and monitory agents,
concessionaires and brokers.
To act as agents for sale and purchase of any stock, shares or securities or for any other
monetary or mercantile transaction.
To establish and open offices and branches to carry on all or any of the business abroad
and within the country.

2.4.3 Operation:
Prime Bank Limited, since its inception, is a fully focused Bank depending on technology. The
bank has now a network of 52 branches strategically located in different cities. All the branches
are functioning in computerized environment and integrated through Wide Area Network (WAN)
.The branches are full-fledged units and can provide all commercial and investment banking
service ranging from small and medium enterprises to big conglomerates and houses.

The Bank will try to reduce its dependence on interest earnings by giving more emphasis on the
fee-based income through introduction of capital market operation and leasing. The Capital
Market operation will include Portfolio Management, Investors Account, and Underwriting
Mutual Fund Management etc.

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Prime Bank Limited


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The Bank will introduce modern system of Leasing Operation same as in practice with Banks in
all other countries of the world. The lease finance portfolio of the bank will be the first of its kind
in a Commercial Bank in Bangladesh.
A warehousing system will be developed in the country through private entrepreneurs. The
conventional go down system of the Banks will gradually be done and a modern system of
warehousing will be encouraged for pledge of goods of the clients. Investment Counsellors of
PBL will give all sorts of advice to their Customers as they may require from time to time for
protecting their assets and safeguard to their interest.
Entrepreneurship Development Training will be arranged to impart operational skill and modern
technique of management to introduce new entrepreneurs in the field of industrialization on the
basis of participating finance.
Prime Bank Limited is one of first few Bangladeshi Banks who have become members of
SWIFT (Society for Worldwide Inter-Bank Financial Telecommunication) in 1999. SWIFT is a
member owned co-operative which provides a fast and accurate communication network for
financial transactions such as letters of credit, fund transfer etc. By becoming a member of
SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 8,700 user
institutions in 160 countries around the world.
Prime Bank Limited is operating branches on both conformist interest based Banking and
Islamic Sariah Principle based Banking. The Islamic Sariah Principle Banking is completely
different from the conventional banking.
The Bank is Maintaining separate set of accounts for Islamic Banking branches according to the
standard adopted by financial Accounting and Auditing organization for Islamic Financial
Institution.
Prime Bank Training Institute (PBTI) was set up in July 22, 1998 with an aim to create a strong
and skilled work force.
The Institute had played a significant role in making skilled and efficient human resource. It is
constantly working on improvement of training methods and materials. During 2010 it had
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conducted 4 Foundation Training Courses, 4 short, courses, and 24 workshops for new recruits,
junior level management, mid level management, and senior executives. The Training Institute
also provided a Foundation course for 30 trainee officers of Jamuna Bank Limited at their cost.

Prime Bank Limited will try to achieve excellence in customer service. The customer is most
important for them. Their policy is customer driven. The Bank will introduce Inland Travellers
Cheque and launch Special Savings Schemes; Special Credit Scheme will also be devised for the
benefit of the low-income group, especially for the self -employment of the educated youth.

2.4.4 Mission and vision of Prime Bank Limited:


The efforts of Prime bank Limited are focused on delivery of quality service in all areas of
banking activities with the aim to add increased value to shareholders investment and offer
highest possible benefits to the customers. There must have the mission as well as vision what
should back every efforts of the organization as it is said, A mission without any vision is a
daydream and a vision without any mission is a nightmare.
Vision:
To be the best Private Commercial Bank in Bangladesh in terms of efficiency,
capital adequacy, asset quality, sound management and
Profitability having strong liquidity .

Mission:
To build Prime Bank Limited into an efficient, market driven, customer
focused institution with good corporate governance structure.
Continuous improvement of our business policies, procedure and efficiency
through integration of technology at all levels.

2.4.5 Managerial Hierarchy of PBL:


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Chairman

Top Management

Board of Directors
Executive Committee
Managing Director

Deputy Managing Director


Senior Executive Vice President

Executive Level
Management

Executive Vice President


Senior Vice President
Vice President
Senior Assistant Vice President
Assistant Vice President

First Assistant Vice President

Mid Level
Management

Senior Executive Officer


Executive Officer

Senior Officer

Junior Level
Management

Management Trainee Officer


Officer
Junior Officer
Chairman

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Board of Directors

Executive Committee
Managing Director
Deputy Managing Director
Senior Executive Vice President
Executive Vice President

Senior Vice President


Vice President
Senior Assistant Vice President
Assistant Vice President
First Assistant Vice President
Senior Executive Officer
Executive Officer
Senior Officer
Management Trainee Officer
Officer
Junior Officer
Figure: Managerial Hierarchy of PBL.

2.4.7 Products & Services of Prime Bank Ltd.

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Since commencement of banking operation, prime bank Limited has not only gained enormous
popularity but also been successful in mobilizing deposit and loan products. The bank has made
significant progress within a very short time period due to its dynamic management and
introduction of various consumer-friendly loan and deposit products. All the products and
services offered by the bank can be classified under three major heads:
i) Multi Currency Account
ii) Deposit Products:
Contributory Savings Scheme
Monthly Benefit Deposit Scheme
Special Deposit Scheme
Education Savings Scheme
Fixed Deposit Scheme
Prime Bank Money Scheme
Prime Bank Insured Fixed Deposit Scheme
Saving Deposit Account
STD Account
Foreign Currency Deposit Account
Non Resident Taka Account
NFCD Account
NITA
iii) Loan Products:
Consumers Credit Scheme
Lease Finance
Hire Purchase

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Small and Medium Enterprise Credit Scheme


Loan Against Shares and Securities
House Building Financing Scheme
Financing Scheme For Contractors
Computer Software Financing Scheme
Prime Bank Maser Card Credit Card
Prime Bank VISA Credit Card
Working Capital Financing
Import Financing
Export Financing
Industrial Financing
Other Services:
Consistent with the modern edge and competing in a perfectly competitive market, Prime Bank
Limited has introduced some innovative banking services that are remarkable in a country like
Bangladesh. The services offered by the bank are as follows

On-line Banking:
The bank has set up Wide Area Network (WAN) across the country within its all branches to
provide on-line branch banking facility to tits valued customers. The service named
PRIMELINE has opened up several possibilities of improved customer services. Under this
facility client of one branch are able to do banking transaction at any other branch of the bank.
The bank hosted its Web Site (www.prime-bank.com) to facilitate dissemination of information
about the banking services and facilities of Prime Bank Limited all over the world.
Information Technology in Banking Operation:

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Prime Bank Limited has adopted automation in banking operation from the first day of its
business. The main objective of this automation is to provide efficient and prompt services to its
valued clients. At present all the branches of the bank are computerized under UNIX operating
system to provide best security to the information. Prime Bank Limited is providing
comprehensive range of banking services with utmost care and efficiency to its customers. ATM
is used to count money properly to save clients valuable time as well. The customer can draw
money/cash from their account within a minute. Very recently the bank has launched the world
famous banking software T24 which is very user friendly. It will no doubt help the bank to attain
the objectives more efficiently.

SWIFT Service:
Prime Bank Limited is one of the first few Bangladeshi Banks to obtain membership of SWIFT
(Society for Worldwide Inter-bank Telecommunication). SWIFT is a members owned
cooperative which provide a first and accurate communication network for financial transactions
such as Letter of Credit, Fund Transfer etc. By being a member of SWIFT, the bank has opened
up possibilities for uninterrupted connectivity with over 8700 user institutions in 160 countries
all over the world.

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Chapter-3

Literature
LiteratureReview
Review

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Loans or credits comprise the most important asset as well as the primary source of earning for
the banking institutions. On the other hand, loan/credit is also the major source of risk for the
bank management. A prudent bank management should always try to make an appropriate
balance between its return and risk involved with the loan portfolio. Credit appraisal process is
the tool which helps the bank to predict the risk and return on the proposed project for credit
disbursement. Therefore, from the above definition it is clear that credit appraisal is a very
important factor for banks. To get a clear idea about credit appraisal process, we need to know
the key factors of credit appraisal procedures. In this chapter, we will have a brief idea on the key
factors of standard credit appraisal procedures.

3.1 Credit:
The word credit is derived from the Latin word credo which means I believe and is usually
defined as the ability to buy with a promise to pay. It consists of actual transfer and delivery of
goods and services in exchange for a promise to pay in future. It is simply the opposite of debt.
Diversification of banking service has accelerated the use of credit in the expansion of business
operation. It is a fundamental precept of banking everywhere that advances are made to
customers in reliance on his promise to pay rather than the security held by the banker.
According to the Encyclopaedia of Banking & Finance by Charles J. Woelfel, Bank credit is
the earning asset of the commercial banks, including the variety of short and long term loans
made to individuals, partnership, corporation, other business firms, banks, and governmental
units and agencies; the banks holdings of investments.
One of the two primary functions of a commercial bank is to extend credit to the deficit
economic unit that comprises borrowers of all types. Bank credit is a catalyst of economic
development. Without adequate finance, there can be no growth in the economy. 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 agricultural, commercial and industrial activities of a nation.
Therefore, a bank is supposed to distribute its loan able fund among economic agent-in-deficit in

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a manner that it will generate sufficient income for it and at the same time benefit the borrower
to overcome his/her deficit.

3.2 Components of Bank Credit:


Banks use to lend two ways- discounting bills and advances. Hence, Bank credit can be
classified in two broad categories1. Advances
2. Bills discounted and purchased.
1. Advances:
As the Encyclopaedia of Banking & Finance by Charles J. Woelfel states, an advance is, In
general a loan although an advance may be an open account as well as being evidenced by a
note, with or without collateral.
Again according to Radhaswami and Vasudevan (1985), Advances are lending of money by
banks against promissory notes executed by the customer with or without collateral security.
Advances may be in the form of
i)

Loans

ii)

Overdrafts

iii)

Cash Credit

Whatever the form, advances are primary types of bank lending and major sources of income for
banks. In Bangladesh, amount of advances (excluding the inter-bank) by the scheduled bank is
about 97 percent of total credit.

Loans:

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When an advance is made, with or without security, in a lump sum repayable either in fixed
monthly instalment or in lump sum and no subsequent debit is ordinarily allowed except by the
way of interest, incidental charges etc, it is called a loan. A loan once repaid in full or in part,
cannot be drawn again by the borrower. It is given for a fixed period at an agreed rate of interest.
The whole amount of loan is debited to the customers name on a loan account to be opened in
the ledger and, is paid to the borrower either in the form of cash or by the way of credit to his
current or savings account.
Overdrafts:
The overdraft is a kind of advance always allowed on a current account operated upon by
cheques. The customer may be sanctioned a certain limit upon which, he/she can overdraw his
current account within a stipulated period. Here, withdrawals or deposit can be made any number
of times at the convenience of the borrower, provided that the total amount of overdrawn does
not, at any time, exceed the agreed limit. Interest is calculated and charged only on the actual
debit balance on daily product basis.
Cash credit:
A cash credit is an arrangement by which a banker allows his customer to borrow money up to a
certain limit. Cash credit arrangements are usually made against the security of commodities
hypothecated or pledged with the bank.
Hypothecation: In case of hypothecation the possession of goods remain at the disposal and in
the go down of the borrower. The borrower is given access to goods whenever it so desires. The
borrower furnishes periodical return of stock with the bank.
Pledge: In case of pledge, the goods are placed in custody of the bank with its name on the go
down where they are stored. The borrower has no right to deal with them.
2. Bills Discounted and Purchased :
According to the Encyclopaedia of Banking & Finance by Charles J. Woelfel, Bill discounted is
The aggregate of notes, acceptances and bill of exchanges which a bank has discounted for its
customers, as distinguished from loans.
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The banks also give advances to their customers by discounting or purchasing their bills of
exchange. Such bills of exchange arise out of commercial transactions both in inland trade and
foreign trade. Bills are classified as i) Clean bills and ii) Documentary bills.
When the drawer of a bill encloses with the bill the documents of title to the goods, such as, Bill
of Lading, Railway Receipt, Steamer Receipt, to be delivered to the
Drawee of the bill on payment against acceptance of bill, as the case may be, the bill is called a
documentary bill. In the absence of such document it is termed as a clean bill. By the nature of
payment, bills can also be classified into two categories named i) Demand bills and ii) Usance
bills
Where a bill is payable at sight or on demand or on presentation it is called a demand bill. If
a bill matures for payment after a certain period of time, like 30, 60, or 90 days after the date, it
is called a usance bill.
In case of purchase or discounting of bills, the banker credits the customers account with the
amount of the bill after deducting his charges or discount. Bankers purchase the demand bills but
discount the usance bills. In purchasing the income is interest but in discounting the income is
discount.

3.3 Principles of Credit:


A prudent Banker should always adhere to the following general principles of lending funds to
his customers.

Background, Character and ability of the borrowers

Purpose of the facility,

Term of facility,

Safety,

Security,

Profitability,

Source of repayment,

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Diversity.
Bank should never put all its eggs in one basket. It should be noted that selection of
appropriate borrowers, proper follow-up and end-use supervision through constant close contact
with the borrowers, are the corner stones for timely recovery of credit.

3.4 Factors of Credit Policy:


Credit policy of all banks cannot be developed on same lines because of differences in their
operational needs and resource structures. In designing a credit policy, considerations should be
given to following:
1) Total deposit resources of the bank and rate of fluctuation of resources.
2) Deposit structure.
3) Trend of growth in deposit and economic growth rate of the country.
4) Capital fund and other reserves. Large banks capital fund and secondary reserve in
investment can permit its loan policy to be liberal in respect of its limit of lending in high
risk-high returns loans while a relatively new small bank would stress more on liquid and
highly secured loans at lower interest in its policy.
5) Capability of loan administration shall have to be given due weight in the credit policy. A
large bank is able to hire numbers of highly skilled specialists/experts in different areas to
advise the bank in loan making but smaller banks relying on usual credit managers cannot
venture into sectors that require expert appraisal of loan applications and also that
requires intensive post implementation monitoring of large and complex industrial loans.
6) Investment size of the bank and its nature.

3.5 Loan Documentation:


The minimum requirements for loan or other facility documentation of a Bank are:
a) Copies of the relative sanction letter indicating that the transaction has been approved by
properly authorized officers of the Bank.
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b) A copy of the letter of sanction addressed to the customer and his acceptance thereof.
c) All necessary documentation required to meet the terms and conditions of the facility in the
manner in which it was approved.
d) Before disbursement, it should be satisfied that all legal formalities have been completed.
e) Disbursement of all facilities shall be made on an Offering Sheet basis to ensure that all
additional requests are duly approved by two authorized Officers one of which must be the
Manager or Sub-Manager.
f) Securities offered should also be thoroughly verified / inspected once in a month and stock
report prepared.
g) Where the loan agreement calls for restrictive covenants and ongoing conditions, the Manager
must not only satisfy himself that these are adhered to at the outset of the transaction (i.e.
date of initial takedown) but assure himself, at regular intervals, that these are not being
violated.
h) Since the Manager together with the Credit Officer is fully responsible for documentation,
they will formally sign a check list. Under no circumstances may anyone permit drawings
under any facilities, until they have signed off the check list.
I) The Manager/Sub-Manager should ensure that appropriate steps are being taken to keep loan
documentation current for all assets Of the Bank. The loan documentation check-list, should,
therefore, be reviewed at regular intervals.
J) Lines of credit should, as a rule, be confirmed in writing to the borrower. A Specific
expiration date for the line should be included. Moreover every letter of sanction must
contain the Bank's standard clauses.
K) The borrower must explicitly undertake that all information supplied by him to Bank in
connection with the approved lines Of credit is correct.
L) Any material or adverse change in business conditions will cause the amount due to Bank
from the client immediately repayable. The Bank reserves the right to call back the facilities
extended at any time without assigning any reason whatsoever.

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3.6 Standard Procedure of Credit:


The Standard Procedure of Credit of a Bank is completed through the following Steps:
A) Any request for credit facilities, must be made by the borrower in the Bank's prescribed
standard form properly filled in and completed in all respect and duly signed by the
prospective borrower.
B) Submission of past 3 Years financial statement: For all credit proposals, the borrowers and
guarantors (if any) should, wherever Possible submit past 3 years Profit & Loss A/C and
Balance sheet duly audited by a recognized and competent Chartered Accountant containing
unqualified opinions. Some borrowers may not have audited financial statements at all. In
either case, the lending officer must interview the potential borrower or Guarantor and obtain
satisfactory, accurate and complete financial information supporting any prior financial
statements either audited or not audited. In the case of an individual borrower or guarantor,
the financial statements must be signed by competent authority and must contain legend to
the signatory, all assets and liabilities both direct and contingent and all sources of income
and items of expenses. For all un-audited statements provided by a Company, financial
Officer of the Company must execute such legend.
C) On all new credit arrangements an analysis of the credit worthiness of the borrower and
guarantor (if any) should be prepared by the Credit Department at the Branch where credit
monitoring responsibility lies and a copy thereof forwarded to the Head of Credit Division at
'Head Office for pre-factor or post-factor review as the case may be. In case such credit
originates in the Head Office, it will be forwarded to the Branch Manager for record and
action.

3.7 Credit Analysis:


When a customer requests for a loan, bank officers analyse 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 a borrowers ability and willingness to

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repay. The banker has to identify three distinct areas of commercial risk analysis related to the
following questions:
1. What risks are inherent in the operations of the business?
2. What have managers done or failed to do in mitigating those risks?
3. How can a lender structure and control its own risks in supplying funds?
The first question forces the banker to generate a list of factors that indicate what could harm a
borrowers ability to repay. The second recognizes that repayment is largely a function of
decision made by a borrower. Is management aware of the important risks and has it responded?
The last question forces the banker to specify how risks can be controlled so that bank can
structure an acceptable loan agreement.
Therefore, Bankers look into key risk factors or qualitative analysis which has been classified
according to the five Cs of credit:
1. Character:
Character refers to the borrowers honesty and trustworthiness. A banker must asses the
borrowers integrity and subsequent intent to repay. If there are any serious doubts, the loan
should be rejected.
2. Capital:
Capital refers to the borrowers wealth position measured by financial soundness and market
standing. It helps cushion loses and reduces the likelihood of bankruptcy.

3. Capacity:
Capacity involves both borrowers legal standing and managements expertise in maintaining
operations so the firm or individual can repay its debt obligations. Under capacity an individual
must be able to generate income to repay the cash.

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4. Condition:
A condition refers to the economic environment or industry specific supply, production and
distribution factors influencing a firms operations. Repayment sources of cash often vary with
the business cycle or consumer demand.
5. Collateral:
Collateral is the lenders secondary source of repayment or security in the case of default.
Having an asset that the bank can seize and liquidate when a borrower defaults reduces loss, but
does not justify lending proceeds when the credit decision is originally made.
Under credit analysis Bank also does quantitative analysis which refers to the analysis of
financial statement ratios to know the past performance of a company. Some of the key ratios
which serve as a tool for financial analysis are classified as
1) Financial Ratio
2) Turnover Ratio
3) Profitability Ratio

1) Financial Ratios:
Financial ratios indicate about the financial position of the company. A company is deemed to be
financially sound if it is in a position to carry on its business smoothly and meet its obligationsboth long-term as well as short term-without strain. Some of the important ratios which are
calculated in order to judge the financial position of the company are:
Fixed Assets

i)

Fixed Asset Ratio = Long term funds

ii)

Current Ratio = Current Libilities

iii)

Quick Ratio =

iv)

Debt Equity Ratio = Shareholde rs Fund

Current Assets

Quick Asset (current assets inventory )


Current Libilities
Long term Debt

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2.Turnover Ratio:
The turnover ratios indicate the efficiency with which the capital employed is rotated. They are
also known as Activity or efficiency ratio. The overall profitability of the business depends on
the turnover i.e. the speed at which the capital employed in the business rotates. Higher the rate
of rotation, greater the profitability. In order to find out which part of capital is efficiently
employed and which part not, different ratios are calculated. These are:
Net Sales

i) Fixed Asset Turnover Ratio = Fixed Assets


Net Sales

ii) Working Capital Turnover Ratio = Net Working Capital

3. Profitability Ratio:
Profitability is an indication of the efficiency with which the operations of the business are
carried on. Poor operational performance may indicate poor sales and hence poor profits.
Bankers look at the profitability ratio as an indicator whether or not the firm/company earns
substantially more than it pays interest for the use of borrowed funds and whether the ultimate
repayment of their debt appears reasonably certain. The important profitability ratios are:
Operating Pr ofit

i)

Overall Profitability Ratio = Capital Employed 100

ii)

Gross Profit Ratio =

iii) Net Profit Ratio =

Gross Pr ofit
100
Net Sales

Net Operating Pr ofit


100
Net Sales

3.8 Lending Risk Analysis:

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Lending Risk Analysis (LRA) is simply a loan processing manual and has done when the amount
of loan is above 1 core. By going through this manual the lending bankers can asses the
creditworthiness of their prospective borrowers.
Therefore, LRA is such an instrument which is definitely and directly related with lending
information to analyze the borrowers financial, marketing, managerial and organisational
aspects subjectively and objectively. It also facilitates the analyst to know the security risk of the
credit. Lending risk Analysis involves assessing the likelihood of repayment of loans to the bank
as per agreement on the basis of analysis of certain risks. To analyze these risks bankers will
need to fill-up a 16-page LRA form. The form leads to scoring various risk factors involved in
lending. LRA has divided the various risks into two groups namely, Business Risk and Security
Risk.
Business Risk:
Business Risk is concerned with whatever the borrowing company would fail to generate
sufficient cash out of business to repay the loan Business Risk, the main component of lending
risk, consists of the Industry Risk and the company Risk
A. Industry Risk:
Due to some external reasons a business may fail and the risk which arrives from external
reasons of the business is called Industry Risk. It has two components:
i) Supplies Risk:
When the business fails due to disruption in the supply of inputs, the consequent risk which
would arise is known as Supply Risk
ii) Sales Risk:
When the business fails for disruption in sales, this type of risk would generate.

B. Company Risk:

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Company Risk is shown for some internal reasons of the business. It has also two main
components and four sub-components
i) Company position Risk:
Each and every company holds a position within an industry. This position is very much
competitive. Due to weakness in the companys position in its industry, a company may fail and
the risk of failure is called Company Position Risk. It depends on(a) Performance Risk:
If a company fails to perform well enough to repay the loan because of its weakness under given
expected external conditions, the company is said to suffer from performance risk.
(b) Resilience Risk:
When a company fails due to lack of its resilience to unexpected external conditions, the
resilience risk is generated.
ii) Management Risk:
If the management of a company fails to exploit the companys position effectively, the company
can fail and this risk of failure is called management Risk. It can be subdivided further-

(a) Management Competence Risk:


Management competence risk is the risk that the company fails because the management is
incomplete
(b) Management Integrity Risk:
Management integrity risk is the risk that the company fails to repay its loan due to lack of
management integrity.

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Security Risk:
Security risk is the risk that the realised value of the security does not cover the exposure of loan.
Exposure means principal plus outstanding interest. Security risk can be divided
Into two parts
(a) Security Control Risk:
Security control Risk is the Risk that the bank fails to realise the security because of lack of
banks control over the security offered by the borrowers.
(b) Security Cover Risk:
Security cover risk is the risk that the realised security value may not cover the full exposure of
loans.

3.9 Collateral:
Collateral is the lenders secondary source of repayment or security in the case of default.
Having an asset that the bank can seize and liquidate when a borrower defaults reduces loss, but
does not justify lending proceeds when the credit decision is originally made.
Characteristics of Good Collateral:
The following five items determine the suitability of items for use as collateral. The suitability
depends in varying on standardisation, durability, identification, marketability and stability of
value.
Standardization:
The standardisation leaves no ambiguity between the borrower and the lender as to the nature of
the asset that is being used as collateral.
Durability:
Durability refers to the ability of the assets to withstand wear. Or it can refer to its useful life.
Durable goods make better collateral than non-durable. Stated otherwise crushed rocks make
better collateral than fresh flowers.
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Identification:
Certain types of assets are readily identified because they have definite characteristics or serial
numbers that cannot be removed. Two examples are a large office building and an automobile
that can be identified y make, model and serial number.
Marketability:
In order for collateral to be of value to the bank, the collateral must be marketable. That is the
borrower must be able to sell it. Specialised equipment is not as good as collateral as are dump
trucks, which have multiple uses.
Stability of value:
Bankers prefer collateral whose market values are not likely to decline dramatically during the
period of the loan such as common stock.
Different Types of Collateral:
Secure loans have a pledge of some of the borrowers property behind them (such as home or an
automobile) as collateral that may have to be sold if the borrowers have no other way to repay
the bank. Some of the most popular collaterals are:
1. Account Receivable: The banks take a security in the form of a stated percentage of the
borrowers balance sheet. When the borrowers credit customers send in cash to retire
their debts this cash payments are applied to the balance of borrowers loans. The bank
may agree to lend more money as new receivable arise from the borrowers sells to its
customers thus allowing the loan to continue as long as the borrower has need for credit
and continuous to generate and adequate volume of sales.
2. Factoring:

bank can purchase a borrowers account receivable based upon some

percentage of the book value because the bank takes over the ownership of the

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receivable, it will inform the borrowers customers that hey should send their payments to
the purchasing bank.
3. Inventory: A bank will lend only a percentage of the estimated market value of a
borrowers inventory in order to leave a substantial cushion in case the inventories value
begins to decline. The inventory pledged may be controlled completely by the borrower
using a so-called floating line approach.
4. Real Property: A bank may take a security interest in land and / or improvements on
land own by the borrower and records its clime-a mortgage-with a government agency in
order to define against successful claim by others.
5. Personal Property: Bank takes a security in jewellery, securities and other forms of
personal property owned by a borrower.
6. Personal Guarantees: A pledge of the stock deposits or other personal assets held by the
major stock holders or owners of a company may be required as collateral to secure a
business loan.

3.10 Loan Review:


In a bank the purpose of loan review is to minimize loan losses by reviewing outstanding loans
in order to
1. Identify potential problems with specific loans.
2. Identify weaknesses in procedures or personnel in general
3. Quantify the repayment risk in the loan portfolio by estimating how much cash borrowers
can generate under current market conditions from operations and collateral.

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3.11 Loan Classification as per Bangladesh Bank:


The classification of loan provided by different commercial banks can be shown through the
following table.

Classification

Types of loan
Agricultural

Continuous

Demand

short term

Unclassified

12

Substandard

Overdue

Overdue

months

months

than months to 9 9 months


months months

12 months

amount of amount
installment

of

installment

but less than

is equal to is equal to

36 months

Overdue
more
36

Overdue

than months

months 12 months

to 12 months

amount of or more
installment

but less than

is equal to

60 months

12 months

more

Overdue 12 12

than months

60 months

payables

9 9 months to If defaulted 18 months

months 12 months

Overdue
Bad loan

than

6 6 months to If defaulted If defaulted

payables

Doubtful

years)

months Less than 6 Less than 6 Less than 6 Less


months

12

(Up Term (> 5

to 5 years)

or below
more

Term

payables
months Overdue of Overdue of

or or more

more

18 months 24 months
payables

payables

Source: BRPD circular no: 09 dated 14th May, 2010


Qualitative Judgment Criteria:

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a. Unclassified: Repayment is regular.


b. Substandard: Repayment is irregular but has reasonable prospect of improvement.
c. Doubtful Debt: Unlikely to be repaid but special collection efforts may result in
partial recovery.
d. Bad/Loss: Very little chance of recovery.
Percentage of Provision:
Provision is also made under the same circular which is as followsTypes of Classification

Provision

(1) Agricultural short term loans


Unclassified, Substandard, Doubtful

5%

Bad/Loss
(2) All other loans

100%

Unclassified

1%

Substandard

20%

Doubtful

50%

Bad/Loss
100%
Source: BRPD circular no.16 dated 06.12.1998

3.12 Other Loan Provisions from Bangladesh Bank:


1. Necessary CL forms on Loan Classification, Provisioning and Interest Suspense Account were
forwarded through the said circular letter. It needs to be mentioned that policy on maintaining
general provision @ 5% on "Special Mention Account" has been circulated vide BRPD
Circular No. 09 dated 20-08-2008. Furthermore, banks have already been advised to maintain
general provision @ 2% on Small Enterprise Financing and Consumer Financing.

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2. As per existing interest rate policy, banks are empowered to determine interest rate on lending
(except export credit) by themselves. In order to inform their clients, banks announce
information relating to interest rate. It may be mentioned that banks can differentiate on interest
rate not more than 3% in the same sector considering comparative risk among the borrowers.
3. In order to establish more transparency in determining interest rate and also to make it easily
understandable and clear to their clients, it has been decided that henceforth banks will announce
mid rate of interest rate band (if any) on respective sector while declaring interest rate on
lending. Banks may charge interest rate 1.5% lower or higher than the declared rate considering
comparative risk from client to client.
4. Refer to our BRPD Circular No. 02, dated 15 February, 2005 on the captioned subject. In
order to strengthen credit discipline and bring classification policy in line with international
standards, Bangladesh Bank has from time to time revised its prudential norms for loan
classification and provisioning. As part of the process, Bangladesh Bank has already introduced
'Special Mention Account' vide the above circular so that banks can raise early warning signals
for accounts showing first signs of weakness. As a further move towards this end, Bangladesh
Bank feels that appropriate provisioning against such accounts is necessary.
Accordingly, the following amendments have been made to the above circular:
(1) Banks will be required to make General Provision @ 5% on the outstanding amount of loans
kept in the 'Special Mention Account' after netting off the amount of Interest Suspense.
(2) The status of the loan should be reported to the Credit Information Bureau (CIB) of
Bangladesh Bank. As such, there will be five categories of loan classification status instead of
existing four for reporting to CIB. However, it is reiterated that loans in the 'Special Mention
Account' will not be treated as defaulted loan for the purpose of Section 27KaKa(3) Of the Bank
Company Act, 1991
5. Banks had been instructed to conduct loan classification activities and also to maintain
provisions on quarterly basis vide BRPD circular no.16, dated 06, December 2008.
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It has been observed that though banks are conducting loan classification activities on quarterly
basis, some banks are not maintaining provision on quarterly basis which is not consistent with
the instructions given in the said circular.
Under the circumstances, banks are again instructed to maintain provision on quarterly basis as
per existing policies while conducting loan classification activities on the said basis.
6. Bank Companies are hereby advised to submit a Statement of loans extended to the Directors
of the Financial Institutions as per Annexure "A" to the Financial Institutions Department of
Bangladesh Bank at the end of each quarter within next 15(Fifteen) days of the following month
of the quarter to which the statement relates. The first statement will be based on 30th June,
2010. To this end, up to date list of the Directors of Financial
Institutions may be collected from the Financial Institutions Department of Bangladesh Bank.

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Chapter- 4

Credit
CreditOperation
OperationofofPBL.
PBL.

Like all other commercial banks one of the most two important operations of Prime Bank Ltd.
(PBL) is the credit operation. Prime Bank is extending its credit operation day by day. Through

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the credit operation it is not only making profit but also performing an important role in the
economic development of our country. Throughout this chapter we shall find how the credit
operation of Prime Bank Ltd. is being performed.

4.1 Types of Loans & Advances of PBL:


Prime Bank has been offering all types of credit products available in the Bangladesh financial
market. Under the corporate credit portfolio, it has two basic types of products. These are
(i) Funded Credit and
(ii) Non-funded Credit.
(i) Funded Facilities: Funded credit facilities are divided into three types namely
(a) Continuous Loan,
(b) Demand Loan,
(c) Term Loan
a) Continuous Loan:
The loan Accounts in which transactions may be made within certain limit and have an expiry
date for full adjustment will be treated as Continuous Loans. Examples are:
a)

Cash Credit (Hypothecation)

b)

Cash Credit (Pledge)

c)

Loan against imported merchandise (LIM)

d)

Loan against trust receipts (LTR)

e)

SOD (FO)

f)

SOD (Special Scheme)

g)

SOD (Earnest Money)

h)

SOD (Work Order)

i)

SOD (General)
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j)

Packing Credit

k)

Forced loan

l)

Others

b) Demand Loan:
The loans that become repayable on demand by the bank will be treated as Demand Loans. If any
contingent or any other liabilities are turned to forced loans (i.e. without any prior approval as
regular loan) those too will be treated as Demand Loans:
b)

PAD (Payment Against Documents)

c)

IDBP (Inland Documentary Bill Purchased)

d)

FDBP (Foreign Document Bill Purchased)

e)

SOD (Export)

f)

TOD (Temporary Overdraft)

g)

Bridge Loan

h)

Loan (Against EDF)

i)

Factoring

j)

Others

b) Short-term Agricultural and Micro Credit:


Short-term Agricultural and Micro credit will include the short-term credits as listed under the
Annual Credit Program issued by the Agricultural Credit Department of Bangladesh Bank.
Credits in the agricultural sector repayable within less than 12 months will also be included
herein. Short-term Micro-Credits will include any micro-credits for less than Tk.10, 0007 and
repayable within less than 12 months, be those termed in any names such as Non-agricultural
credit, Self-reliant Credit, Weaver's Credit or Bank's individual project credit. L/C (Sight)

(ii) Non-funded Facilities:

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a)

L/C (Sight)

b)

L/C (Differed Payment)

c)

Back To Back L/C

d)

Inland L/C

e)

Bid Bond

f)

Retention Bond

g)

Performance Guarantee

h)

Payment Guarantee

i)

Advance Payment Guarantee

j)

Guarantee against Counter Guarantee

k)

Others

Letter of Credit (L/C): This product is within the purview of the Trade Service. Details about
it are available in the Wish List provided by the Trade Service Group.
Letter of Guarantee (L/G): There are basically two types of Guarantee: (a) L/G (Local), and (b)
L/G (Foreign). Besides Guarantees may be in the following forms:
a. Bid Bond
b. Retention Bond
c. Performance Bond
d. Payment Guarantee
e. Advance Payment Guarantee
f. Admiralty Bond
g. Others
Features of L/G (Local):
a. Usually, L/G (Local) is issued against margin, collateral security. However, there
might be some deviation approved by the competent authority.
b. Commission is charged on quarterly basis at an approved rate.
Features of L/G (Foreign):
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It is issued against Counter Guarantee of a Foreign Bank having correspondent banking


relationship with Prime Bank Ltd. Commission is charged on quarterly basis.

4.2 Salient features of Credit Policy of PBL:

Assets are built based on customers deposit, which should not exceed 80% of

customers based deposit


Rate of interest is variable based on customers integrity and risks associated

Type of security varies on the basis of risks associated in credit.

Diversification of credit on the basis of geographical location, size of credit,


sectors and sub-sectors etc

Credit operations are carried out in branch through branch credit committee as
per authority delegated to head of branch and through Head Office Credit
Committee in respect of credit sanction authority delegated to the CEO.

No credit should be allowed for a period not exceeding 5 years

Aggregate long-term credit facilities shall not exceed 20% of total credit
portfolio.

Single customers exposure should not exceed 50% of the Banks Capital Funds.

LRA is done in most cases.

Assessment of volume or amount of credit properly.

Utmost care is taken in providing loans to directors.

Funded facility is 25% of paid up capital.

4.3 Different Loan Schemes of PBL:


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General Loan Scheme

Lease Finance

House Building/ Apartment Loan Scheme

Small and Medium Enterprise Credit Scheme

Hire Purchase

Consumer Credit Scheme

4.3.1 General Loan Scheme :


Depending on the various nature of financing, all the lending activities have been brought under
the following General Loan:

Short term Loan

Medium term Loan

Long term Loan

The loans allowed to individual/firm/industries for a specific purpose but for a definite period
and generally repayable by installments fall under this head. This type of lending are mainly
allowed accommodating financing under the categories (i) Large & Medium Scale Industry and
(ii) Small & Cottage Industry and very often term financing for (1) Agriculture (ii) others.

4.3.2 Lease Finance:


Lease financing is one of the most convenient long term sources of acquiring capital machinery
and equipment. It is a very popular scheme whereby a client is given the opportunity to have an
exclusive right to use an asset, usually for an agreed period of time, against payment of rent. Of
late, the lease finance has become very popular in almost all the countries of the world. An
obvious advantage of the lease is to use an asset without buying it. The lessee is obligated to

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make lease payments until the expiration of the lease agreement, which corresponds to the useful
life of the asset.
In a capital scarce economy like ours, Lease Financing is suitable for firms to acquire Capital
Machinery, Equipments, Medical Instruments, and Automobiles etc. And thereby they employ
their own resources more advantageously in some other investments. Lease financing also helps
a firm to reap significant economic benefit through tax saving and by reducing the risk of the
equipments becoming obsolete due to the technological advancement.
Objectives:
Prime Bank Ltd. has introduced the lease finance with the following objectives:

To assist the genuine and capable entrepreneurs for acquiring capital machinery and
equipments to undertake enterprises without equity.

To encourage the new and educated young entrepreneurs to undertake productive venture
and demonstrate their creativity and thereby participate in the national development.

To participate in the industrial development of the country.

Lease Items / Equipments:


Prime Bank Limited offers lease finance for acquiring the use of capital machinery, equipments,
medical instruments, etc. The customers are entitled to decide the specification, price and model
of the lease item/equipment. Bank will purchase the item (s) in accordance with the
specifications given by the clients. However, the suppliers of the items must ensure after sales
services and warranties. The price should be competitive and acceptable to the Bank.
Eligibility for Availing Lease Finance:
All genuine entrepreneurs having adequate experience and expertise are eligible to apply for
Lease Finance under the scheme. The amount of Lease Finance will not generally exceed Tk.
1.00 core, but in exceptionally good cases, the limit can reasonably be exceeded on condition
that the Bank will depute an officer for close and intensive supervision of the project.

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Documents & Security:


The entrepreneur will be required to provide the following securities:
a. The lease items will remain in the name of the Bank i.e., Bank will be the sole owner of
the leased items. Collateral securities having liquidation value covering at least 100% of
the amount of finance. Deposit of listed Shares, National Savings Certificates, ICB Unit
Certificates, Assignment of Life Insurance Policies, Bank Guarantee, and Insurance
Guarantee etc. will also be acceptable as collateral securities.
b. In case of existing industrial units requiring BMRE, charge may be created on the
existing fixed assets as collateral securities for the finance. In case of existing Automobile
enterprises, creation of charge on the existing vehicles will also be acceptable as
collateral securities.
c. In case of default in payment of lease rental for consecutive 2 (two) months, the Bank
will take over the lease items without giving any prior notice. ii) In case of taking over
the lease items by the Bank before maturity, the lessee will be liable for the loss, if any,
caused to the Bank of such premature taking over. iii) the Bank will exercise close and
intensive supervision of such projects. An Officer of the Bank will be engaged separately
for supervision of such projects to ensure proper utilization of the lease items and timely
repayment of the monthly rentals.

4.3.3 House Building / Apartment Loan Scheme :


Loans allowed to individual/enterprises for construction of house (residential or commercial) fall
under this type of advance. The amount is repayable by monthly installment within a specified
period. Such advances are known as Loan (HBL-GEN).
Loans allowed to our Bank Employees for purchase /construction of house shall be headed Staff
Loan (HBL-STAFF).

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4.3.4 Small & Medium Enterprise (SME):


Bangladesh is a densely populated country. Job opportunity here is very scanty; unemployment
rate is approximately 40%. Population below poverty line is 36%. Therefore, it is the prime
concern for the nation to generate income through creation of job opportunity & employment.
Creation of job opportunity at large scale by us is not possible. What can be done better is to help
self-employment through financial support. There are many small and medium entrepreneurs in
the country that have innovative idea, spirit and potentiality to do something productive for local
consumers as well as export abroad.
They can generate income and contribute to the GDP. They may also provide employment to
other people. Development and growth of Small and Medium Enterprise is vital for national
development. Such type of beneficial enterprise borrowers can not go a long way for want of
financial support because they have no access to institutional credit facilities, as they cannot
provide collateral security as demanded for such credit facility.
Prime Bank Limited is committed to play positive role in the overall socioeconomic
development of the country. There is also a statement in the objective clause of Memorandum of
Association of Prime Bank Limited as under:

To advance or lend money to the unemployed persons for self-employment and


rehabilitation in the Society.

To finance the Small and Cottage Industries for Industrialization and also to create
employment opportunities.

It may be mentioned here that as per decision of the Board of Directors in its 78th meeting held
on 17.11.1999 a Small & Medium Enterprise (SME) Cell has already been established at Head
Office under the Credit Division.
If we look at South East Asia, China, Taiwan, Hong Kong, South Korea etc we will find that
small and Medium Businesses are the real engine of growth in those countries.

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In view of the above a credit scheme titled Small and Medium Enterprise Credit Scheme
has been formulated as follows. It may also be mentioned that USAID has approved our bank to
receive their guarantee facility to lend money to Small and Medium business Houses. 50% of
losses, if any, are paid by USAID.

Objectives :

To provide credit facilities to the small and medium size entrepreneurs located in Urban
& Sub-urban areas and easily accessible by the branches.

To encourage the new and educated young entrepreneurs to undertake productive venture
and demonstrate their creativity and thereby participate in the national development.

To flow credit for creation of employment and generation of income on a sustainable


basis through development of small & medium enterprises.

To assist potential entrepreneurs to take part in economic activities so that they can
improve their living standard.

To reduce dependence on money lenders

To make the small & medium enterprises self-reliant;

To develop saving habit and making acquaintance with banking facilities.

To inspire for undertaking small projects for creation employment through income
generating activities.

4.3.5 Hire Purchase:


Hire Purchase is a type of installment credit under which the Hire Purchase agrees to take the
goods on hire at a stated rental, which is inclusive of the repayment of Principal as well as
interest for adjustment of the loan within a specified period.

Salient features of the Hire

Purchase facility are as follows:

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i. This a onetime limit extended for a maximum period of five years.


However, the competent authority may allow deviation.
ii. Disbursement may be made by more than one phase.
iii. Interest is charged on quarterly basis at an approved rate, which is
revisable by the management from time to time.
iv. Normally, hire purchase amount does not exceed the acquisition cost of
the equipment/machinery and a down-payment is taken from the customer.

4.3.6 Consumer Credit Scheme (CCS):


.Prime bank is committed to play a vital role in overall socio economy development of our
country. As per its commitment, it launched Consumer Credit Scheme in the year 1995 to
enhance the living standard of the people of limited and fixed income group.

Objectives of the Scheme:

Prime Bank Limited started the Consumer Credit Scheme program with a view to fulfil
its benevolent institutional objectives through financing the middle class limited income
group.

To ensure the credit facility to the both middle class limited income group and upper class
income group.

To improve the living standard of limited income group through financing in purchasing
necessary goods.

To participate in the socio-economic development of the country.

Eligibility of the customer:


Any interested person within the range of 25 to 60 and having a permanent job or the permanent
employees of the following organization can apply for the CCS loan of Prime Bank.

Government Organizations.

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Semi-Government and Autonomous Bodies.

Banks, Insurances Companies or any other financial institutions.

Armed Forces, B.D.R, Police and Anwar.

Private Organizations having corporate structure.

Teachers of Universities, Colleges and Schools.

Permanent employees of locally established and renounced Public Limited Companies.

Permanent employees of Multinational Companies.

Permanent employees of Bank acceptable companies

Professionals such as Doctors, Engineers, Lawyers, Architects, Chartered Accountants,


Journalists, and self employed person etc.

Discourage list of the customer:


The following are the people who should be discouraged in extending credit facilities under this
scheme:

The employees of frequently transferable services.

The employees of enterprises which are not of good reputation.

Employees having take home salary less than taka 10,000 per month.

Credit Limit, Period of Loan & Down payment:


Under CCS program of Prime Bank Limited a borrower can get maximum of taka 40, 00,000 and
minimum taka 10,000. The down payment is 13% of the loan for each product.
Interest and other charges:
The interest rate is 15% for the all products. And Prime Bank charges 1% service charge and 1%
risk fund for all products other than for Car loan, Doctors loan, Advance against salary and
CNG conversion loan.
Application procedure:

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The intending client will have to apply for the credit in Banks printed application form, which
is available in respective branch on payment of Taka 10 only. Customers will submit the
application form dully filed-in with 2(two) photographs and sign along with quotation for
purchase of desired article or any other relevant documents.
The customers name/other name(s) including nickname, if any should be mentioned in every
loan application.

Processing of applications:
On proper scrutiny of the application, branch will inform the initial decision (acceptable for
processing /decline) to the applicant within 3(three) working days from the date of receiving
application. Applicant will submit the above dully filed-in with the following additional papers:

Salary certificate for service holders.

Trade license and TIN Certificate (if any) for businessperson.

TIN Certificate of applicants for vehicle loan (compulsory)

Bank statement of last six months.

Attested photocopies of current tax receipt, electric bill etc & lease agreement (if any)
when the source of income is house rent as a land lord.

Branch will inspect the given information with respect to eligibility, feasibility and security. After
completion of all necessary formalities, the branch shall disburse the loan or refuse the proposal
within 7(seven) working days from receiving the additional papers. Price of the items (down
payment + loan amount) should be given to the respective supplier through Payment order (PO)
after completion of necessary documentation.

Mode of Repayment:

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Repayment of loans including accrued interest will be made by equal monthly installments,
which will start from the following month of the disbursement of loan. Before disbursement of
loan, the customer will deposit crossed cheque covering the total number of monthly installments
in favors of bank which will have to be presented for collection on the due date. Instilments will
be paid within 7th day of each month. However, prepayment is allowed.
Judgment process of credit proposal under CCS:
To disburse the loan, the credit officer has to verify the following factors of the potential
borrowers
i) Borrowers income:
ii) Estimated Housing Expenses:
iii) Location:
iv) Assessment of credit History:
v) Social Status:

Under the CCS, credit is offered by taking personal guarantors from a third party. The guarantor
will be liable for the default of loan. So guarantors designation, type of job, monthly salary,
period of service, office address, and the consent of the guarantors regarding the matters are also
evaluated.

Monitoring and Recovery under CCS:


The credit under this scheme is fully supervised and as such, the success of the scheme depends
on proper and persistent supervision, follow up, persuasion and monitoring of the credits by the
Branches. Branches shall maintain proper records of the applications received, loan sanctioned,
disbursement and recovery made. It is worthwhile to mention here that optimum recovery can be
ensured by developing relationship with the customers and the beneficiaries and maintaining
supervision thereon without filing any suit/case. The mechanism of supervision and monitoring
are as follows:

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Regular checking of the balance of the clients account

Regular communication with the defaulting customer and guarantors physically/over


telephone.

Issuance of letter to customers immediately after dishonor of cheque.

Issuance of letter to defaulting customers and respective guarantors.

Contacting the employers of the defaulting customers (after three overdue installments)

Issuance of legal notice to the customers and guarantors prior classification of loans.

Issuance of application/greeting letter to the regular customers.

Periodical visit to the customer to maintain relationship and supervision of supplied


goods/items.

Legal actions to be taken after all possible efforts to recover the Banks dues go in vain.

Steps against Defaulters under CCS:


If a borrower fails to pay 3(three) installments consecutively he/she is considered as a defaulter.
Prime Bank Limited usually follows the following guidelines for treatment of its overdue
installments.

Telephone contact

Cheque bounce Letter

Overdue recover Letter

Letter of guarantors

Letter to authority

Legal notice to borrower and guarantor

Suit notice

Loan Amortization under CCS:

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Prime Bank uses the most common loan amortization method that is Capital Recovery
Method. Under this method constant monthly payment is calculated on an original loan amount
at affixed interest for a given term.

Example:
Loan Amount: BDT 100,000 (PV)
Interest rate: 15%
Number of Installments (monthly): 24
So monthly install will be: PV/MPVIFA* (15%, 24months)
So Monthly installment: 100,000/20.62423451=BDT 4848.66
*MPVIFA=Monthly Present Value Annuity Factor.

Month Beginning

Monthly Interest

Monthly

Monthly

Balance

(1)

(3)=(2)*(.15/12)

Payment

Amortization

(6)=(2)-

(4)

(5)=(4)-(3)

(5)

Balance(2)

100,000

1250

4848.66

3598.66

96,401.34

96,401.34

1205.02

4848.66

3643.65

92,757.69

92,757.69

1159.47

4848.66

3689.19

89,068.49

89,068.49

1113.36

4848.66

3735.31

85,333.18

Figure: Amortization Schedule

Prepayment:

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Customer can repay the loan before the maturity of the loan. Prime usually welcomes the early
payment of loan and no prepayment penalty is to be charged. Prime bank always tries to avoid
classified loan even at a cost of losing profit and receiving risk just to maintain its credit history
and good CAMEL rating.

Products under Consumer Credit Scheme:


The products of Prime Bank with their financing items under CCS loan are given below:
a. Household Durable Loan: Motor Cycle, Personal Computer, Photocopier, Fax machine,
Small PABX system, Television, Mobile Phone set, Refrigerator, Audio-video equipment,
Other home electric appliances, Furniture and any other household items.
b. Doctors Loan: For the doctors only
c. Any Purpose Loan: For emergency need
d. CNG Conversion Loan: To convert into CNG
e. Car Loan: Car, Jeep, Station Jeep, Pick up Van, Cover Van, Bus, Truck, Ambulance and
any other vehicle for own use.
f. Advance Against Salary: Any qualified person
g. Education Loan: For Study purpose only
h. Marriage loan: For wedding only.
i. Hospitalization Loan: For treatment in hospital

a. Household Durable Loan:


Household durable loan will be sanctioned against guarantee of third parties acceptable to the
bank or pledge of FDR, Saving instrument of Banks and assignment of salary where applicable.
Eligible Items / Articles

Motor Cycle

Personal Computer

Photocopier / Fax Machine

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Small PABX System

Television

Mobile Phone Set

Refrigerator

Audio-Video Equipment

Other Home Electric Appliance

Furniture

Any Other Household Durables

Loan Limit and Period of Loans:

Name of the Item


Motor Cycle
PC/Lap Top
Photocopier/Fax
Other Item/Furniture

Loan Limit
Tk. 1,00,000
Tk. 1,00,000
Tk. 1,00,000
Tk. 5,00,000

Duration of the Loan


2-yrs
2-yrs
2-yrs
3-yrs

Required Documents:
Employer Certificate for Service Holders
Photocopy of Trade License for Businessmen
Photocopy of Tin Certificate, if any
Bank Account Statement of last six months
Photocopy of Passport, Telephone (T&T) Bill, if any
Security:
Two Personal Guarantees
Undated Cheques

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b) Doctors Loan:
Any Bangladesh citizen who is a graduate in Medical Science / Dentist / Eye / Allopathic /
General Practioners desiring to set up chamber, medical store with necessary medical
equipments and to become self-employed have the opportunity to take this loan.

Loan Limit and Period of Loans:

Type of Customer
General Practitioner MBBS/BDS/
Specialized Doctor

Loan Limit
Tk. 5,00,000
Tk. 10,00,000

Duration of the Loan


4-yrs
5-yrs

Required Document:

Employer Certificate for Service Holders

Photocopy of Tin Certificate, if any

Bank Account Statement of last six months

Photocopy of Passport, Telephone (T&T) Bill, if any

Attested Photocopy of the Certificates of the last degree and BMA membership
certificate

Security:
The ownership of medical equipments to be purchased must be hypothecated to the Bank under
hire purchase mode:

Two personal guarantees

Undated cheques

c) Any Purpose Loan:

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This scheme is to meet the emergency need for fund by fixed income group of salaried person in
Govt./Semi

govt.

/Autonomous

bodies/

Multinational

Co./

Banks/Insurance/Financial

Inst./Educational Inst. with confirmed 3-years service ahead. Letter of introduction including
name, fathers name, designation, date of birth, date of joining, place of posting, date of last
promotion, date of retirement, basic salary, total emolument, take home salary etc. will be
required. This scheme is only for service holder.

Loan Limit and Period of Loans:


Type of Customer
Salaried Person

Loan Limit
Tk. 200,000

Duration of the Loan


3-yrs

Required Documents:

Employer Certificate

Photocopy of Tin Certificate, if any

Bank Account Statement of last six months

Photocopy of Passport, Telephone (T&T) Bill, if any

Security:

Undated Cheques

Lien on Service benefit of the concerned employee from the employer

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d) CNG Conversion Loan:


This scheme is to meet the funds requirement for CNG conversion of vehicles for those who are
salaried

person

in

Govt./Semi

govt.

/Autonomous

bodies/

Multinational

Co./Banks/Insurance/Financial Inst./Educational Inst. with confirmed 3-years service ahead,


businessman having adequate cash flow and corporate Bodies.

Loan Limit and Period of Loan:

Type of Customer

Loan Limit

Duration

Owner / Valid user of the vehicle

Tk. 60,000

Loan
1.5-yrs

Owner / Valid user of the vehicle

Tk. 1,00,000

1.5-yrs

of

the

Required Documents:

Employer Certificate for Service Holders

Photocopy of Trade License for Businessmen

Photocopy of Tin Certificate, if any

Bank Account Statement of last six months

Photocopy of Passport, Telephone (T&T) Bill, if any

Photocopy of the Blue Book etc

Photocopy of the registration of the Vehicle

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Security:

One or two personal guarantee from family member (effective member i.e. spouse / father
/ mother / brother / earning son, Corporate guarantee in the case of Company or as the
case may be acceptable in the bank).

Undated cheques in favors of the Bank covering the whole amount.

e) Car Loan:
Car Loan will be sanctioned against Registration of the Vehicle in the name of the Bank. Instead
of down payment, the Customers shall have option to avail loan against their FDR or any other
savings instruments up to 90% of the loan amount.
Eligible Items / Articles

Car

Jeep

Station Wagon

Any other vehicles for own use

Pick up Van

Cover Van

Bus / Truck for Corporate Bodies (own use)

Ambulance for Corporate Bodies / Medical Professionals

Loan Limit and Period of Loans:


Name of the Item
New Vehicle
Recondition Vehicle
Bus / Truck for Corporate Bodies

Loan Limit
Tk. 40,00,000
Tk. 15,00,000
Tk. 40,00,000

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Duration of the Loan


5-yrs
4-yrs
5-yrs

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for own use only


Required Documents:

Employer Certificate for Service Holders

Photocopy of Trade License for Businessmen

Photocopy of Tin Certificate, if any

Bank Account Statement of last six months

Photocopy of Passport, Telephone (T&T) Bill, if any

Photocopy of the Blue Book etc

Photocopy of the registration of the Vehicle

Security:

Undated Cheques

Registration of the vehicle in the name of the Bank

f) Advance Against Salary:


This scheme is for salaried Bangladeshi person in Govt. /Semi govt. /Autonomous bodies/
Multinational Co. / Banks / Insurance / Financial Inst. / Educational Inst. with confirmed 3-years
service ahead. A Letter of introduction including name, fathers name, designation, date of birth,
date of joining, place of posting, date of last promotion, date of retirement, basic salary, total
emolument, total in PF, take home salary etc. will be required. Loan limit is 8 times of gross
salary who have Salary A/C with us and 6 times of gross salary who have not Salary A/C with us
subject to highest Tk. 3.00 lac .
Loan Limit and Period of Loans:
Type of Customer
Salaried Person

Loan Limit
Tk. 3,00,000

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Duration of the Loan


2-yrs
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Required Documents:

Employer Certificate for Service Holders

Photocopy of Trade License for Businessmen

Photocopy of Tin Certificate, if any

Bank Account Statement of last six months

Photocopy of Passport, Telephone (T&T) Bill, if any

Security:

Undated Cheques

Lien on Service benefit of the concerned employee from the employer

g) Education Loan:
This scheme is for meeting the fund requirement for higher education of children of salaried
persons in Govt./Semi govt. /Autonomous bodies/ Multinational Co./Banks/Insurance/Financial
Inst./Educational Inst. with confirmed 3-years service ahead and businessman having adequate
cash flow.
Loan Limit and Period of loan:
Type of Customer
Salaried Person/Business

Loan Limit
Tk. 3,00,000

Duration of the Loan


2-yrs

Required Documents:

Employer Certificate for Service Holders

Photocopy of Trade License for Businessmen


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Photocopy of Tin Certificate, if any

Bank Account Statement of last six months

Photocopy of Passport, Telephone (T&T) Bill, if any

Evidence thereof

Security:

Undated Cheques

Two personal guarantees

h) Marriage Loan:
This scheme is to meet the fund requirement for marriage purpose of salaried person in
Govt./Semi

govt.

/Autonomous

bodies/

Multinational

Co./Banks/Insurance/Financial

Inst./Educational Inst. with confirmed 3-years service ahead and businessman having adequate
cash flow.
Loan Limit and Period of loan:
Type of Customer
Salaried Person/Business

Loan Limit
Tk. 3,00,000

Duration of the Loan


2-yrs

Required Documents:

Employer Certificate for Service Holders

Photocopy of Trade License for Businessmen

Photocopy of Tin Certificate, if any

Bank Account Statement of last six months

Photocopy of Passport, Telephone (T&T) Bill, if any

Evidence thereof

Security

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Undated Cheques

Two personal guarantees

i) Hospitalization Loan:
Hospitalization loan will be provided for treatment purpose or surgery where hospitalization is
necessary. The loan shall be available for the salaried person, i.e., employee of the Govt.
Organizations / Semi-Government Organizations / Autonomous Bodies / Multinational
Companies / Banks / Insurance Companies / Educational Institutions / Corporate Bodies.

Loan Limit and Period of loan:


Type of Customer
Salaried Person

Loan Limit
Tk. 5,00,000

Duration of the Loan


2-yrs

Required Documents:

Employer Certificate for Service Holders

Photocopy of Tin Certificate, if any

Photocopy of Passport, Telephone (T&T) Bill, if any

Security:

Personal guarantee from an individual having means, standing and social status
acceptable to the bank and another from his/her family

Undated cheques in favors of the Bank covering the whole amount

Letter of Assurance from the Employer / Authority.

4.4 Portfolio of Loans and Advances:


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The banks loans and advances grew steadily during 2010. The growth rate was 42.46% during
the year. The ratio of non-performing loans at total loans declined during the year and stood at
1.39% and at the end of the year 2010 this was Tk.19, 897.52 million.
Here we shall find the graphical presentation of credit portfolio of the year 2010 on different
bases.

4.4.1 Category-wise Credit Portfolio:


Category

Amount in Taka

Loans

66,222,432,595

Cash Credit

14,915,766,110

Overdrafts

23,052,864,474

4.4.2 Significant Concentration-wise Credit Portfolio:

Concentration

Amount in Tk.

Commercial lending

19,564,268,060

Export financing

9,363,160,717

House building loan

3,435,341,726

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Retail loan

9,290,648,830

Small and medium enterprises

5,757,282,961

Special program loan

Staff loan

13,776,232

Industrial loans / investments (detail below 45,291,774,713


Other loans and advances (SOD)

17,204,586,886

4.4.2 Geographical Location-wise Credit Portfolio:


Location

Amount in Tk.

% of total Loan

Urban Area

108,132,434,821

97.27

Rural Area

3,034,954,071

2.73

4.4.3 Sector-wise Credit Portfolio:


Sector

Amount in Tk.

% of total Loan

Public Sector

421,075,350

0.378

Co-operative

Private Sector

110,746,313,542

99.622

So, in category-wise portfolio, we find that Prime Bank is mostly interested in extending its
credit as loans (66.5%) rather than as cash credit (19.08%) and overdrafts (14.42%). In
concentration-wise portfolio, we find that engage most of its concentration of credit on industry
(42.49%) then on commercial lending (27.00%). In geographical location-wise portfolio we find
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that Prime Bank Ltd, to say, ignores the rural area for their lending decision as the loan in rural
area is only 1.1% whereas that in urban area is 98.9%. The main reason is that most of the
business operation of our country occurs in urban area. In sector-wise portfolio we find that the
bank concentrates mostly on private sector (99.42%) for its lending purpose than on co-operative
and public sector.

4.5 Interest Rates of Loans and Advance:


The interest rate is directly linked to the cost of fund. The private banks have high establishment
cost so that the lending rate of interest is some time higher in PCB than NCB. Since banks are
free to fix their rates of interest on lending, Prime Bank Limited has changed its interest rate very
often.
With a view to boost up the economic activity of the country and to increase productive
investment, Bangladesh bank has recently reduced the bank rate and also reduced the interest
rates on various savings instruments. Accordingly the commercial banks have also decreased
interest rates on lending as well as deposit even in the face of uneven competition with the NCBs
and earlier generation PCBs.
Banks also free to fix their rates of interest on lending except sector, which has been fixed at
7% per annum. In response of this circular PBL changes their interest rates on loans and
advances frequently.
In the following table the different range of interest on Loans and advances are shown.

Interest Rate of Loans and Advance:


Nature of Loan sector

Existing Rate (%)[June]

Agricultural Credit

10-12

Project Lone

12-13.5

Working Capital Loan

12.5-13.5

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Export Financing

7.00

Commercial Lending

12.5-14

SME

12-14

CCS

14-15

Loan against Share

12.5-14

House building Loan

14-15

Other Special Program

12.5-14

[Source: Head Office Circular June 30, 2010.]

Interest rate of Retail Credit Scheme:


Name of the Credit item

Rate of interest

Risk Fund

Service charge

Household durables

15%

1%

1%

Car Loan

15%

Nil

1%

Doctors Loan

15%

Nil

1%

Advance Loan

15%

1%

1%

Any purpose Loan

15%

1%

1%

Educational Loan

15%

1%

1%

Travel Loan

15%

1%

1%

Marriage Loan

15%

1%

1%

CNG Conversion Loan

15%

Nil

2%

Hospitalization Loan

15%

1%

1%

[Source: Head Office Circular June 30, 2010.]

4.6 Impact of Change of Interest Rate on Loan and Advance:

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Prime Bank Limited does not earn profit at any cost. So it has raised its interest rates on both
deposits and advances by up to 2% recently in line with a central bank directive. As a result the
spread rate between deposits and lending does not increase.
Although the spread of interest rate is not increased, Prime Bank Limited continued to lead in the
field of most profitable and attractive growth areas, compared to peer group, despite the
slowdown in the economy, decline in interest spread and fee based earnings. The remarkable
progress in many lines of business resulted to a 33.45% growth in the assets position and Return
on Average Equity of 30.44%. The banks loan and advances grew steadily during 2008. The
growth rate was 40.79% during the year 2008.Total loans and advances have also been increased
during the year 2009 because the bank has also extended long-term loan to a number of projects
under structured financing scheme with banks and financial institutions. The bank has all along
encouraged small business group and supported SME, Agriculture and IT sectors both got
priority fro the bank in line with the national interest.
Though the interest rate of lending is increased, the loans and advances position is also increase.
The amount of General loans, CCS, Hire purchase, Lease finance etc. are increasing day by day
but the amount of SOD, House-Building Loan etc. are reducing during the year 2005.The interest
rate is directly linked to the cost of fund. The higher the cost, the higher the interest rate and vice
versa.

4.7 Compliance with the Loan Provisions from Bangladesh Bank:


In the chapter of Literature Review we have found that Bangladesh Bank has provided some
provisions for credit operation of the commercial banks operated in our country. Here we shall
find how Prime Bank Ltd complies with the stated provisions.
Prime Bank Ltd. has divided its loans & advances into two broad classifications:
Unclassified
Classified

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Unclassified Loans:
Type

Amount in Tk.

Year

2010

2009

Standard

10,460,432,000

9,355,471,819

Special

Mention

Account 38,292,000

52,405,000

(SMA)

Classified Loans:
Type
Year
Sub-standard
Doubtful
Bad / Loss

Amount in Tk.
2009
8,319,000
5,839,000
8,803,000

2010
36,295,000
4,394,000
15,615,000

Banks Provision under this Classification:


Status

Base

Standard (excluding SMA)

Provision
10,460,432,0

* Various

(2010)
170,260,050

Special Mention Account


Sub-standard
Doubtful
Bad / Loss

00
34,839,000
30,735,000
3,722,000
12,313,000

5
20
50
100

1,741,950
6,147,000
1,861,00
12,313,00

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Amount in Tk.

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* General is kept @ 1% on general loans and advances and 2% on small enterprise financing and
5% on consumer financing.
So we find that Prime Bank Ltd. complies with the provision of loan classification (Unclassified
or Standard, Sub-standard, Doubtful & Bad or Loss) as Bangladesh Bank directs.
Here in the above table we find an additional classification named Special Mention Account
(SMA) which fulfils another provision from Bangladesh Bank. According to this provision Prime
Bank Ltd. has kept the amount of provision @ 5%.
We also find that the bank complies with the provision @ 2% on small enterprise financing.
From the interest rates of the bank as stated earlier, we find that the highest difference among the
interest rates in the same sector is 2% which is less than 3%. This fulfils the provision that the
variation of interest rates in the same sector will not exceed 3%.
To comply with the provision of quarterly basis revision of loan classification Prime Bank Ltd
revises the classification of loans and related necessary provision quarterly and submits a report
to the Bangladesh Bank.
Besides, Prime Bank Ltd. complies with the provision of submitting the statement of loans
extended to the directors of the financial institutions on quarterly basis within next 15 days of the
following month of the quarter.

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Chapter: 5

Conclusion
Conclusion&&Recommendations
Recommendations

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Recommendations :
From the findings of the report we can expose the following recommendations for the betterment
and further success of the credit division of Prime Bank Ltd.:
The down payment paid by CCS customers is very high with PBL. Besides, others bank
such as- Dhaka Bank Limited, AB bank Limited, And Eastern Bank Limited are not
taking any down payment. So I think PBL should not take any down payment or reduce
the down payment percentage to make its CCS more competitive.
Interest rate and payback period are very important criteria for any kind of loan but
most of the clients are not satisfied to PBL Consumer Credit interest rate and loan
payment period. They want lower interest rate and more payment period and reduce
interest rate. Therefore I suggest for increasing payment period. It will make the
installment more attractive and convenient for customers to pay. At the same time it
will help reduce outstanding for the bank.

All the lending and savings packages offered to the Premium customers are same as
offered to the general customers, excepting the waiver of service charges for premium
ones. Prime Bank Limited should try to introduce more attractive lending and savings
scheme to its Premium customers to create more business for the Bank. The Bank can
pay more attention to this segment of customers, as it is the most solvent group from
which income can be generated if the package is designed properly.
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Prime Bank Limited


a bank with a difference

Premium Customer should be offered occasional gifts and discounts, which can make
the premium service more attractive and keep consumer delighted. The interest rates on
several loan and deposit schemes should be differentiated for the premium customers.

Conclusion :
Prime Bank Limited is a potential and promising bank in the banking sector of Bangladesh.
Credit Management policies and techniques used in the bank at present is comparable to
international standards. The officials follow the policy very strictly. They are very much sincere
and conservative in sanctioning loan. The proposal is thoroughly scrutinized by the loan
sanctioning authority. The total function of the credit division is monitored periodically. From
overall findings it is transparent that the credit division of Prime Bank Ltd is one of the most
efficient and well operated divisions.

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Prime Bank Limited


a bank with a difference

References :

Chowdhury, L.R., A Textbook on Bankers Advances; 2nd Edition; Paradise Printer; 2002

Fraser, and Donald R., Commercial Banking; 5th Edition; West Publishing Company;
2002

Macdonald, S. S., Bank Management; 4th Edition; The Dryden Press; 2000.

Qureshi, A A., Higher Management in Banks; 1st edition; The Pioneer Printing Press Ltd;
1997.

Rose. And Peter. S, Commercial Bank Management; Fourth Edition; Irwin-McGraw-Hill;


1999

Bangladesh Bank, Bank Regulatory and Policy Department, Circular No: 09; May 14,
2001

Prime Bank Ltd., Annual Report; 2008

Prime Bank Ltd., Annual Report; 2009

Prime Bank Ltd., Head Office Circular; June 30, 2010

Prime Bank Ltd., Brochures of Loans & Advances; 2010

www.prime-bank.com

Internet.

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Prime Bank Limited


a bank with a difference

Acronyms :
PBL

Prime bank Limited

SOD

Secured Overdraft.

PAD

Payment against Document.

LIM

Loan against Imported Merchandise.

LTR

Loan against Trust Receipts

SME

Small & Medium Enterprise

CCS

Consumer Credit Scheme

CIB

Credit Information Bureau

IBP

Inland Bill Purchase

FBP

Foreign Bill Purchase

FDBP

Foreign Document Bill Purchase

LRA

Lending Risk Analyzing

SWIFT

Society for worldwide Inter- Bank Financial Telecommunication

NFCDA

Non-residential Foreign Currency Deposit Account

NITA

Non-residential Investors Taka Account

BRPD

Bank Regulatory and Policy Department

ATM

Automated Teller Machine

T24

Tamenos 24

L/C

Letter of Credit

L/G

Letter of Guarantee

CEO

Chief Executive Officer

ICB

Investment Corporation of Bangladesh

EVP

Executive Vice-President

GDP

Gross Domestic Product

TIN

Tax Identification Number

SMA

Special Mention Account

NCB

National Commercial Bank

PCB

Private Commercial Bank

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Prime Bank Limited


a bank with a difference

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