An Internship Report

On
Credit & Risk Management of Sonali Bank Limited: A Study on Sadarghat
Corporate Branch, Dhaka

Supervised By:
Dr. Md. Miraj Hossen
Associate Professor
Department of Management Studies
Jagannath University

Prepared By:
Manash Biswas
ID: B-150202003
BBA Program
Session: 2015-16
Department of Management Studies
JAGANNATH UNIVERSITY

Date of Submission: 10th August, 2020

 Letter of Transmittal

10th August, 2020

To,
Dr. Md. Miraj Hossen
Associate Professor
Department of Management Studies
Jagannath University, Dhaka-1100

Subject: Submission of Internship Report.

Dear Sir,
I am glad to submit you the Internship Report covering the topic “Credit & Risk Management
of Sonali Bank Ltd” that you have assigned to me as integral part of BBA program. For
preparing this report I tried my level best to accumulate relevant and up-to-date information from
all available sources.
In completing the report, I have tried my best in importing every available details of the bank
avoiding unnecessary amplification of the report. I hope that, this report will meet the standards
of your judgments.

Sincerely yours,

…………………
Manash Biswas
ID: B-150202003
BBA Program; Session: 2015-16
Department of Management Studies
Jagannath University

i
 Student’s Declaration

I do solemnly declare that this report submitted in partial fulfillment of the requirement of the
BBA program, Department of Management Studies, Jagannath University, Dhaka, is the result of
my research work and written in my own language. That no part of this report consists of
materials copied and plagiarized from published or unpublished work of other material and that
all materials, borrowed or reproduced from other published or unpublished sources have either
been put under quotation or duly acknowledge with full reference in appropriate place(s).

……………………………..
Manash Biswas
ID: B-150202003
BBA Program: Session: 2015-16
Department of Management Studies
Jagannath University, Dhaka-1100

ii
 Certificate of Approval

This is to certify the report entitled “Credit and Risk Management of SBL” has been prepared by
Manash Biswas bearing ID no------------ (BBA Program: Session 2015-16), Department of
Management Studies, Jagannath University, Dhaka-1100. The candidate carried out this report
under my supervision.

…………………………………..
Dr. Md. Miraj Hossen
Associate Professor
Department of Management Studies
Jagannath University, Dhaka-1100

iii
 Acknowledgement

First of all, I would like to give my sincere gratitude to almighty God for giving me the strength
and ability to finish the task within the planned time.

I also want to thank especially to my supervisor Dr. Md. Miraj Hossen, Associate Professor,
Department of Management Studies, Jagannath University, Dhaka-1100 for his inspiring
guideline, valuable suggestion and constant help throughout the work and in preparation of the
report.

I am also grateful to Abdur Rashid (Principal Officer), Md. Shafikur Rahman (Principal Officer),
Md. Koesh Al Mahmud (Senior Principal Officer) and also grateful to other officer of Sonali
Bank Ltd, Sadarghat Corporate Branch, Dhaka, who helped me in preparing the report by giving
their suggestion, supervision and information which is valuable to me. They helped and support
me to complete my report successfully.

I would like to take the opportunity to express my wholehearted gratitude to my friends, family
member, near and dear who offered encouragement, information, inspiration and assistance
during preparing the report.

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 Summary of the Report

The Internship report is prepared as requirement of BBA program of Jagannath University. This
report is on “Credit Process and Risk Management” of Sonali Bank Limited. This report is
intended to assist the reader in detailed understanding the credit risk management process. It also
attempts to capture the procedures practiced in Sonali Bank Limited (SBL) in relation to credit
handling. The purpose of this report is to have an idea about the credit process and risk
management procedure of Sonali Bank and then to assess its effectiveness in connection with.

In this report, first of all I’ve discussed about the objectives, limitations and the methodology
containing the sources of data I’ve collected from the bank and internet. In this chapter, one can
easily understand about the motives of report.

Second chapter contains the organizational part. Here, I have provided detailed information
about the organization with its bank background, company profile, banking history of
Bangladesh, Corporate Vision and Mission, product & service.

Third chapter is discussed with my practical experience at SBL, Sadarghat Corporate Branch.
Here, I have included all the things that I have learned from my internship period.

In chapter four, I am tried to analysis loan information about Sonali Bank Ltd. Sadarghat
Corporate Branch. So, I may take decision on credit and risk section of the bank. This chapter
helps to learn clear understanding about credit information.

Final chapter, I tried to give some suggestion to the base of my knowledge and experience
which I have achieved during internship at Sonali Bank Ltd. Sadarghat Corporate Branch, for
further growth in credit and convenience in credit risk management and expansion of this
Branch.

The whole system has been described elaborately keeping in mind the most important segments.
In addition the diagrams Credit Approval Process & Credit documentation, Credit Risk Grading
score sheet add a clear understanding of the system.

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 List of Abbreviations

BB = Bangladesh Bank
CRG = Credit Risk Grading
CRM = Credit Risk Management
FDR = Fixed Deposit Receipt
SBL = Sonali Bank Limited
L/C = Letter of Credit
AGM = Assistant General Manager
GM = General Manager
DGM = Deputy General Manager
ATM = Automated Teller Machine
DMD = Deputy Managing Director
LRR= Loan Recovery Ratio

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 Table of Contents
SL Particulars Page
No.

Title Fly

Letter of Transmittal i
Student’s Declaration ii
Supervisor’s Certificate iii
Acknowledgement iv
List of Abbreviations v
Executive Summary vi
Table of Contents vii-viii
Chapter One: Introduction 1-5
1.1 Preface 2
1.2 Background of the Study 2
1.3 Objective of the Study 3
1.4 Methodology of the Study 3
1.5 Limitation of the Report 5
Chapter Two: Company Overview 6-11
2.1 Banking History of Bangladesh 7
2.2 Background of SBL 8
2.3 Corporate Profile 8
2.4 Organizational Hierarchy 9
2.5 Vision, Mission & Slogan of SBL 9
2.6 Core Business service 10
2.7 Objectives of SBL 11
vii
Chapter Three: My Practical Experience During My Internship Period 12-14
3.1 My Job at SBL, Sadarghat Corporate Branch 13
3.2 Observation 14
Chapter Four: Analysis Credit & Risk Information at SBL, Sadarghat, 15-31
Corporate Branch

4.1 Credit 16
4.2 Credit Risk 16
4.3 Loan Facility of SBL 16
4.4 Security& Documents Required for Sanctioning loan 18
4.5 Loan Proposal and Sanction Process 19
4.6 Credit Risk Grading 22
4.7 Bad Loan Monitoring 24
4.8 Bad Loan Recovery Procedure 25
4.9 Financial Information analysis at SBL, Sadarghat Corporate Branch 26
Chapter Five: Findings, Conclusion & Recommendation 32-35
5.1 Findings of the Report 33
5.2 Conclusion 34
5.3 Recommendation 35
Reference 36

viii
 CHAPTER ONE

INTRODUCTION

1.1 Preface
1.2 Background of the Study
1.3 Objective of the Study
1.4 Methodology of the Study
1.5 Limitation of the Report

1.1 Preface

1
In today’s world only academic education does not give a student perfect knowledge to become
competitive with the outside competitive world. Internship is highly needed to gain idea,
knowledge and experience practically. From this internship program students get the chance to
learn facing the real business world. This report is an internship report prepared as a requirement
for the finishing of BBA program (Major in Management Studies) of Jagannath University. The
primary goal of internship is to provide the job experience to the student and an opportunity to
application of theoretical knowledge in real life situation. The program covers a period of 45
days of organizational attachment. This organization has a positive image to the customer’s mind
giving better service. As it maintain the motion with the competitive business world, its
activities, culture and style operate an intern student to be best at any field of working life.

Sonali Bank Ltd is the place where I could do my internship program. The report titled “Credit
Risk Management of Sonali Bank Limited”: An analysis on Sadarghat Corporate Branch, Dhaka
has been prepared an internship report fulfillment of BBA program authorized by the
Department of Management Studies of Jagannath University, Dhaka-1100.

As an intern, I have get opportunity to work with the organization from 30 December, 2019 to 12
February, 2020 and acquired idea about credit and risk management. To be a skilled banker only
theoretical knowledge is not sufficient, practical knowledge is also needed. This report gives a
clear idea about performance, activities and strategies of Bangladesh Credit and Risk
Management.

1.2Background of the Study

As a part of any graduation program Jagannath University has given me an opportunity to
explore the real world. For the accomplishment of my internship period, it is very much essential
to summarize my whole learning in the report.

The report entitled “Credit Risk Management System of Sonali Bank Limited : An analysis on
Sadarghat Corporate Branch, Dhaka” has been prepared as an internship report fulfillment of
BBA Program authorized by the Department of Management Studies of Jagannath University,
Dhaka-1100.

2
1.3 Objective of the Study

There are two objectives of the study; such as

Broad Specific
Objective Objective

Objectives
of the
Study

1.3.1 Broad Objective

 To identify and evaluate the credit risk management system of Sonali Bank Limited.
 To acquire practical knowledge and fulfill academic requirement.

1.3.2 Specific Objectives

 To know the practices of credit structure of the bank Sonali Bank Limited.
 To identify the recovery system performed by the bank Sadarghat Corporate Branch,
Dhaka.
 To measure the effectiveness of the bank in the utilization of available resources.
 To asses and highlight the legal actions flowed by the Branch in terms of credit recovery.

1.4 Methodology of the Study

In preparation of the report, both the primary and secondary sources are used during data
collection. The monitoring techniques to primary data, the officers and employees of Sonali
Bank Ltd. will be collected through informal interviews with the author’s data observation. To,
conduct this study the following methodology was implemented.

3
1.4.1 Data sources

To complete the report effectively I use two types of data. These are-

Primary Sources Secondary

Source of Data Source

1.4.2 Collection Method of Data

In this study both primary & secondary data were collected.

i. Primary source:

 Personal observation
 Desk work in different section, of the bank.
 Conversation with bank’s employees.

ii. Secondary Source:

 Annual report of Sonali Bank Limited

 Variety of books, articles & journal related to the bank operations.
 Banking information from the internet.

1.4.3 Data Processing & Analysis:

Collected information have then processed & compiled with the aid of MS Word & Excel.
Necessary tables have been prepared on the basis of collected data and various statistical
techniques (like bar chart, pie chart) have been applied so that the result will easily
understandable at a glance.

4
1.5 Limitation of the Report

In preparing these reports I have faced some problems which are as follows:

i. Limitation of time: It was one of the main constraints that hindered to cover all
aspects of the study.
ii. Lack of Secondary Information: The secondary source of information was not
enough to complete the report.
iii.  Limitation of the Scope: Some confidential information was not disclosed by various
personnel of their respective department. Such as:
iv. The in sufficiency of information basically various information are not provided
v. To me by the employees of the bank in terms of security and other corporate
vi. Obligation.
vii. Bank employees are very busy; they could not pay enough time.
viii. Legal action related information was not available.
ix. Some consumers’ of the bank did not give answers in some issues.

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 CHAPTER TWO
COMPANY OVERVIEW

2.1 Banking History of Bangladesh

2.2 Background of SBL
2.3 Corporate Profile
2.4 Organizational Hierarchy
2.5 Vision, Mission & Slogan of SBL
2.6 Core Business Service
2.7 Objectives of Sonali Bank Limited

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2.1 Banking History of Bangladesh
The first modern bank in Bengal was Bank of Hindusthan, established in 1770 in Calcutta. It was
an offshoot of trading company Messrs. Alexander and Co. operated until 1832 when the trading
Company failed. The circulation of its notes was limited to Calcutta and its immediate environs.

The first modern bank headquarter in Dhaka was Dacca Bank, established in 1846. It did a very
limited business and did not issue banknotes. It was purchased by Bank of Bengal in 1862. Bank
of Bengal opened branches in Sirajganj and Chittagong in 1873 and in Chadpur in 1900. In 1947,
upon the Partition of Bengal, it had six branches in East Bengal, in Dhaka, Chittagong,
Chandpur, Mymensingh, Rangpur and Narayanganj.

After the Liberation War, the banking system consisted of two branches of former State Bank of
Pakisthan and seventeen large commercial banks, two of which were controlled by Bangladeshi
interests and three by foreigners other than West Pakisthanis.

The newly independent government immediately designated the Dhaka branch of the State Bank
of Pakisthan as the central bank and renamed it the Bangladesh Bank. The bank is responsible
for regulating currency, controlling credit and monetary policy and administering exchange
control and the official foreign exchange.

The undertakings of previous banks specified in the 2nd column of the table below stands
transferred to and vested in the new banks mentioned in the 1st column of the said table:

Nationalization of Banks:

New Bank Previous Bank

Sonali Bank National Bank of Pakistan
Bank of Bahawalpur
Premier Bank
Rupali Bank Standard Bank Ltd.
Muslim Commercial Bank Ltd.
Australasia Bank Ltd.

2.2 Background of Sonali Bank Limited

Sonali Bank was established in 1972 under the Bangladesh Banks (Nationalization) Order,
through the amalgamation and nationalization of the branches of National Bank of Pakistan,

7
Bank of Bahawalpur and Premier Bank branches located in East Pakistan until the
1971 Bangladesh Liberation War. When it was established, Sonali Bank had a paid up capital of
30 million taka. In 2001, it’s authorized and paid up capital were Tk 10 billion and Tk 3.272
billion respectively. Presently, it’s authorized and paid up capital is Tk 10 billion and Tk 9
billion respectively. The bank's reserve funds were Tk 60 million in 1979 and Tk 2.050 billion
on 30 June 2000. In 2013, $250,000 was stolen from the bank by Cyber criminals using the Swift
International payments network. In 2016 the Bank signed a Memorandum of Understanding
with PayPal.

2.3 Corporate Profile

Name of the Company : Sonali Bank Limited
Registered Office : 35-42, 44 Motijheel Commercial Area, Dhaka, Bangladesh
Legal Status : Public Limited Company
Chairman : Md. Ziaul Hasan Siddiqui
Date of Incorporation: 3June 2007
Authorized Capital : BDT 6,000.00 Cr
Paid up Capital : BDT 4530.00 Cr.
Date of Vendor’s Agr. : 15 November, 2007
Number of Branch : 1224
Number of Employee. : 17,965
Genesis : Emerged as Nationalized Commercial bank in following the
BB (Nationalized) order no. Nov 26 of 1972.
SWIFT : BSONBDDH
Website : www.sonalinank.bd.com
E-mail : itd@sonalibank.com.bd

2.4 Organizational Hierarchy

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 Managing Director

Deputy Managing Director

General Manager

Deputy General Manager

Assistant General Manager

Senior Principal Officer

Principal Officer

Officer

2.5 Vision, Mission & Slogan of SBL

Vision
Socially committed leading banking with global presence

Mission

9
Dedicated to extend a whole range of quality products that support divergent needs of people
aiming at enriching their lives, creating value for the stakeholders and contributing towards
socio-economic development of the country

Slogan

“Your trusted partner in innovative banking”

2.6 Core Business Service

Sonali Bank Ltd. is available following types of products and services:

Savings Account
Current Account
General Service Corporate Account
Short Term Deposit
Fixed Deposit Scheme
Monthly Saving Scheme
Deposit Service Special Deposit Scheme
Monthly Income Scheme
Special Savings Scheme
General Loan
Terms Loan
Project Loan
Loan Service Loan Against House Building
Transport Loan
Loan Against Imported Merchandise
Personal Loan scheme
Consumers Financial Scheme
Cash credit
Small Business Loan Scheme
Security Overdraft
House Repairing Loan Scheme
House Loan Scheme
Mudaraba Savings Account
Mudaraba Special Notice Deposit
Islamic Banking Service Mudaraba Hajj Saving Account
Hire Purchase Under Shirkatul
Bai-Mudrabaha
ATM Card
Merchant Banking
Other Business Service Government Treasury Bonds

10
 Locker Service
Utility Bills Collection

2.7 Objectives of Sonali Bank Limited

i. Contribute towards the progress of nation
ii. By supporting ethical values and best practices
iii. To achieve customer satisfaction through diversified banking activities
iv. To improve customer service by introducing new IT based technology so that
customer can get their service without any difficulties
v. To ensure adequate rate of return on investment
vi. Availability of credit at customer need
vii. To ensure optimum utilization of available resources.

CHAPTER THREE
MY WORLING EXPERIENCE DURING MY INTERNSHIP
PERIOD

11
3.1 My Job at SBL, Sadarghat Corporate Branch
3.2 Observation

12
3.1 My Job at SBL, Sadarghat Corporate Branch
I have completed 45 days internship on Sonali Bank Limited, Sadarghat Corporate Branch,
Dhaka. At the very first day, Aminul Islam (AGM) sir, introduced me to the other members of
this branch. The officials of this bank are very helpful and energetic. From very beginning of my
interne period, I have learned about General Activities that are given below:

 Learning about various account form

 Learning about Pay Order
 Learning about check
 Use the counting machine
 Use the photocopy machine
 Counting the vouchers
 Learned to become freer among the other employees

After 2 weeks, my superior told me to assist him on some tasks. By this way I have learned some
General Banking activities. When one can learn new things, it may charm on him/her. Here g
found interest to learn new things. These are

 How to fill up bank account form

 How to write check book
 How to write Debit Voucher & Credit Voucher
 Writing and later on printing pay orders
 Counting the voucher of GB
 Putting 5 different types of seals for clearing
 Assist to organize Pay Order
 Assist to client for completing application form

The last fifteen days, I have worked at loan department that is assigned me to make a report.

The officials of this department are very intelligent. They help me to know significant
information about loan section. This information are fruitful for making the report. Here I have
learned:

13
  How to Calculate Credit Risk Grading (CRG)
 Required Documents for Sanctioning loan
 Varieties of interest rate on loan
 How they manage Credit Disbursement (Theory)
 How they recover Bad loan (Theory)

The internship period on SBL taught me various things about the bank. I am very thankful to my

department to provide such an opportunity.

3.2 Observation
It was very interesting working at SBL, Corporate Branch, Dhaka. The people there are really
nice and talented. The things that I have noticed and observed are:

 The employers are very helpful

 The employers are very co-operative to each other
 A friendly working environment
 Flexible behavior when any one make fault
 No task pending for the day after tomorrow
 The work process could be made faster with better computers and operating systems.
 The work activities are always set and divided for each of the employees. This is the way
it should be, but when I saw it firsthand it was remarkable. Each and every employee has
a certain set of responsibilities. He/she carries out those responsibilities throughout the
day. It is also easy to assign duties that way. Even though this is the case, I often saw
other staff members helping each other out.
 Always focus on the customer betterment.

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 CHAPTER FOUR
ANALYSIS CREDIT & RISK INFORMATION AT SBL
SADARGHAT CORPORATE BRANCH
4.1 Credit
4.2 Credit Risk
4.3 Loan Facility of SBL
4.4 Security& Documents Required for Sanctioning loan
4.5 Loan Proposal and Sanction Process
4.6 Credit Risk Grading
4.7 Bad Loan Monitoring
4.8 Bad Loan Recovery Procedure
4.9 Recent Loan Information

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4.1 Credit
Bank is a financial institution. The main objective of bank is to make profit. Credit is the main
source of profit of a bank. Sonali Bank Limited, Sadarghat Corporate Branch, Dhaka earns more
profit through credit medium.

4.2 Credit Risk

Credit is the main earning source of a bank as well as it may have risk for a bankers. Sometimes,
customers may not repay the loan it may create loss to the banks. Excess cash flows may be
written to provide additional cover for credit risk. Every bank followed various ways to
minimize the losses. SBL, Sadarghat Corporate Branch, Dhaka manage the risk in effective way.
According to the loan sanction policy all the bank keep security instead of loan. If the customer
may not able to repay the loan then the bank goes to the Court for settlement. But collateral may
relief some tension of bankers.

4.3 Loan Facility of SBL

My supervisor Md. Abdur Rashid (Principal Officer) of Sonalil Bank Ltd. Sadarghat Corporate
Branch has given me different files of different company which are the customer of the bank to
give me a clear idea about how the bank lend loan to the customer, what documents are required
to open a bank account or to open an L/C, which types of collateral are required and so on. Now
I may make a table about various loan, interest rate and maximum loan amount on next page.

Type Name Interest Rate

Special Agricultural Credit Program 9%
Agricultural Loan
Oil Seed, Spicy and Wheat Loan 4%
Fish Farming Credit Program 9%
Small and Medium Working Capital Loan 9%
Women Entrepreneur Loan 9%
Enterprise Loan
International Trade Pre Shipment Credit & Packaging Credit 7%
Export Institution Loan 7%
Financing Loan
Exporting Freezing Food, Fish Institution 9%

16
 General Advanced Housing Loan 9%
Division Bridge Financing 13%
Grocery Shop Loan 9%
Employer Loan Employer Housing Loan 5%
Employer Motor Bike Loan 5%
Employer Bi Cycle Loan 5%
Figure 4.3.1: Different types of loan & Interest Rate

4.3.1 Agriculture Loan

Farmer, of our country plays a vital role in the economic progress of our country. Realizing the
importance of agricultural finance in creating self-employment opportunities and socio-economic
development of the country, Sonali Bank Limited has been providing Agriculture & Rural credit
facilities through its own branches across the country since its inception. This type of loan has a
low interest rate. The bank official inspires farmers to receive this type of loan.

4.3.2 Small and Medium Enterprise (SME)

SBL emphasized highest priority on SME financing for eliminating poverty by increasing loan
flow at economically underdeveloped area and peoples. Setting up priority based SME credit
policy for women and underprivileged entrepreneurs, Sonali Bank working for improvement of
their economic condition. SBL, Sadarghat Corporate Branch provide loan amount as a SME
sector Tk. 50000 to ntTk.500000. The repayment period this loan is maximum 5 years.

4.3.3 International Trade Financing

Sonali Bank Limited expertise in international Banking has a record of in house growth over
more than half a century. Its pioneer role in handling foreign trade and foreign exchange
transactions ever before independence of the country still remains unchallenged. With wide
network of branches at home and also a large number of correspondent banks worldwide. It is
singularly handling the largest volume of export import business including home bound
remittances. SBL, Sadarghat Corporate Brach has a significant opportunity international trade. It
provides the opportunity to its customer L/C.

4.3.4 General Advanced Division

SBL extends all the major general banking activities to its customers with its 1224 branches all
the Bangladesh. It provides its customer required loan instead of loan as well as advises its

17
customer proper usages of the borrowing fund. The division of SBL Corporate Branches
provides huge amount of loan to its customer. Indirectly these funds are helping in the progress
of nation.

4.3.5 Employer Loan

SBL has an opportunity to employer loan. The rate of employer is low than the other types of
loan. Bank provides this type of loan to their employer to motivate the employer. If the
employees are motivated then they may provide more output as well as the managing board of
the company considers employee as a family.

Note: SBL Provides huge amount of loan in different sector. Here included few sectors Sonali
bank prove loans.

4.4 Security& Documents Required for Sanctioning Loan

There are securities for loans and advances which are as follows:
 Trade License copy
 Stock Report
 Payment Receipt of Tax in City Corporation
 CIB inquiry form & payment for this
 NID Card Photocopy
 Recent 3 years Company’s financial statement for calculating CRG
 Tax Identification Number (TIN)
 Most preferred business’s income or cash flow from which the customers will repay the
loan
 Second security consists of customer's balance sheet/his assets that can be liquidated for
adjustment of loan.
 Goods, mortgage of real estate from owners or from a third party.
 Insurance policy as per security
 Collateral security serves two purposes for a lender, first if the borrower cannot pay, the
collateral gives the lender the right to seize or sell those properties to cover the amount of
loan default. Secondly, collateral security gives the lender a psychological advantage

18
 over the borrower. Borrowers in this situation feel more obligated and work hard to repay
the loan to avoid losing valuable assets.

4.5 Loan Proposal and Sanction Process

The total process of proposal and sanction is a continuous process. In a particular stage the
describe loan is sanctioned or rejected by the authority. The total process consist maximum of 6
steps. Here includes the process & its required tasks:

Application of Loan
Proposal

Preliminary Screening
of Credit Proposal

Proposal Feasibility
Study & Appraisal of
loan

Documentation Study
of Loan Proposal

Disbursement of Loan
and Advance

Supervision and Follow

up

4.5.1 Application of Loan Proposal

A client must have a bank account to take a loan. The client applied for loan with a particular
amount. He/she has to fill up a loan application form given by the bank. Here, he/she has to
mention about the purpose of loan, loan amount, and mortgage property. After completing loan
application the officials of this bank studies the past record of the client and an interview with a
loan officer usually follows right away, giving the customer the opportunity to explain his or her
credit needs.

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Interview is particularly important because it provides an opportunity for the bank’s loan officer
to assess the customer’s character and sincerity of purpose. The officer tries to find out the
following process:

 Borrower’s identity, family background, character and capacity.

 Reputation of the borrower in business cycle
 Educational qualification and experience in business.
 All sources of income, amount and length on time.
 Current loan mortgage information.
 Other stocks such as stocks, bonds etc.

4.5.2 Preliminary screening of credit proposal

The bank officials of SBL, Corporate Branch screen the credit proposal at the primary stage. The
bank manager and the loan officer are responsible to visit client’s farm. They have to prepare a
credit report mentioning the present condition, assets and liabilities ratio, and reputation along
with the origin of the concern. The following documents are collected to screening the credit
proposal:

a) Client’s profile of the business

b) Clients business TIN number, Trade License
c) Bank statements for the last 12 months from previous banks
d) Deed, Valuation certificate, financial documents, NECF.

4.5.3 Proposal Feasibility Study & Appraisal of loan

In this step, the bank officials of the SBL, Corporate Branch inquiry the loan proposal. The loan
officer evaluates the information given by the customer. An element of risk is always present in
every advance. Security is taken against loan and advance to reduce the risk of recovery of loan.
Here the bank official considered:

i. Protection of interest

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 ii. Ensuring the recovery of credit.
iii. Provision against unexpected change
iv. Commitment of the borrower.

The credit report is forwarded to the original office for approval. In the regional office two
dealing officer under the direct supervision of AGM made some other recommendations by
considering the credit report and direct investigation. Then they will justify the net worth of
concern and its economic position. Here if the amount is with the ability of the regional head
(AGM) he can sanction the loan. Otherwise the proposal file will be forwarded to the principal
office. If the dealing officers found something dissatisfied they can reject the proposal.

4.5.4 Documentation Study of Loan Proposal

If the credit committee is satisfied with the loan application, and its financial information then
bank will approval the credit for the customer. The loan officer study the document which given
by the customer. Proper and correct documentation is essential not only for the safety of
advances but also necessary foe taking legal action against the debtors is case of non-repayment
of dues. Different types of document are required for different types of loan. For individuals
business loan the customer may have submitted TIN number, Trade License Copy. The customer
may have submitted financials document such as Shanchaypatra, FDR, etc. as a security.

4.5.5 Disbursement of Loan and Advances

After study the documents if it found alright the loan officer is responsible for distributing the
loan among the customer’s account. After disbursement, the loan needs to be organizing and
maintaining to ensure whether the terms and conditions of the loan fulfilled by the bank or client
or not.

4.5.6 Supervision and Follow up

Supervision and follow up indicates that the client may have use the loan amount with actual
purpose or not. It includes a reporting system and communication arrangement between the
borrower and the lending institution and within department, appraisal, recoveries, follow-up etc.
Sonali Bank Limited officer checks on the following points-

i. The borrower’s behavior of the turnover.

21
 ii. The information regarding the profitability, liquidity, cash follow situation and trend in
sales in maintaining various ratios.
iii. The review and classification of credit facilities starts at credit department of the branch
with the branch manager and finally the head office of credit division.

4.6 Credit Risk Grading

Credit Risk Grading is tool which is used for risk management. According to Bangladesh Bank
guidelines, all Banks should adopt a credit risk grading system. Credit Risk Grading (CRG) is a
system that helps to take decision for sanctioning loan. At first Principal Officer SBL, Sadarghat
Corporate Branch collects their client’s recent three year financial statement. Through this
information the principal officer analysis the data about the client and determinant the score of a
client and make decision whether the loan may superior, good, or bad.

SBL applies the following credit risk grading matrix as provided by Bangladesh Bank
guidelines:

Risk Name Grade Definition

Superior (Low Risk 1 Facilities are fully secured by cash deposit,
governments, bond or counter guarantee from a top
tier international bank. All security documentation
should be in place.
Good (Satisfactory 2 The repayment capacity of the borrower is strong.
Risk) The borrower should have excellent liquidity and low
2 leverage. All security documentation should be in
place. Aggregate Score of 95 or greater based on the
Risk Grade Scorecard
Acceptable (Fair Risk) 3 Adequate financial condition though may not be able
to sustain any major or continued setbacks. These
borrowers are not as strong as Grade 2 borrowers, but
should still demonstrate consistent earnings, cash
flow and have a good track record. A borrower
should not be graded better than 3 if realistic audited

22
 financial statements are not received. Borrowers
should have adequate liquidity, cash flow and
earnings. An Aggregate Score of 75-94 based on the
Risk Grade Scorecard.
Marginal –(Watch list) 4 Grade 4 assets warrant greater attention due to
conditions affecting the borrower, the industry or the
economic environment. These borrowers have an
above average risk due to strained liquidity, higher
than normal leverage, thin cash flow and/or
inconsistent earnings. Facilities should be
downgraded to 4 if the borrower incurs a loss, loan
payments routinely fall past due, account conduct is
poor, or other untoward factors are present. An
Aggregate Score of 65-74 based on the Risk Grade
Scorecard.
Special Mention 5 Grade 5 assets have potential weaknesses that
deserve management’s close attention. Facilities
should be downgraded to 5 if sustained deterioration
in financial condition is noted. An Aggregate Score
of 55-64 based on the Risk Grade Scorecard
Substandard 6 Financial condition is weak and capacity or
inclination to repay is in doubt. An Aggregate Score
of 45-54 based on the Risk Grade Scorecard
Doubtful and Bad 7 Full repayment of principal and interest is unlikely
(non- performing and the possibility of loss is extremely high.
However, due to specifically identifiable pending
factors, such as litigation, liquidation procedures or
capital injection, the asset is not yet classified as
Loss. An Aggregate Score of 35-44 based on the Risk
Grade Scorecard.
Loss (non- performing 8 Assets graded 8 are long outstanding with no
progress in obtaining repayment (in excess of 180

23
 days past due) or in the late stages of wind
up/liquidation. The prospect of recovery is poor and
legal options have been pursued. Bangladesh Bank
guidelines for timely write off of bad loans must be
adhered to. An Aggregate Score of 35 or less based
on the Risk Grade Scorecard

4.7 Bad Loan Monitoring

In the implied credit rules by SBL it is the manager’s responsibility to monitor the profile and
risk aspect of the credit portfolio. Such monitoring will be evidenced from the comments of the
manager in monthly call or time to time call and visit reports of the assigned officers and be kept
in the credit file with a copy to Head Office. All extensions of credit have to be reviewed and
graded at intervals prescribed by the Head Office. The purpose of this procedure is to monitor
lending performance and to identify potential delinquent credits. The basis of review and
classification are risk of the transaction, repayment record of borrower, collateral conditions,
supporting information and documentations and the degree of conformity to bank facilities. The
responsibilities for review and classification of credit facilities start at branch level and finally
end at the Head Office. Regardless of any formalized times for facility to be reviewed and
formally classified by the branch manager or the concerned credit officer.

Purpose of Credit Monitoring in SBL:

The purpose of credit monitoring is pointed out below

 To prevent loan classification

 To return flow of fund
 To obtain feedback from borrowers

 To take timely corrective action regarding a particular loan, etc.

4.8 Bad Loan Recovery Procedure

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Recovery procedure is a lengthy one that requires efforts of the bank, society and legal
institutions. It also takes time and money. Sonali Bank follows four steps to recover the
outstanding amount. These four steps are described in detail below:

Re- minding to the clients

Creating social pressures

Sending legal notice

Legal action

Re- minding to the clients

Reminder to the client is given through a formal communication channel. A letter is written and
properly signed on the bank's papers. This letter is issued several times to remind the honorable
lender to repay his/her outstanding portion.

Re- minding to the clients

If the loan amount is not yet repaid after sending a series of letters then persons create social
pressure on the client referred while opening account in the bank.

Sending legal notice

Legal notice is prepared and sent by National Bank when above two steps fail to recover the
amount. It is a threat to the borrower.

Legal action

25
 The last and final step of the recovery procedure is the help from the court. National Bank
sincerely tries to avoid this kind of situation for its honorable clients but cannot help doing for its
own sustainability.

4.9 Financial Information Analysis of SBL (Sadarghat Corporate Branch)

4.9.1 Sector wise Loan Amount

Type of Loan Amount of Disbursement (Tk.)

Personal Loan 36,53,75,438.56
Small Business Loan Scheme 5,25,76,275
House Building Loan (General) 45,78,52,575
House Building Loan (Staff) 26,78,45,327
SME Loan 10,04,38,576
Special Small loan Program 1,04,34,592
Overdraft 2,50,67,834
Car Loan (Staff) 5,20,45,672.44
Total 133,16,36,290
Note: SBL, Corporate Branch Provide loan on huge category. If I want to include all categories
loan then it may not cover a pie chart. That’s why I may use significant categories loan
information. For this result, total amount of loan on 2019 may vary from the actual loan. But the
next table contains actual total loan of SBL, Corporate Branch.

Above Information shown by a Pie chart:

26
 Sector Wise Loan Percentage

Personal loan
1%4%
2% Small Business Loan Scheme
8%
27%
House building loan (General)

20% House building loan (Staff)

4% SME loan

Special small loan program

34%
overdraft

car loan (Staff)

Figure 4.10.1 Sector wise Loan disbursement at SBL, Sadarghat Corporate Branch

Comments: From the Pie Chart we can see that, SBL, Corporate Branch provide much loan on
House building Loan (General) sector. It is estimated that 34% of their total loan in 2019.

4.9.2 Amount of Total Loan

Year Amount of Loan (Tk.)

2015 150,25,68,930

2016 176,15,22,510

2017 188,45,12,557

2018 194,78,19,342

2019 205,15,42,512

27
Above information show through a bar chart:

Total Amount of Loan at Sadarghat Corporate Branch

16% 2015
22%
2016
2017
19% 2018
2019
21%

21%

Figure 4.9.2.1 Total Amount of Loan in Recent 5 years at SBL, Sadarghat Corporate Branch

Comments: From the Pie Chart we can understand that SBL, Sadarghat Corporate Branch has
provided highest amount on loan in 2019. It is estimated that

4.10.3 Recovery Loan of SBL, Sadarghat Corporate Branch

Year Total Recovery Loan (Tk.)

2015 131,75,62,423

2016 147,15,79,190

2017 165,13,69,570

2018 175,10,90,258

2019 185,79,12,910

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 Loan recovery of Recent 5 years SBL at sadarghat Branch
2000000000 1857912910
1751090258
1800000000 1651369570
1600000000 1471579190
1400000000 1317562423

1200000000
1000000000
800000000
600000000
400000000
200000000
0
2015 2016 2017 2018 2019

Comments: From the Bar Chart we can easily realize that the SBL, Sadarghat Corporate Branch
has collected largest portion of loan in 2019.

4.10.4: Loan Recovery Ratio of SBL, Sadarghat Corporate Branch

Loan Recovery ratio basically used in credit and risk management. It is a ratio that helps to learn
how many portion of their loan should be recovered by a year. The formula used for calculation
Loan Recovery Ratio= (Total Recovered Loan/Total Disbursement)*100. The following table
shows the total disbursement, total recovery and recovery ratio:

Year Total Disbursement Total Recovery Loan Recovery

Ratio (%)
2015 150,25,68,930 131,75,62,423 87.69
2016 176,15,22,510 147,15,79,190 83.54

2017 188,45,12,557 165,13,69,570 87.63

2018 194,78,19,342 175,10,90,258 89.90
2019 205,15,42,512 1885,79,12,910 90.56

29
 Comaparison between total loan and loan recovery of SBL at sadarghat corporate branch
2500000000

2000000000

1500000000

1000000000

500000000

0 Total
2015 Disbursement
2016 Total
2017recovery 2018 Series 3 2019

Figure 4.9.4.1Total loan & total recovery on recent 5 years

Comments: This bar Chart helps us to know about the total loan and total recovery information
of last 5 years. In 2019 the bank has provided more loans as well as more recovery than other
years.

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 Loan Recovery Ratio
92.00%
90.56%
89.90%
90.00%

88.00% 87.69% 87.63%

86.00%

84.00% 83.54%

82.00%

80.00%
2015 2016 2017 2018 2019

Loan Recovery Ratio

Figure 4.9.4.2 Loan Recovery Ratio Last 5 Years

Comments: From the Bar Chart we can easily said that SBL, Sadarghat Corporate, Branch
recover highest portion of loan among the last 5 years. It is approximately 90.56% of their total
loan in 2019.

The financial information of SBL, Sadarghat Corporate Branch are showing through various
chart and graphs. These information are analyzed effectively through ratio basis. From this
analysis I can conclude that the loan department of SBL, Sadarghat Corporate Branch perform
better in 2019 rather than other years. So, I can said that loan section of SBL, Sadarghat
Corporate Branch, Dhaka exists in a good position considering all other factors remaining
constant.

31
 CHAPTER FIVE

Findings, Conclusion & Recommendation

5.1 Findings of the Report

5.2 Conclusion
5.3 Recommendation

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5.1 Findings of the Report
Every bank has its own credit procedure. The Sonali Bank Ltd possesses a standard credit
procedure. As the objective of my report is to make a comment on the credit risk management of
Sonali Bank Ltd, I tried my best to collect data for the report and find out the reality. Based on
the data generated during my internship period I have summed up my findings here and I think
this will help me to achieve my objectives:

1. The bank follows the overall credit assessment and risk grading process according to the
rules of Bangladesh Banking a somewhat manner.
2. With a view to implementing government policies, SBL has been maintaining its position
in extending credit to government bodies, sector corporations and private enterprises..
3. .Sonali Bank Limited has a suitable location for banking.
4. Sometime the document verification is done after loan sanctioning the loan.
5. Customers are satisfied with the service.
6. The website of SBL does not contain all required information about loan and advance.
But the officials provide annual report to learn about loan & advanced.
7. The physical decoration of SBL, Sadarghat Corporate Branch not so good.
8. SBL is not efficient in processing and executing legal actions against defaulters for their
nonpayment of loans and advances.
9. Marketing strategies is not as good as other commercial banks.

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5.3 Conclusion
It goes without saying that credit policy cannot be isolated from the broader monitory policy of
the country. Like any other segment of the economic policy, credit is very important for any
financial institution as it generates profit and gear up economic activities of the country. In other
words, credit is business and it is input in the production process of the country. Since credit has
inherent risk, therefore proper utilization of the loans are essential to meet the requirements of
the borrower. Thelon applied for by the borrower must not be employed for unproductive
purpose. In this regard, the Sonali Bank Limited must closely follow the progress of the loan and
the way the borrower is utilizing the funds. In this way the Sonali Bank Limited will deter any
fake activities on the part of the borrower Credit evaluation system of Sonali Bank Limited is
very lengthy process. It has been revised time to time in response to the respective circular of
Bangladesh Bank. The overall credit activity of Sonali Bank Limited is composed of corporate
credit division and credit administration. The credit management system of Sonali Bank Limited
is more or less effective as recovery position of classified loan is high and classified loan has
been decreasing gradually during the year. They always trying to improve their credit policy for
minimizing loss and maximizing profit and various measures are undertaken to develop the
credit management system.

34
5.2 Recommendations

To improve the risk management culture further, Sonali Bank Limited should adopt some of the
industry’s best practices that are not practiced currently. These are:

i. Continuous monitoring of the customer should be conducted so that loan cannot

be classified.
ii. The bank should emphasis more on loan diversification like loans on different
promising sectors and newly invented thrust sectors in the economy.
iii. Political intervention should be avoided while approving and sanctioning loan.
iv. Every day the business environment is changing and so the risk. So the bank
should be developed as a dynamic organization to adapt with the changing
circumstances.
v. All the loan documentations have to done honestly. The bank should concentrate
more on proper documentation of all types of loans to make the department
trustworthy & healthy.
vi. The documents supporting the security against the loan have to be verified
properly by the bank before sanctioning the loan.
vii. An Early Alert Account system should be introduced to have adequate
monitoring, supervision or close attention by management.
viii. There should be a Recovery Unit to manage directly the accounts with sustained
deterioration. To encourage Recovery Unit, incentive program may also be
introduced.
ix. Change the marketing strategies to adopt in the continuous changing environment.

35
 REFERENCES

1. https://www.sonalibank.com.bd/mission.php
2. https://www.sonalibank.com.bd/profile.php
3. https://en.wikipedia.org/wiki/Sonali_Bank
4. https://www.sonalibank.com.bd/overview.php
5. Credit Risk Grading Manual of Bangladesh Bank, p.15
6. Annual Report (2016-2017), Sonali Bank Limited, pp.22-31
7. Annual Report (2018-2019), Sonali Bank Limited, pp.14-26
8. Alam, M. Z., & Musukujjaman, M. (2011). Risk management practices: A critical
diagnosis of some selected commercial banks in Bangladesh. Journal of Business and
Technology (Dhaka), 6(1), 15-35.
9. Chowdhury, M. A. F., & Islam, M. N. (2016). Re-examining Determinants of
Performance of Commercial Banks in Bangladesh: New Evidence from Dynamic GMM,
Quantile Regression and Wavelet Coherence Approach. In Annual Banking Conference
2015.

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