Internship report on credit risk management on agrani bank ltd.

Executive Summary
Banking sector is one of the important sectors for the economic development of a country.
Generally banks deal with others (people) deposits. So it is very important to make sure that
all deposits are invested in such projects which strengthen the banks financial position. t is
also important that any amounts of the depositors are not used for any personal interest.
!ommercial Banks most of the earnings come by e"tending credit to different types of
borrowers for many different purposes. Bank should try to e"tend its credit to different
borrowers to diversify its credit risk. #owadays$ many banking organi%ations have
e"perienced similar problems with bad loan. &oans typically e"hibit the greatest credit risk.
'he credit risk arises when it assumes that the borrower will default$ that is$ they will not
repay the principal and interest on a timely basis. So that$ bank should perform a credit
analysis on each loan assessment to fail the capacity of borrower capacity to repay the loan.
Bangladesh Bank (BB) evaluates the overall performance of all banks and based on the
evaluation it ranked banks into different categories. BB has specific guidelines to follow. 'he
bank that does not follow these guidelines properly falls in the rank of (marginal and
(unsatisfactory$ means fall in the criteria of a )roblem Bank.
*hen bank falls in the criteria of )roblem Bank for defaulting on loan and project finance
procedure$ it faces a lot of problems and restrictions in operation. So it always tries to
overcome that situation and to overcome the situation they have to follow the guidelines
submitted by the BB. So many time clients of +grani Bank also fall in this criterion and try to
overcome the situation. *hen the bank thought that it follows all the guidelines provided by
BB and they are in the position to overcome the situation$ then +grani Bank had to be
conscious about success ness of loan , credit management.
Part one
Introduction
INTRODUCTORY VIEW OF THE REPORT TITE
+grani Bank is a state owned scheduled bank in Bangladesh. t has a vital contribution
towards lending and investment in economy because +grani Bank has been participating at
all sectors (from industrial sector to microfinance). Sometimes it was failed because of
unsound procedure of loan and financial sector. 'hats why day by day this bank has been
modifying itself in this sector. +grani Bank has a wide sound communication system. 'his
bank has also established strong linkage between other banks and financing institutions.
-ere main purpose of preparing this report to make clear idea about credit risk management
of +grani Bank and gather enough knowledge to deal with these functions. *e know that
'he Bangladesh Bank (BB) has placed few banks in the category of problem banks. .ain
reason of these banks is bankruptcy. So many time borrowers are not conscious about
procedure of all activities of loan and procedure. + problem bank emerged from its past poor
management of loan portfolio and operational inefficiency.
+ccording to the BB re/uirement +grani Bank has been coordinating their procedure for
short term or long term financing. was engaged in these activities of loan and project
finance procedure. 'he bank needs to maintain proper direction of BB for !0.$ lending$
project finance procedure$ etc. have worked on this sector and able to know about the
lending and procedural guidelines of loans and advanced division of banking sectors.
have made this report on the topic which have worked in my internship program. +nd this
is why named the topic as (!redit 0isk .anagement and )roject 1inance )rocedure of
Sonali Bank.
2B34!'54S 21 '-4 S'678
)reparation and presentation of this report contains few specific objectives. 'hese are9
:. )rimary objective is to fulfill the re/uirement of the .B+ program.
;. 'o achieve the difference between theoretical and practical knowledge.
<. 'o have an e"posure on the function of credit risk management of +grani Bank.
=. 'o get significant knowledge about how the effective of loan and sanction procedure are
conducted on the evaluation of credit risk management.
!ETHODOO"Y OF THE STUDY
. Sources of data
'he study is based on primary and secondary sources of data. 7ata have been collected
from office records discussions with employees and from different paper circulars and annual
report of +grani Bank. 1or the report preparation concepts and techni/ues are gathered from
bank manuals and relevant books.
ii) Sampling plan
!redit information bureau report and e"isting loan procedure which were made by authority
of +grani Bank$ we have covered :>>? of the credit risk management portfolio. *e have
evaluated and discussed regarding various project profile which are found from Sonali Bank
Staff !ollege. have covered the credit information from ;>>: to ;>>= and also at a glance
of Sonali Bank presented with this duration. -ere have used purposive sampling techni/ue
which is the part of non probability sampling techni/ue.
iii) 7ata collection
7ata were collected personally from +grani bank head office and +grani bank training
institute. 'he authority +grani Bank rechecked these collected data before entering them into
data base system.
iv) 1ieldwork
+s part of the assignment$ team members visited -ead 2ffice of +grani bank and +grani
bank training institute .7uring data entry phase$ :>>? data were rechecked by cross
matching with fact sheets and hard copies. *e have considered :>>? accuracy level for
numeric data and @A? accuracy for alphanumeric data for entered data into the system.
v) 7ata entry and processing
)rofessional data analyst and data entry personnel were deployed to assist the team in
developing fact sheets in the inception phase. Selected actual data were collected$ compiled
and entered into the system for dummyB trial running of the system. !orrective measures
initiated from trial running were incorporated and redrafted the fact sheets accordingly. 1or
this purpose we have utili%ed most convenient database platform to safeguard entered data
and also to generate different report from the database.
&.'+'2#S
+grani Bank is a public bank. So most of the time all staffs of +grani Bank are busy. 7espite
their responsibility$ they could not cooperate fre/uently for their business. 2n the other hand
they are not bound and have no accountability to provide all support with my demand. 1or
this reason faced time constraint. !onfidentiality also has imposed a huge restriction. 'hats
why can not disclose any numerical information in this report which have achieved about
our clients.
!2#!&6S2#
n this introductory section tried to e"plain why this report is prepared$ reasons behind the
title name as (!redit 0isk .anagement. 'o prepare this report which guidelines have to
follow are e"pressed in the (scope of the study and what methodologies are followed means
how the report is done to prepare this report are e"plained in this chapter. also mention
here what problems have faced to prepare this report.
)art two
2rgani%ation , ts 0esponsibilities
4S'+B&S-.4#'
+grani Bank is one of the largest commercial bank in the country. t was established under
Bangladesh Banks (#ationali%ation) 2rder :@C; ()residents 2rder #o. ;D of :@C;). By
taking over branches of 1ormer the commerce bank &td and 'he -abib bank &td. performing
class banking over the country in that period and #ational Bank of )akistan was Government
supported bank which was established to finance the jute sector in 4ast )akistan in the early
period of )akistan. +fter the birth of Bangladesh on :Dth 7ecember :@C:$ newly formed
Sonali Bank for mass banking got special facilities from the government to work on behalf of
Bangladesh Bank in those areas where Bangladesh Bank is not available. *ith the increase
of responsibility and by virtue of performance within a few years$ it becomes the largest
commercial Bank of the country with :;;A branches up to 7ecember ;>>;.
.+#+G4.4#'
'he management of the bank is vested on a Board of directors$ subject to overall supervision
and directions on policy matters by the Boards which is constituted in terms of Bangladesh
Bank (#ationali%ation) 2rder :@C;. Board of directors$ constituted by seven members$ has
authority to organi%e$ operate and manage its affairs on commercial consideration within the
board policy of the Government. 'here are directors appointed by the Government. 2thers
members of the board including .7 are also Government appointed out of that at least three
have the e"perience in the field of 1inance$ Banking$ 'rade$ !ommerce$ ndustry$ and
+griculture.
'he management 7irector is the chief e"ecutive of the Bank. -e e"ecutes all the activities
under the direction of the Board. +ll line and staff personnel of the Banks are own
recruitment e"cept member of the Board of 7irectors.
20G+#E+'2#
+grani Bank is one of the largest nationali%ed !ommercial Bank of the country. t has
e"tended FDC branches through out the country abroad to serve the nation. 'here are two
G+grani 4"change house in Singapur and malyasia. 'he head office of the bank is located at
.otijheel !ommercial +rea$ 7haka that is the controlling -ead/uarter. t has eight G. offices
in si" 7ivisional -ead/urtes and ;D principal offices and <; regional offices. )rincipal office is
headed by 7G. and each 7epartment is headed by +G.. 7ifferent grade officers
depending on the si%e and nature of the branch head the branches.
)rincipal office -ead/uarter has the jurisdiction over the entire area of a district i.e. the
principal office is the local point of the banks administrative %one of the district. 'he regional
office is situated at the thana level within the district$ is under control and supervision of the
principal office of that district. 0egional offices are responsible for their activities to the
principal office.
0egional heads e"ercise control and supervision overall the branches within their
jurisdictions and keep the head of the principal office informed the development of their
respective areas from time to time.
WH#TS THE !E#NIN" OF CREDIT
!redit comes from a &atin word (!redo$ which means G trustH i.e. moneylenders trusts his
borrowers to pay them back. n terms of bank$ bank trusts his borrower will repay the loan as
per terms , conditions. Before allowing credit bank should have confidence in the borrowers
ability , willingness to repay the loan. !redit does not e"ist because of confidence alone.
-ence bank prepares a report on the proposed B e"isting borrower B importer B e"porter which
is called !redit 0eport. t is an elaborate , e"haustive report. t contains a full$ true$ correct ,
reliable record of the character$ integrity$ honesty$ business ability ,worth of the borrower. t
assembles accurate , complete information , provides an evaluation of a borrower credit
standing. Before giving credit facilities the manager has to reach his conclusion to select a
borrower that /ualifies the following five essentials which may be termed as A !s namelyI
:. !haracter J t is intention of the borrower to pay the loan. t determines the moral risk. t
includes integrity of purpose$ reputation for honesty$ promptness in paying debts , fulfilling
contract$ high standard of business ethics , records of past performance.
;. !apacity J t is Borrowers competence in the field to employ the fund profitably , ability to
generate income. t indicates the business risk. !apacity involves business ability of
borrower$ reputation of product , soundness of business method.
<. !apital J t is the financial strength of a risk. t is measured by the e/uity or net worth of
the business.
=. !ondition J t is the general business conditions and the conditions of the particular
industry in which the applicant is involved.
A. !ollateral J t implies the additional security taken to offset weaknesses that are apparent
in the risk.
Before performing credit report$ the .anager has to go through an investigation. 'he degree
of investigation will be greater or less depending upon the amount of the loan , whether the
loan is or is not secured.
1or investigation the manager has to en/uiry about9K
*ho is the borrower
#ature of business
4"perience in the business
4/uity in the business
)urpose of borrowing
7uration of loan
Sources of repayment
.eans , security offered
)rofitability of the transaction
-istory of accounts operated by borrower
.arket reputation regarding character$ honesty$ integrity etc.
S260!4S 21 !047' #54S'G+'2#
'he followings are the sources of !redit information9
&oan application
1inancial statement
Study of accounts
.arket reputation
2ther sources$ i.e.
ncomesK'a" statement
0egistration office
)ress report
0evenue , municipal rent receipt
0egistrar of joint stock co.
5+' 0eturn
0eport from !B
!onfidential report from fellow banks.
)ersonal interview
)ersonal visit
!047' 0SL .+#+G4.4#' )02!47604
)2&!8 G674&#4S
&ending Guidelines
K Safety
K &i/uidity
K )urpose
K )rofitability
K Security
K Spread
K #ational nterest$ suitability$ etc.
!redit +ssessment , 0isk Grading
!redit +ssessment 0isk areas should be addressed9
Borrower +nalysis
ndustry +nalysis
Supplier B Buyer +nalysis
-istorical 1inancial +nalysis
)rojected 1inancial )erformance
+ccount !onduct
+dherence to &ending Guidelines
.itigating 1actors
&oan Structure
Security
0isk Grading
+ll Banks should adopt a credit risk grading system. 'he system should define the risk profile
of borrowers to ensure that account management$ structure and pricing are commensurate
with the risk involved. 0isk grading is a key measurement of a Banks asset /uality$ and as
such$ it is essential that grading is a robust process. +ll facilities should be assigned a risk
grade. *here deterioration in risk is noted$ the risk Grade +ssigned to a borrower and its
facilities should be immediately changed. Borrower 0isk Grades should be clearly stated on
!redit +pplication.
+pproval +uthority
'he authority to sanction B approve loan must be clearly delegated to senior credit e"ecutives
by the .anaging 7irectorB!42 , Board based on the e"ecutives knowledge and
e"perience. +pproval authority should be delegated to individual e"ecutives and to
committees to ensure accountability in the approval process.
Segregation of 7uties
Banks should aim to segregate the following lending functions9
!redit +pproval B 0isk .anagement
0elationship .anagement B .arketing
!redit +dministration
'he purpose of the segregation is to improve the knowledge levels and e"pertise in each
department$ to impose controls over the disbursement of authori%ed loan facilities and obtain
an objective and independent judgement of credit proposals.
nternal +udit
Banks should have a segregated internal auditBcontrol department charged with conducting
audits of all departments. +udits should be carried out annually$ and should ensure
compliance with regulatory guidelines$ internal procedures$ &ending Guidelines and
Bangladesh Bank re/uirement.
)04140047 20G+#S+'2#+& S'06!'604 , 04S)2#SB&'4S
)referred 2rgani%ational Structure
)02!4760+& G674&#4S
+pproval )rocess
!redit +dministration
7isbursement
!ustodial 7uties
!ompliance 0e/uirements
!redit .onitoring
!redit 0ecover
#on performing &oan +ccount .anagement
+ccount 'ransfer )rocedures
#on )erforming &oan (#)&) .onitoring
#on )erforming &oan (#)&) )rovisioning and *rite 2ff
ncentive )rogram.
5+026S &2+#S +#7 'S S+#!'2# )02!47604
!ash !redit
+ !ash !redit is essentially a drawing account against credit granted by the bank. !ash
credit is sanctioned as working capital as various types of businesses. !ash !redit is
normally for those good current deposit holders who are dealing with the bank for a long
time. 2n the basis of security cash credit is divided into cash credit (pledge) and cash credit
(hypothecation).
!ash !redit (pledge)9
n a cash credit (pledge) bank has the possession of primary securities (goods) and borrower
has the ownership. t is a charge against a property for a debt where the ownership remains
to the borrower but the possession is passed to the banker. 'he instrument of pledge is
pledge deed. n case of default$ bank may sell the security on giving the debtor reasonable
notice of sale.
!ash !redit (-ypothecation)9
!ash !redit (-ypothecation) is that type of loan in which the primary security is kept under
the position and ownership of the borrower. 'he instrument of hypothecation is
hypothecation deed. )ossession of goods is surrendered to the lender when called upon to
do so. 'he bank creates only a floating charge on the security. Borrowers personal security
and collateral security is usually needed for !!(pledge) also.
Sanction )rocedure9
'he sanction procedure of !ash !redit (pledge) and !ash !redit (hypothecation) are as
followers9
a) 'he borrower will apply for sanctioning credit in white paper.
b) Banker will e"amine the borrowers current account statement and transaction.
c) Banker will collect confidential report from other banks and other business man.
d) Security checking$ valuation and observing perfection by the lending officer. 1or checking
collateral security (&and and Building) banker will collect !S$ S+ and 0+ records of the land$
.utation and #onK4ncumbrance !ertificate$ .ou%a .ap$ 6pKtoKdate 0ent and &egal opinion
of the banks legal advisor.
e) 1or loans more than tk.A> &ac$ &0+ is re/uired.
f) 'he borrower will fill up the prescribed application form.
g) 'he credit officer will prepare loan proposal and credit report.
h) 'he proposal will move to the sanctioning authority with commend and B or
recommendation of management of every step of the hierarchy.
i) f the proposal is approved$ bank will prepare a sanction letter and the borrower will receive
it.
Bankning issues two copies of GSanctioning cash credit$ the customer is to prepare
documents re/uired charge documents. 'hereafter$ the banker issues a che/ue book for
withdrawing cash from the account. 'he customer can withdraw cash from the account the
sanctioned amount.
7ocumentation9
'he borrower will fill and duly sign all internal documents of the bank$ asK
7emand promissory #ote.
7emand )romissory #ote delivery &etter
+greement for -ypothecation B )ledge of goods.
&etter of +uthority
&etter of !ontinuity.
Stock 0eport.
!ontact of Bailment of Goods ()ledge)
+greement of Banks 0ight of SetKoff ()ledge).
6ndertaking by the borrower to submit periodical statements of stocks and to allow at his
cost inspection by the bank from time to time of the goods as well as borrowers record.
2ther documents are9
'rade license.
+ccount Statement of the business.
Statement of the borrowers property.
2riginal title deed and registered mortgage for collateral security.
nsurance )olicy (on the joint name of the borrower and the bank)
+ll the documents must be duly stamped.
+fter completion of documentation$ the bank will open a loan account and issue a
checkbook. 'he list of the document must be written in the document e"ecution register and
miscellaneous document register and signed by the borrower. Bank will appoint a godwon
keeper for pledge godwon and place a signboard on the wall of the godwon market G)ledged
to Sonali BankH should be placed at the business place of the borrower. f a third party
guarantees for the loan bank will receive 7emand )romissory #ote and other documents
from the guarantor as well as the borrower. n a pledge godwon there will be a list of the
goods$ which will be compared periodically with the physical inventory and sign by the officer.
'he borrower will re/uire a delivery order from the bank for disposal of goods every time.
Banker must monitor borrowers business continuously and counseling. f any problem arises
he will report it immediately to the management.
-ouse Building &oan
-osing Building &oans are three types$ -ose building loan (General) are generally
sanctioned for commercial building sometimes for houses to the general people. Staff hose
building loans are for the bank employees to construct houses. -ouse building loans are
also provided to the employees of other financial institutions with the clearance of the BB for
those$ who have obtained loan from their respective institutions but could not complete
construction. -ose building loans and repayment is made by installments and ma"imum
repayment period is :; year. 'he current interest rate of -ose building loan (General) is :A?
per annum and the procedure goes on usually in simple interest. Bank also gives A? rebate
to the good borrower but in case of debt the calculation turns to compound interest. 'he
interest rate of -ouse Building &oan (Staff) is only F? per annum.
)rocedure9
a) +pplication for credit by the borrower with following documents.
4stimated cost and building layout plan prepared by engineer and architect.
!ertificate from 0+36L.
'a" )ayment receipt.
Borrower monthly income statement
2riginal title deed of the land.
b) 'he credit officer will prepare a credit report.
c) Banks lawyer will verify the documents.
d) Branch will send the proposal to the head office with proper recommendation.
e) 4ngineer of the head office will analy%e the documents and place for approval.
f) f the loan is approved$ the branch will issue a sanction letter.
g) 7ocumentation9 the borrower will fill and sign all internal documents of the bank asK
7emand promissory note.
7emand promissory note delivery letter.
2riginal title deed.
0egistered .ortgage 7eed.
nsurance )olicy.
!ertificate from *+S+$ 74S+$ !ity !orporation$ Gas Supply +uthority.
+ll the documents should be listed in the document e"ecution register and signed by the
borrower.
2verdrafts
2ver 7rafts are temporary overdrafts from current accounts$ which are e"tended only to
banks most creditworthy and reliable customer$ who re/uired money for a short period. 'his
type overdraft is maintained as debit balance in the current account of the borrower.
2verdrafts against 170$ 7)S$ Sanchay )atra$ nsurance )olicy$ Share certificate$ and work
order are treated as secured overdraft because they are sanctioned only against the
respective document by certain lien. 'hese documents are kept in the safe custody of the
bank and returned only after full repayment of the dues. 'hese advances are for one year
and in case of renewal$ all the procedures of the first sanctioned should be followed. +
minimum margin is kept for these types of advances.
)rocedure
+pplication by the borrower with the instrument against their intersected to credit.
Bankers will verify the documents from the issuing authority and get clearances.
'he credit officer will recommend for sanction.
'he sanctioning authority will sanction the advance.
+fter documentation the bank will open an overdraft account and issue a checkbook.
7ocumentation9
'he borrower will fill and sign all internal documents of the bank asK
7emand )romissory #ote.
7emand )romissory #ote 7elivery &etter.
&etter of &ien.
&etter arrangement
'he instrument duly discharged by the borrower or the third party.
n case of third party letter of lien cum guarantee.
'he document should be duly stamped$ signed by the borrower and interested in the
document e"ecution register.
Staff &oan
Staff loans are &+)1$ .!&$ and B!&
&+)1 is loan against provident fund and e"tended to the bank employees for the purpose of
repair of house$ marriage of son or daughter and for medical treatment of family members.
.!& is for purchase of motorcycle and B!& is for bicycle. 'hough these loans are fully
secured$ credit officer should be careful in documentation and inspection of whether the
money serves the purpose. 'hese loans are term and medium term loans. nterest rate of
such loan is only D.A? per annum.
Staff house building loans (S-B&)9
:) ;> times of the basic salary is provided as S-B&.
;) Bank rate is changed ?$ time to time.
<) 0epayment is adjusted from their monthly salary.
=) 0epayment is made at e/ual monthly installment.
Staff loan against provident fund9
:) 'ime limit is :> years or rime of retirement whichever is lower.
;) nterest rate is D.A? (!hanges time to time).
<) Security 9
a) 7emand promissory note.
b) Band lien against future fund.
=) 0epayment is made at e/ual monthly installment.
A) 0epayment is adjusted from their monthly salary.
!onsumer &oans9
'he main purpose of the scheme is to improve life standard of the customers by providing
them loans for purchasing house hold items$ for e"ample$ computer$ television$ free%e$ motor
car , cycle$ airKcondition , cooler$ furniture etc. 5arious commercial bank offering various
types of loans to the consumer so that they can enjoy these innovations and fi"ed a very
easy installment process to repay that money.
Sonali bank is offering loan calling !onsumer credit scheme in various types of goods.
'he features of this scheme are9
nterest charged in this scheme is :A?.
'he ma"imum amount to be sanctioned is 'k.:>>>>>.
.argin is ;A?.
Security9
a) )urchased goodsBproducts is hypothecated.
b) + third party guarantor.
'ime limit is up to < years.
Bank Guarantee
General advance division also provides Bank Guarantee to the different types of customer. n
case of Bank Guarantee there are three parties$ borrower$ bank and beneficiary (4"ample9
7ifferent types of organi%ation which calls 'ender #otice for their particular works and asks
Bank Guarantee from the contractor). Bank declares in favor of customer to the beneficiary
that he (bank) is liable to pay a certain some of money in case of customers debt. 'wo types
of practice are seen in the procedure of such Bank Guarantee.
:. !ustomer will deposit :>>? money to the bank and he will get the same amount of
guarantee.
;. !ustomer will deposit :>? money to the bank and @>? of collateral and he will get :>>?
of Bank Guarantee. -e can deposit security paper or Shanchay )atra or his 170 account as
his @>? of collateral.
)art four
ndustrial !redit .anagement , Sanction )rocedure
#76S'0+& !047' +S)4!'S 21 S2#+& B+#L
'his department deals with fi"ed capital and working capital of industrial and agro based
industrial projects. 'he major areas sectors covered are9
Small and !ottage ndustries
3ute ndustries
!omposite te"tile
'e"tile spinning
)lastic ndustries
4"portK2riented Garments
)harmaceutical ndustries
Garment +ccessories
)rinting , )ackaging
)aper , Board .ills
!old storages
'annery$ 1ootwear , 0ubber ndustries
4ngineering ndustries
)arte" Board ndustries
!hemical ndustries.
Glass , !eramics n dustries
)arte" Board ndustries
!ement ndustries
)rocedure of sanctioning industrial credit
a) 'he customer shall apply with a full project profile which contains the management and
organi%ation$ marketing$ technical and financial aspects of the project.
b) Banks financial analyst will analy%e the profile. Before this he will collect necessary papers
and documents from different sources. Banks engineer will visit the premise and will furnish
a technical report.
c) f the applicant is apparently seems to be eligible to get the credit he has to fill the
prescribed application form. 'he application with other papers and the project profile will be
sent to the head office. 'he financial analyst will prepare a financial report. f re/uired$ he will
perform the lending risk +nalysis and 1inancial Spreadsheet +nalysis. 'he application will be
accompanied by recommendations of the financial analyst$ officer in charge of the credit
department and the branch incumbent.
d) 'he proposal will be appraised by another financial analyst of the industrial credit division
of the head office and will be forwarded to the proper sanctioning authority.
e) f the proposal is approve$ head office will prepare a sanction letter with detail terms and
conditions of the loan and send it to the branch again.
f) f the borrower signed in the sanction letter accepting the terms and conditions$ the
agreement is made.
g) +fter documentation and creation of charges on securities$ the first installment will be
disbursed with the fulfillment of terms like utili%ation of the borrowers e/uity capital.
)apers needed to be submitted by the borrower9
. )roject profile with three years projected financial statement for new projects and three
years audited financial statements for an e"isting projects.
. Borrower B Borrowers personal income statement$ character certificate$ statement of
properties and other businesses$ income ta" certificate etc.
. 2riginal title deed of the property of the project.
5. 'rade license.
5. 1or limited company$ letter of incorporation$ memorandum and articles of association and
for public limited company$ certificate of commencement of business.
5. &ay out plan of the project.
5. ndent and manual of the machinery.
5. 5aluation !ertificate of the property.
M. &atest rent B ta" receipt$ &edger and .utation records of the property.
M. !learance certificate from environment$ electricity$ water and gas authority.
)apers to be obtained by the banker9
:. !redit information Bureau 0eport about each borrower and the company B firm.
;. !onfidential report from other banks and financial institution.
<. ndustrial policy of
=. the government.
A. ndustrial position and trend.
D. !ompetitors financial and marketing position.
'he credit offer must collect the information about the borrowers present and past business$
character and family background and financial position and public reputation. 'he respective
offer shall visit the site with e"pert$ collect lawyers certificate about the property. -e will take
interview of the borrowers and other related persons not only prescribed or formal view but
also inactive view. 'he lending officers personal judgement is an important factor for a loan
proposal.
)04)+0+'2# 21 +))0+S+& 04)20' 2# #76S'0+& S4!'20
)reparation of appraisal report is the most important task a banker performs in the process
of sanctioning loan for an industrial project. -e has to consider numerous things. -e has to
e"amine all situations favorable or unfavorable. -e has to presume all the may occur.
)reparation of appraisal report is needed for the following reasonsK
'o justify the soundness of the investment.
'o endure repayment of banks money.
'o achieve organi%ational goals.
'o recommend if the project is not designed properly.
'he concerned officer of the industrial credit department prepares appraisal report
considering all information furnished in the application and other document supplied with the
application. 'he officer summari%es and devaluate all the information and document
provided.
n preparing appraisal report$ the officer summari%es and evaluates all the information and
document aspects9K
:. 'echnical +spect9K 'he following technical aspects are usually considered in preparation of
appraisal 9K
&ocation of the proposed project.
4nvironmental impact of the project.
Building and civil construction.
.achinery and e/uipments of the project.
)roduction capacity of machines and e/uipments.
;. .anagement +spect9K 'he following managerial aspects are usually considered here9K
BioKdata of the directors.
4ducation$ e"perience$ professional /ualification of directors.
Social status of directors.
<. .arketing +spect9K 'he following marketing aspects are usually considered hereK
7emand of the product to be produced.
Supply of raw materials.
'he places$ where the products will be marketed.
'he consumers$ for whom the product will be marketed.
=. 1inancial +spect9K 'he following things financial aspects are considered in preparation of
the appraisal report9K
0atio of loan and e/uity.
!urrency fluctuation risk (!10).
1ocus on earning (ncome Statement).
1inancial ratio analysis.
2perating profit or sale.
#et profitBsale.
7ebt service coverage ratio.
nternal rate of return.
Break even pointBsale.
)ay back period
1und flow statement.
Balance sheet.
0epayment schedule.
A. SocioK4conomic +spect9K 'he following socioKeconomic aspects are usually considered
hereK
Social impact of the product produced by the project.
+lleviation of poverty of the surrounding people.
4mployment generation.
f the officer finds that the loan proposal will be viable one. -e proposes for the approval of
sending the proposal of -ead 2ffice$ ndustrial !redit 7ivision for sanction.
f the loan amount is within one crore$ -ead 2ffice places the loan proposal to the !redit
!ommittee. n the credit committee meeting$ all the aspects are discussed and if the
committee finds the proposal viable$ give sanction to loan proposal. f the amount e"ceeds
one crore$ the proposal is placed in the Board for sanction. !onsidering all the relevant
aspects$ the board approves the proposal.
+fter obtaining approval of the competent authority$ -ead 2ffice sends a sanction letter
stating necessary terms and conditions and instructs the corresponding branch office$
subject to the completion of re/uired documentation$ to disburse the sanctioned loan. 'hen
branch office prepares two copies of sanction advices stating the terms and conditionI one
for the borrower and other for keeping in the branch as record. n the sanction advice$ the
borrower is instructed to e"ecute necessary document. f the borrower finds the terms and
conditions are acceptable$ e"ecute necessary documents and the loan is disbursed
accordingly.
#76S'0+& !047' )02G0+..4 +' S2#+& B+#L
Being a #ationali%ed !ommercial Bank Sonali Bank has to finance directly on priority basis
to +griculture$ ndustry and !ommercial sectors for strengthening the economic base of the
country. Sonali Bank finances almost all the productive sectors.
Sonali Banks slogan for credit9
'odays loan should be better than yesterday.
'odays bad loan will eat up 'omorrows profit.
Sonali Bank has taken different industrial credit schemes in different times$ after :@CF. 'hese
are9
+. ;nd 7+ !redit Scheme9
'he industrial development authority (7+) had undertaken a credit line to help establishing
small and cottage projects in the private sector in :@CF. 6nder this credit line 7+ placed a
fund of C.>> million 6S dollar. Government of Bangladesh released the fund in e/uivalent of
'aka to the major two nationali%ed banks$ Sonali Bank and 3anata Bank for lending to the
small and cottage industrial firms.
6nder this scheme$ Sonali Bank launched a credit scheme named as ;nd 7+ !redit
scheme$ project with an investment si%e not e"ceeding 'L ;< lakh (for cottage projects
ma"imum 'L : lakh) were eligible for financing.
B. <rd 7+ !redit Scheme9
n :@F> Govt. of Bangladesh and 7+ signed an agreement. + credit fund of << million 6S
7ollar were allocated for financing small and e"tending Guarantee facilities to the #!Bs
(Sonali$ 3anata , +grani Bank). Bangladesh Bank made the fund available for lending to the
entrepreneurs.
Sonali Bank &aunched a credit scheme in :@F: as <rd 7+ !redit Scheme to finance small
and credit industries through out the country.
!. #20+7 !redit Scheme9
#orwegian government had granted N> million of #2L (#orwegian !rooner) to Bangladesh
for industrial development in :@F<. 6nder this foreign aid Sonali Bank got 'k <> crore out of
total grant for lending to the cottage industries. Sonali Bank got the said fund in the form of
refinance from the Bangladesh Bank according to the credit arrangement.
*ith this foreign aid Sonali Bank had undertaken a separate credit scheme G#20+7 !redit
SchemeH in :@F<. .a"imum Sanction able loans in the scheme for per borrowerBproject of
cottage industries were only 'L ;<>>>.
7. 4M. Bank !redit Scheme9
n :@F= Sonali Bank came an agreement with 4M. Bank of ndia. 4M. Bank of ndia had
provided :=> million ndian 0upee at @.;A? interest rate and the repayment to 4M. Bank
will be completed by :@@F. 'he condition was that the loan would be utili%ed by import of
machinery from ndia.
6nder this agreement Sonali Bank launched 4M. Bank !redit Scheme and &oan limit per
borrowerBproject was @;.A? of the 12BB120 value and freight cost and ma"imum 0s. <>.>>
lakh.
ndustrial !redit Scheme from Banks own resources9
4. Special !redit program
Sonali Bank e"tended financing in the small and cottage industries in :@CF through a
scheme GSpecial !redit )rogramH according to the instructions of Bangladesh Bank. 1irstly
:; districts were selected for this credit program. 'he small and rural based entrepreneurs
were the main target group. 'he loan limit per borrowerBproject was ma"imum 'L =.>> lakh
and the regional office heads were given power to sanction the loan.
1. Sonali Bank ndustrial !redit Scheme (SB!S)
&ong term financing is most essential for the development of industrial sector of a country.
But such financing was very rare to the need of the country. .ost of the industrial units were
financed by the e"ternal credits that were suffering from inade/uacy of funds and as a result
it did not achieve e"pected result. Sonali Bank decided to finance to the industrial sector
from its own resources. n :@F= Sonali Bank launched two financing schemes9
Sonali Bank ndustrial !redit Scheme for less and least development areas.
Sonali Bank ndustrial !redit Scheme for developed areas and e"port oriented industries
'he main purpose of this scheme was financing to the private sector projects conforming to
the investment schedule of G2B. 'he Sonali Bank ndustrial !redit Scheme for less and
least developed areasI preferred projects that were invested not more than 'L. ;.>> crore
and the loan limit for those projects were 'L. A>.>> lakh. 'he scheme has been taken for
financing small industries.
Sonali Bank ndustrial !redit Scheme for developed areas and e"port oriented industries has
been taken for financing of both small and medium scale industries. 'he scheme preferred
projects that were invested not more than 'L. A>.>> crore and the loan limit for those
projects were were 'L. :.>> crore.
*ith the liberali%ation of governments industrial policy in :@FD and declaration A>.>> lakh of
incentive for industriali%ation in the industrial policy :@@:$ Sonali Bank has renewed its own
financing schemes.
)art five
Sound &ending
)0#!)&4S 21 S26#7 &4#7#G
ntroduction
2f all the functions of a !ommercial Bank$ lending is far the most important. &ending is a
dynamic activity. +dvances comprise a very large portion of a banks total assets$ and form
the backbone of a very banks structure. 'he strength of a bank is thus primarily judged by
the soundness of its advance.
t is fundamental precept of banking everywhere that advances are made to customers in
reliance on his promise to repay$ rather than the security held by the banker. +gain$ all
lending involves some degree of risk. t is necessary for any bank to develop sound and safe
lending policies and new lending techni/ues in order to keep the risk to a minimum. 'here
are some common principles of good lending which every banker follows when appraising an
advance proposal. 'he principles of sound lending are stated in the following paragraphs9
Safety
G Safety 1irstH is the most important principles of good lending when a banker lends$ he must
feel certain that the advance is safeI that is$ the money will definitely come back. Because
the very e"istence of a bank depends on the safety of its outstanding which should never$
therefore$ he sacrificed to the profit earning capacity of its advances. 'he banker is to ensure
in the best possible manner that the money advanced by him goes to the right type of
borrower and is utili%ed in such way that it will not only be safe at the time of lending but will
remain so throughout$ and after a useful purpose in the trade or industry where it is
employed$ is repaid with interest.
&i/uidity
'he li/uidity of an advance means its repayment on demand or on due date or after a short
notice. 'he loan must stand fair chances or repayment according to the repayment schedule.
t is not enough that the money will come backI it is also necessary that is must come back
on demand or in accordance with agreed terms of repayment. t is utmost important that
Bank loan must be repaid as they become due otherwise the li/uidity position of the bank is
endangered. 'he major cause of Bans failure is li/uidity. .ost of the bank wants to invest in
short term investment to maintain the li/uidity of the bank. 'he borrower must be in a
position of repay within a reasonable time after a demand for repayment is made. 'he period
of the advance and the case with which it will be repaid are very important. 4ven in the case
of fully secured advances if it is feared from the very beginning that the advances would only
he recovered by selling the securities it is not considered a good advances. t must$
therefore$ always ensure that the advance will be repaid from resources other than securities
pledged.
)urpose
'he purpose should be productive so that the money not only remains safe but also provides
a definite source of repayment. 'he purpose should also be short J termed so that it ensures
li/uidity. Banks discourage advances for hoarding stocks or for speculative activities.
'he banker must closely scrutini%e the purpose for which the money is re/uired$ and ensure
as far as he can$ that the money borrowed for a particular purpose is applied by the borrower
accordingly. )urpose has assumed a special significant in the presentKday concept or
banking.
)rofitability
'he main objective of the commercial bank is to ma"imi%e profit. + prudent banker must
consider whether the proposed advance will earn more profit or not. +s such bankers should
always keep in mind that the advances should be made to profitable sector$ so that they get
a fair return on the advances.
7iversification of risks
'he security consciousness of a banker and the integrity of the borrower are not ade/uate
factors to keep the banker on safe side. *hat is more important is the diversification of risk.
'his means$ he should not lend a major portion of his loan able funds to any single borrower
or to an industry or to one particular region. n fact$ the entire banking business is one of
taking calculated risks and a successful banker is an e"pert in assessing such risks. -e is
keen on spreading the risks involved in lending over a large number of borrowers$ over a
large number of industries and areas$ and over different types of securitiesI the advances
must not be in one particular industry. 'oo many eggs should not be placed in one basket$
because any adversity faced by that particular industry will have serious effect on the bank.
Slump does not normally affect all industries and business simultaneously.
Security
Bankers generally make advances against !ollaterals or security. +nd the Security is
considered as insurance or a cushion to fall back upon in case of an emergency. +s such the
security must be ade/uate$ readily marketable$ easy to handle and free from encumbrances.
Spread
+nother important principle of good lending is the diversification of advances. +n element of
risk is always present in every advance$ however secure it might appear to be. +s such a
prudent banker must be keen on spreading the risks involved in lending$ over a large number
projects and areas$ and over different types of securities.
#ational nterest$ Suitability$ etc
'he banker would lend if the purpose of the advance is for overall national development
plans necessitating flow of credit to priority sector in the larger national interest. +gain the
banker is to see whether the law and order situation at the place where the borrower carries
on his business is suitable or not.
n the changing concept of banking$ factors such as purpose of the advance$ viability of the
proposal and national interest are assuming a greater importance than security$ especially in
advances to agriculture$ small industries$ small borrowers$ and e"port oriented industries.
!onclusion
'he Banker making an advance must consider the safety of the advance$ its li/uidity and
profitability. +s such the borrower must have ade/uate e"perience in the line of business
applied for and he is also a reliable customer. +gain the advance must be such as can be
recalled within a reasonable time and without undue difficulty. 'he advance must also be
profitable and must permit the charging of a reasonable rate of interest. Successful lending
depends upon sound judgement and accurate knowledge of the character and creditK
worthiness of the borrower.
&4#7#G 0SL +#+&8SS
&ending risk is the risk is the risk that the bank cannot fully recover the loan. Broadly lending
risks are categori%ed as business risk and security risk$ and then divided into several parts.
1igureKA.:
Business 0isk9 'he risk that the business fails to generate sufficient cash to repay.
a) Security 0isk9 'he risk that the reali%ed value of the security does not cover the e"posure.
b) ndustry 0isk9 'he 0isk that the company fails for internal reasons.
c) !ompany 0isk9 'he risk that the company fails for internal reasons.
d) Supplies 0isk9 'he risk of failure due to disruption in the supply of inputs.
e) Sales 0isk9 'he risk of failure due to disruption to sales.
f) !ompany )osition 0isk9 'he risk of failure due to weakness in the companys position in
the industry.
g) )erformance 0isk9 'he risk that the companys position is so weak that it cannot perform
well enough to repay the loan given e"pected e"ternal condition.
h) 0esilience 0isk9 'he risk of failure due to lack of resilience to une"pected e"ternal
conditions.
i) .anagement 0isk9 'he risk of failure due to management not e"ploiting effectively in the
companys position.
j) .anagement !ompetence 0isk9 'he risk of failure due to management competence.
k) .anagement ntegrity 0isk9 'he risk of failure due to lack of management integrity.
l) Security !ontrol 0isk9 'he risk that the bank fails to reali%e the security.
m) Security !over 0isk9 'he risk that the reali%ed security value is less than the e"posure.
4"ample of lending risks and their analysis9
'8)4S 21 0SL +#+&8SS
4"ample of Supply 0isk
ncrease to cost of supply reduces margin.
Scarcity of supplies or unreliability of deliveries causes production loss.
7ifficulty in obtaining right /uality of supplies results in inferior product.
0eviewing recent changes in Govt. regulations and to determine the likelihood and nature of
any future changes$ this may affect supplies.
'o obtain cost breakdown for each item and assess the risk that can disrupt the supplies of
these items.
4"ample of Sales 0isk
Sales drop because total market si%e drops.
Sales drop as a result of increased competition.
Sales damaged by changes in regulations
!ompany losses a single large customer.
2btaining industry turnover for at least < years.
7etermining if the project is obsolete$ seasonal or cyclical.
)redicting growth or decline in market turnover over ne"t few years.
+naly%ing the financial data of at least two major competitors.
7etermining how the company differentiates itself from its competitors.
7etermining how companys production technology compares with that of competitors.
0eview regulations$ which govern industry.
2bserving recent changes and predicts future changes.
4valuating the impact on industry of recent and potential future changes.
dentifying companys A largest customers.
1or any customer representing more than :>? of sales$ assessing the risk that these
customers switch to a competitor.
4"ample of )erformance 0isks
!ompany borrows more than it can repay$ based on unrealistic performance e"pectations.
+naly%ing recent performance history$ competitive position$ companys strategy and cash
flow forecast.
4"ample of 0esilience 0isk
!ompany has insufficient e/uity to avoid bankruptcy.
!ompany has insufficient cash flow to meet repayments.
!ompany position weakened by inappropriate connections.
+naly%ing of 7ebtB4/uity 0atio$ obtaining !redit Bureau 0eport$ and assessing shareholders
support.
+naly%ing 1inancial 0atios and fle"ibility of production.
7etermining political and private sector affiliations of owners and key managers.
4"ample of .anagement !ompetence 0isk
.anagers do not have the necessary ability or e"perience.
.anagers do not work well together$ poor decision making.
2btaining key managers bioKdata to determine education$ e"perience relevant skill.
0eviewing organi%ation chart and comparing performance with competitors$ determining
reasons for any recent changes in management.
4"ample of .anagement ntegrity 0isk
Bank is unable to assess risk properly due to unreliable or inade/uate data.
Bank has difficulty in recovering loan due to failure of management to meet commitments.
0eviewing credit file$ interview of management and individuals familiar to management$
performing site visit to assess$ looking for signs of audit problem.
0eviewing intraKgroup accounts$ looking for characteristics of managers.
4"amples of Security !ontrol 0isk
&egal rights compromised$ documentation inade/uate$ fraud$ insurance does not cover
e"posure$ customers able to influence judgement.
Security missing transferred immobile.
5erifying documentation$ assessing customers lobbing power.
Site visiting to verify security e"istence.
Security !over 0isk
4"pected reali%able value is less than the e"posure.
+c/uiring and selling of security for li/uidation takes longer than e"pected time.
5alue reali%ed at li/uidation is less than the estimated value because security loss value or
market price changes.
!omplete security covers application form.
0eviewing recent cases to estimate speed of reali%ation$ assessing power of borrower to
prolong legal process$ analy%ing market demand for securities.
6sing assessor to value security.
0eviewing recent cases for difference between assessed and reali%ed value.
0eviewing economic conditions.
0SLS 04&+'47 '2 #'40#+'2#+& '0+74 1#+#+!#G +#7 )04!+6'2#S
)reKShipment !redits9
a) Before marking lien on the original letter of credit$ it must be authenticated first and all the
terms and conditions should be thoroughly scrutini%ed so that no detrimental clauses
including violation of foreign e"change regulation and terms of 6!)7! (6niform !ustoms
and )ractices for 7ocumentary !redit) are included and it must be properly preserved by the
bank.
b) 4"piry date of the &B! should be properly recorded in the book and no drawing is to be
allowed against e"pired &B!.
c) 'he credit worthiness and solvency of the foreign buyer as well as the importer must be
ascertained.
d) n case of properties mortgaged as collateral securities$ the banks approved lawyer
together with valuation certificate from proper authority must scrutini%e the relative
documents.
e) 'he e"porter should arrange forward sale of foreign e"change to avoid e"change loss at
the time of negotiation of e"port documents.
f) ncase of packing credit$ the e"port &B! and relative documents must be verified.
g) 4"port !redit Guarantee must be obtained from Sadharan Bima !orporation in favor of
the bank so that in case of failure to effect shipment in time or to repay the credit within =
months$ the bank may lodge claim against the guarantor.
h) *hile dispatching goods for shipment to port under packing cash credit the bank must
verify the shipping mark on each of the packets B cartons as given in the relative invoice.
)ost Shipment 1inance9
a) Before e"tending postKshipment credit$ the Bank must obtain credit report of the foreign
buyer in time.
b) Banks proper charges documents B Guarantee bond must be signed by the e"porter or
duly authori%ed person of the e"porter.
c) n negotiating$ purchase or providing loan against e"port bill drawn under &B!. 4"port
finance guarantee must be obtained from Sadharan Bima !orporation in fabor of the bank so
that claim can be lodged at the event of nonKpayment by the foreign buyer.
d) n case of post shipment credit against e"port document not drawn under &B!
comprehensive guarantee must be obtained in favor of e"porter from Sadharan Bima
!orporation.
e) +fter sending the e"port documents for reali%ation$ the bank must follow up regularly until
reali%ation of e"port proceeds. )roper instruction must be provided in the e"port bill
forwarding schedule so that$ n case of nonKacceptance of bills appropriate measures may
be taken by the collecting bank to protect the goods from loss of damage or lodge insurance
claim in time.
Sonali bank uses a :AKpage Standard 0isk +naly%ing from for assessing credit risks for the
loan more than 'L A>. &akh. 1or credit less than that amount$ the analyst should assess the
risks in the same manner. 1or analy%ing lending risks the analyst should collect the following
documents B items9
. !ompany financial statements (projected for new project) for at least < years.
. Bank statement for prior :; months from previous bank (for new customers).
. +ged debtor list.
5. Set of financial statements for at least two competitors.
5. ndustry average figures.
5. 1inancial spreadsheets.
5. !ustomer account statistics form.
5. !redit Bureau report.
M. 2rgani%ation !hart.
M. BioKdata forK7irectors and head of operations.
M. !opies of all reports on site visits made during the last :; months.
M. 5aluation of securities offered.
M. .emorandum and +rticles of association.
M5. Business )lan.
'he &0+ form contains each type of risks$ assessment procedure and table to insert data$
grading of each type of risk as low$ +verage$ -igh and 4"cessive. n the ;nd page there is a
riskKscoring matri" which has separate scores for business risk as Good B +cceptable B
.arginal or poor risk. t also contains a prescribed consumer site visit report and another
consumer accounts statistics form. 'he bank officer$ who will analy%e the risks$ called the
originating officer. 'he originating officer and the branch must sign in the &0+ form and send
it for approval to the sanctioning authority.
'he analyst should be very careful for analy%ing the lending risk. -e has to use his foresight
and personal judgement. -e must not put average marks blindly on each item$ which can
also be sufficient to /ualify a bad proposal. 'he analyst must have the skill and efficiency to
understand each item separately and comment against the documents properly.
.+320 )02B&4.S 21 &0+ .)&4.4#'+'2#9
'hough &0+ system is very systematic approach$ but there are some shortcomings also.
'he major problems of &0+ implementation are9
:. nade/uate 7ate9 'o apply &0+$ financial data relating of a firm is very important to assess
its strength. n many cases upKtoKdate and reliable data like production$ trade$ business rawK
material$ total demand and supply of different product of different industries$ industry growth$
sales turnover$ performance data for major competitors are inade/uate$ which are necessary
for assessing sales risk. 'he collection of companys positional data is also cumbersome. So
companys rank in industry (in terms of turnover)$ and competitors financial position is difficult
to assess in analy%ing performance risk.
;. naccurate 7ate9 &0+ re/uires the financial statements of the company. .ost of the
borrowers do not prepare financial statements. 'hey fail to provide accurate data.
4"perience shows that even the financial statements submitted by the applicants can not be
relied upon. nconsistencies are observed in the information provided by applicants. So
analysis of performance risk and resilience risk is difficult.
<. &ack of +uditors )erformance9 'o minimi%e chance of unfair presentation of financial
statement$ lending officers have to rely much on audited financial statements. But in
practical$ the auditing firms sometimes help the business concerns in providing false and
fictitious statements. *ith few e"ceptions$ audited financial statements follow clients
instructions.
=. 6nwillingness to disclose information9 Generally$ competitors do not have the habit of
disclosing their business information. 'hey always tend to maintain secrecy for their
business interest. But &0+ calls for submission of competitors performance.
A. #onK!ooperation between different Banks9 &0+ techni/ues re/uire information regarding
e"posure to other banks. 'hough credit bureau report has an important role in this regard$
the nonKcooperation between different banks is a real difficulty.
D. &ack of e"perienced assessor9 n most cases$ the value of security actually reali%ed is less
than what a bank estimates. Sometimes$ security also loses value before it is reali%ed.
4"perience$ /ualified and reliable surveyor institutions to assess value of security$ its /uality
and market$ demand are very scarce in Bangladesh.
C. nade/uacy of skilled lending office9 )reparing &0+ re/uires special skill and knowledge.
But there is lack of sufficient skilled lending officer.
F. nsufficient independence9 Banks and financial institutions are not apart from any type of
political influence or pressure group in respect of loans and advances. Besides$
independence of credit analysis section at branch level is not fully ensured.
)04)+0+'2# 21 &2+# )02)2S+&
Some items are re/uired to prepare a loan proposal these are given below9
&oan application
Stock list.
0e/uired papers as per ownership of the firm.
Scheduled of mortgage properties and relevant papers.
.arket reputation.
2ther banks opinion
&ease deed and relevant letters.
1inancial statement.
&ending risk analysis (&0+)
1inancial spread sheet analysis.
!redit scoring.
2ffering sheet (letter of credit)
!redit report
ntroduction
#et worth
0elation with the bank
Social status
)olitical affiliation
&iabilities of other banks
0ecommendation
1orwarding
5aluation of certificate
Sanction9
*hen a branch manager writes a letter to accepting all terms and conditions of loan$ it is
called loan sanction. 'he conditions which are included in the loan sanctions these are given
bellow9
&imit
)rimary securities
!ollateral securities
'he rate of interest
4"pire date
0epayment
7ocumentation
2thers condition
7ocumentation
7emand promissory note
7emand promissory note delivery letter
0evival letter
Balance confirmation
1orm G+H special
1orm GLH special
1orm G!H general
)ersonal guarantee
Simple mortgage
0egistered mortgage deed
General irrevocable power of attorney
+ffidavit
!harge creation with a joint stock company9
'he following terms and conditions are included in the charge creation with a joint stock
company9
Simple mortgage deed
1rom G&H
1loating charge
)ersonal guarantee
&ist of machinerys
&etter of continuity
Board resolution
+rticle of association and memorandum of association.
7isbursement9
&oan disbursement has to be made after completion documentation and observance of the
sanctioning terms against rising of e/uity by sponsors as lay down. 4ach phase of loan
disbursement to be supersede to be supervised by bank official so that borrower is not given
scope of diversion funds to anywhere tends to purpose other than the project and the phase
of implementation of the project to be effectively supervised and borrowers persuaded for
completion of project in time. 'here are main three important factors in the loan
disbursement$ such asI
!ompletion of documentation.
5erification of stocks.
+ll import documentation.
Supervision9
Branch manager are e"pected are e"pected to e"ercise common sense and proper case in
handing advances by them or any other appropriate authority. 'he branch manager is the
corner stone of the bank and on him the success of a bank depends to large e"tent. n the
first place he represents his bank and its management to the local public. 'he way in which
he discharges the two functions makes him either a successful or an unsuccessful branch
manager. -e can to control advances judiciously to save the bank from failing into losses.
+. 'he customer is legally competent to borrow
B. 'he entire necessary document have been duly filled in$ stamped and correctly e"ecuted
by the borrower.
!. + proper authority covering operation and conferring power to overdraw is held in respect
of accounts of permeated upon by persons other than the borrowers themselves.
7. t should be seen that the advance does not contravene and law directed by Bangladesh
bank or the lending policy of the bank.
4. Security is correctly valued and is easily saleable.
1. )roper storage and custody are made.
G. Stipulated margin is maintained.
-. +de/uate insurance$ where necessary$ has been taken
. 'here is /uick turnover of stocks.
3. 2perations of customers account.
L. 'he balance is the account remains very near or goes beyond the drawing limit or there is
no good turnover.
&. 'he balance is stagnant.
.. !he/ues are drawn by the party are returned for storage of fund.
#. )ostKdate !he/ues are issued by the party.
2. !he/ues drawn by the party are fre/uently countermanded financial position.
0ecovery9
&oans and advances in whatever from granted by the bank to its clients are repayable either
on demand or at the e"pired of fi"ed period or as per payment schedule agreed upon while
granting the facilities. f a loan is repayable on installment is not repaid on due date.
2verdraft and credit are legally repayable on demand$ although the bank seldom e"cises the
right but in certain customers. n case loan is repayable in installments and default causes in
the payment of any installment$ entire loan usually become immediately recoverable of at the
option of the bank.
Bank generally really their advances under the following cases9
+. f death occurs either of the borrower or of the guarantor.
B. f the borrower is reported to have committed as act of insolvency or has filed an
application for his insolvency.
!. 7issolution the partnership.
7. &i/uidation the borrowing company.
4. 1ailure to renew the documents sufficient before the e"pired of the limitation.
1. f there is any serious deterioration in the security charged to the bank and want of
satisfactory in the account.
G. 'here has been deterioration in the financial position of the party.
-. f the borrower fails to maintain the stipulated margin and does not restore the shortfall
inspire of repeated remainders.
. !hange in the banks policy of lending.
3. 'he policy of selective credit control by Bangladesh bank.
L. 7etection of any other undesirable feature in the account.
&. 'here may also be other reasons for withdrawing the facility$ i.e. the law and order
situation at ascertain place is such that it may be risky to the advance.
!onclusion9
n the concluding note would like to give an e"planation regarding some aspects of the
study. n this report tried my best to attend the objective of the study. But there are certain
limitations that underline the scope and validity of the study. 'his is due to lack of information
and published data.
+ccording to international standard$ if the classified loan above A? the board management
would be inefficient. n this case *orld Bank does not give permission to them to operate
banking functions but says that they will march with other banks or financial institutions and
operate banking functions. !lassified loan of this branch is above A? of the total loan at
present. So according to *orld Bank$ the management of Sonali Bank is insufficient. But
Sonali Bank says that the major loan of there is directive i.e. political persons elite persons
of the society pressure create on them to sanction loan. So$ the Board of management of
Sonali Bank says that their management is efficient.
&oan operation is an important factoring in Bangladesh because of its high demand. Supply
of loan is inade/uate and e"isting supply cannot produce satisfactory result. 1rom brief
analysis it is clear that fund for continuous supply of loan is the lengthy procedural steps of
loan sanction policy make the problem in investment and recovery. Bureaucratic comple"ity
internal and e"ternal influence$ activities of trade union needed to be eliminated from
banking operation to implement the successful credit policy which will make up optimistic
about future. 'he bank is trying is best to remove all these difficulties and to participate in
more and more e"tent in the economic up of the country. think that recommendations may
be implemented to improve the loan sanctioning$ policy of Sonali Bank as well as other
nationali%ed commercial banks. 'he picture about loan sanctioning policy of Sonali Bank$
which visuali%e$ is not the picture of Sonali Bank aloneI it is also true for all nationali%ed
commercial banks.
Before concluding again would like to emphasi%e the need for further study in this particular
field. Because$ from my e"perience of the study$ can say the subject matter have multiple
linkages with the development of the economy.
)art Si"
'he 1inancial reform of )roject and its )rocedure
'-4 1#+#!+& S4!'20 04120. )0234!'
n :@@<$ 'he *orld Bank initiated 1inancial Sector 0eform projects for improving the
operational efficiency of nationali%ed commercial banks (#!Bs) of Bangladesh. t focuses on
the internal changes to the lending process to improve the loan portfolio of banks. n
supervision of an international consultant$ all application for credit and e"isting credits were
thoroughly analy%ed to assess the risk that the bank will not fully recover the loan. 'he
recommendations on the basis of the finding and comparing those with standards$ were
'he banking system should channel scarce resources into those opportunities with
ma"imum return.
)rofitable enterprises should receive finding and grow.
&oss making enterprise should be refused funding and go out of business.
'he bank shall make profit and pay ta"es.
'he economy will grow and people will be benefited.
Behind each of the suggestions$ they found many violations. n these circumstances$ 1S0)
team introduces some particular programs to be implemented immediately$ for the
improvement of credit conditions of banks. 'hese are9
:. !hange in organi%ational Behavior$ ideas$ and +ttitude.
;. )erforming )lanning System ())S)
<. .anagement information System (.S)
=. 1inancial Spread Sheet +nalysis (1SS+)
A. &ending 0isk +nalysis (&0+).
D. !redit )olicies and )rocedure (!),)).
C. Bank !ulture.
)02!47604S 120 &2+# +#7 )0234!' 1#+#!49
'he general advances 7epartment of 7ilkusha !orporate Branch usually$ follows the
procedures and stages for sanctioning any kind of advances.
'hose are mentioned below9
'he prospective borrower has to apply to Sonali Bank for loan by filling up of a specific
application form. Submit the entire re/uired document indicated in the application form.
'he application form contains following particulars9
:. #ame of the borrower.
;. +B! number.
<. Business address (with telephone no.)
=. 0esidential address and permanent address.
A. ntroducers name$ +B! no. , address.
D. 7ate of establishmentBncorporation.
C. 'rade license number$ issue date$ and e"piry date (photocopy of trade license enclosed).
F. G0B'0 no. and amount of income ta" paid last year.
@. !onstitution B status (.ention whether sole proprietorship Bpartnership B public ltd.
!ompany B private ltd. !ompany).
:>. )articulars of individualB proprietorB partnersB directors (#ame , 7esignation$ 1athers
and -usbands name$ present and permanent address with telephone no. ? of shares held).
::. 4"perience and background of individual B proprietors B partners B directors.
:;. 1ull particulars of assets in the personal name of individual B proprietor B partners B
directors with valuation.
:<. #ames of subsidiaries B +ffiliates$ percentage of share holding and nature of business.
:=. #ature and details of business B products (for which credit facility is applied for)$ .arkets
()resent market price per unit$ factory price). 4stimated sales for ne"t one year.
:A. !redit facilities re/uired (type$ amount$ period$ purpose$ and mode of adjustment).
:D. 7etails of securities offered with estimated value ()rimary security$ !ollateral security$
market value of the security).
:C. 7etails of liabilities in the name of the client or in the name of any other partners B
7irectors of subsidiaries B +ffiliates with Sonali Bank and other banks$ if any (#ame of the
bank$ +B! no. nature of the advance$ amount$ security and validity of limit).
:F. Balance sheet B income statement or statement of accounts of the following years
attached ()referably last < years).
:@. 2ther relevant in formation
;>. )roposed debt B e/uity ratio.
;:. Signature of the applicant.
+n officer scrutini%es the documents whether the party has submitted the documents
properly.
+fter receiving the loan application form$ Sonali Bank sends a letter to Bangladesh Bank for
obtaining a report from there$ 'his report is called !B (!redit nformation Bureau) report.
'his report is essential if the loan amount e"ceeds 'L. A> lakh. 'he purpose of this report is
to being informed that whether the borrower has taken loan from any other bankI if (8es$
then whether these loans are classified or not.
'he branch manager or an officer then takes the responsibility to visit and evaluate the
concern.
'hen proposal processing stage. n this stage$ the bank will prepare a proposal. + proposal
contains following informationK
a) #ame of the borrower.
b) #ature of limit.
c) )urpose of limit.
d) 4"tent of limit.
e) Security.
f) .argin
g) 0ate of interest.
h) 0epayment.
i) 5alidity.
1orwards the proposal to -ead 2ffice with proper recommendations.
6p to approval the work of the credit service department ended.
+fter the sanction advice$ Bank will collect necessary documents (!harge documents).
Bank verifies all the documents e"ecuted by the borrower. f everything is found as per law$
the branch disburses the loan to the borrower. + G&oan 0epayment ScheduleH is also
prepared by the branch and is given to borrower.
+fter the disbursement of the loan the bank monitor the activities of the borrower in the
following mannerK
!onstant supervision.
*orking capital assessment.
Stock report.
Break even analysis.
0escheduling of repayment (if necessary).
n general the borrowers repay the loans in installment directed by the bank. Some loans are
repaid all at a time. f the borrower fails to repay the loans as per schedule$ a notice is
served to make repayment. Sometimes legal actions also taken for recover the loan.
)art seven
!-+)'40K
:. )2&!8 G674&#4S9
'he !redit )olicy guidelines of the Bank contain details fundamental credit risk management
policies$ outlines general principles that are designed to govern the implementation of more
detailed lending procedures and credit risk analysisBrisk grading system.
:.: &4#7#G G674&#4S9
'he basic principles of lending are described in this section. t should be clearly understood
at the very outset that these principles are not infle"ible and are given as guidelines for
protecting the &oans and +dvances.
a) 'he bank shall provide suitable credit services and products for the markets in which it
operates.
b) &oans and advances shall normally be financed from customers deposit and not out of
temporary funds or borrowing from other Banks.
c) !redit facility will be allowed in a manner which will in no way compromise with Banks
standards of e"cellence
d) +ll !redit e"tension must comply with the re/uirements of Banks .emorandum and
+rticles of +ssociation$ Banking !ompanies +ct :@@: as amended from time to time$
Bangladesh Banks instructions and other applicable rules and regulations.
e) 'he Bank will always adhere to the following general principles of e"tending credit facility
to his customersI e.g. (:) Background$ character and capability of the borrowers$ (;) )urpose
of the facility$ (<) 'erm of facility$ (=) Safety$ (A) Security$ (D) )rofitability$ (C) Source of
repayment$ (F) 7iversity
t should be remembered that selection of the appropriate borrowers$ proper followKup and
endKuse supervision through constant followKup and monitoring are the cornerstones for
timely recover. 'hese guidelines will be updated annually.
Before selecting a customer B client and subse/uent recommendation for financing the !redit
2fficer B 0elationship .anager shall observe the following basics of lending9
:.:.: ndustry and Business Segment 1ocus9
+s a general practice .ercantile Bank &imited will definitely concentrate its business in 'rade
1inance B 4"port J mport business and all types of !ommercial &oan$ ndustrial B )roject
1inance e"cept otherwise restricted by the Government or indicated as unethical and
banned items.
'he Bank will give emphasis to diversify its business portfolio commensurate with economic
and business trend$ life cycle of the products$ demand supply gap$ social and national
obligation etc. 'he Banks policies for financing in different major sectors are summari%ed as
follows9
'ableKD.:
S& Sectors )olicies
:) 'e"tile B SpinningB SweaterB LnittingB 7enims , Garments 'o e"pand
;) !ement 'o e"pand
<) !onstruction B 0eal estate B -ouse building 'o e"pand
=) 'ele communication 'o e"pand
A) !ommunication Selective basis
D) nformation 'echnology (') )roject 'o e"pand
C) +roKbased ndustry 'o e"pand
F) -ospital B !linic B School B !ollege B 6niversity Selective basis
@) -ealthcare B )harmaceuticals B .edicine 'o e"pand
:>) 4lectrical B 4lectronic appliance 'o e"pand
::) 1inance to #B1 'o maintain
:;) Special )rogram J !!S$ )ersonal &oan$ Supervised !redit$ &oan to S.4 clients 'o
e"pand
:<) )lastic B )ackaging Selective basis
:=) &eather Selective basis
:A) Steel and 4ngineering 'o e"pand
:D) 4dible oil 'o e"pand
:C) Scrap 5essel 0estricted way
:F) )aper B )ulp B )arte" 'o e"pand
:@) !hemicals 0estricted way
;>) 2thers Based on merit
'he Banks policy is to handle the speciali%ed business sectors B segments by setting up
separate units in -ead 2ffice !redit 7ivision. n view of this Bank has already set up the
following units in -ead office !redit 7ivision9
O Syndication and Structured 1inance
O )roject 1inance
O Garments Sector
O S.4
O Speciali%ed Schemes such as !onsumers !redit J !!S B )ersonal &oan B !redit !ard
O 'he slamic Banking *ing is in the process to set up subject to approval from Bangladesh
Bank.
'he )olicies for the above speciali%ed segments B sectors have been B to be circulated to all
concerns from time to time.
:.:.; 'ypes of !redit 1acilities9
:. 'rade 1inance9
'he Banks is to introduce diversified B new types of )roducts B )roducts derivatives
alongwith usual Banking )roducts. +t present the Bank offers the following facilities9
a) #onK1unded9 &B!$ +cceptance$ Bank Guarantee$ etc.
b) 1unded9 !ash !redit (-ypo)$ !ash !redit ()ledge)$ S27(General)$ S27(others)$ &'0B
)+7B B)B 17B)B 7B)B 'ime &oan$ etc.
;. )roject 1inance9 (&arge and .edium ndustries B Small ndustries including +groKbased
ndustries)9
a) #on 1unded9 +cceptance$ &B! for import of .achinery$ Bank Guarantee$ etc.
b) 1unded9 'ime loan B 'erm loan for retirement of documents of imported machinery B &ocal
machinery B other project fi"ed costs.
<. *orking !apital (1or ndustrial 1inance)9
a) #on 1unded9 &B! for import of 0aw .aterials$ +cceptance$ Bank Guarantee$ S27
(General)$ S27 (others)$ etc.
b) 1unded9 !ash !redit (-ypo) B !ash !redit ()ledge) B )+7 B &'0 B 'ime &oan B B) B 7B) B
17B) B )acking !redit (for e"port oriented industries)$ etc.
=. !ommercial &ending 9
a) #on 1unded9 &B! for import goods$ +cceptance$ Bank Guarantee$ etc.
b) 1unded9 !ash !redit (-ypo) B !ash !redit ()ledge) B 27 B )+7 B &'0 B 'ime &oan B B) B
7B) B 17B)$ etc
A. 1inance to #B19
a) #on 1unded9 &B! for import of machinerys B e/uipment for their clients$ Bank Guarantee$
etc.
b) 1unded 9 27 B S27 (General) B'ime &oan B 'erm &oan
D. Special )rogram9
a) 1unded9 !onsumer !redit Scheme$ )ersonal &oan in the form of 'ime &oan B 'erm &oan$
Staff -ouse Building$ S.4 (including #onK1unded)$ 5isa !redit !ard$ 441$ etc.
C. 4"port 2riented Business9
a) #on 1unded9 Back to Back &B! (0evolving)$ +cceptance$ Bank Guarantee$ etc.
b) 1unded9 &'0$ )acking !redit$ 17B)$ 7B) etc.
F. )roducts under slamic Banking System9
:.:.< Single Borrower B Group &imits B Syndication9
'he Bank may e"tend the ma"imum credit facilities (funded B nonKfunded) to a single client B
enterprise B group as per guidelines of Bangladesh Bank vide B0)7 circular issued B to be
issued from time to time on the following criteria9
a) !lients who obtained (+ category as per Banks 0isk Grading System.
b) !overed by ade/uate collateral security or Guarantee
c) 4stablished long term business B Banking relationship
d) 'he total outstanding financing facilities by the Bank to any single client or enterprise or
organi%ation B group shall not at any point of time e"ceed <A? of the Banks total capital
subject to the condition that the ma"imum outstanding against fund based financing facilities
(funded facilities) do not e"ceed :A? of the total capital. #onK1unded !redit facilities e.g.
letter of credit$ guarantee$ etc. can be provided to a single large borrower but under no
circumstances$ the total amount of the funded and nonKfunded facilities shall e"ceed <A? of
the Banks !apital.
e) n case of e"port sector$ single borrower e"posure limit shall be A>? of the Banks total
capital. But funded facilities in case of e"port credit shall also not e"ceed :A? of the total
capital.
f) &oan sanctioned to any individual or enterprise or group amounting to :>? or more of the
Banks capital shall be considered as large loan.
g) 'otal large loan portfolio of the Bank will not e"ceed the limit fi"ed by Bangladesh bank
vide their B0)7 circular N >A dated +pril >@$ ;>>A or as advised by Bangladesh Bank from
time to time.
n line with basic principles of lending$ the Bank always discourages to lend its ma"imum
ceiling to a single client B group to minimi%e the risk. 'he Bank will prefer as a policy
guideline to arrange syndicated loan and participated in the syndicated B consortium loan
arrangement or in club finance.
2ne obligor B Group !oncept9
Group 0elationship would be established as per Bangladesh Bank guidelines provided B to
be provided from time to time.
:.:.= &ending !aps9
a) 'he Bank .anagement will establish a specific industry sector e"posure cap to avoid over
concentration in any oneKindustry sector. SectorKwise allocation of !redit shall be made
annually with the approval of the 4"ecutive !ommittee of the Board of 7irectors B Board of
7irectors as per appendi"K+.
b) 7iversification of !redit )ortfolio will be encouraged so as to reduce the risk of
dependence on a particular sector for balanced socioKeconomic development of the country.
c) Branches shall submit a report outlining trend and outstanding to the -ead of !redit
+dministration 7epartment on /uarterly basis for onward submission to the 4"ecutive
!ommittee of the Board of 7irectors B Board of 7irectors for informationB perusalB guidance.
:.:.A 7iscouraged business types9
'he Bank will discourage lending to following areas of business9
O .ilitary 4/uipmentB*eapons 1inance
O 'obacco sector
O !ompanies listed on !B black list or known defaulters
O -ighly &everaged !ompanies
O 1inance of Speculative nvestments (#ot more than =>? of share value9 1ace value or last
D months average whichever is lower)
O &ogging$ .ineral 4"tractionB.ining or other activity that is 4thically or 4nvironmentally
Sensitive
O !ounterparties in countries subject to 6# sanctions
O Share &ending (#ot more than =>? of share value or as per guidelines of Bangladesh
Bank)
O 'aking an 4/uity Stake in Borrowers (e"cept under slamic Banking 2peration)
O Bridge &oans relying on e/uityBdebt issuance as a source of repayment
:.:.D &oan 1acility )arameters9
'he &oan facility parameters for the Bank have been set as under9
a) 'he Bank in general will approve B renew trade finance facility for the period of >: (one)
year from the date of approval B last e"piry date.
b) 'he Bank will e"tend medium term loan for <(three) years period.
c) 'he Bank will e"tend long term loan for ma"imum period of D(si") year including grace
period of D(si") months to :F(eighteen) months (depending on the nature of )roject) for
project finance but in case of need$ in syndication or club financing$ the Bank may e"tend the
period of loan unto C(seven) years.
-owever$ in case of -ouse Building &oan (General)$ the repayment period will be ma"imum
of :A(fifteen) years.
d) -ouse Building &oan to Banks employee shall be governed as per policy guidelines of
G4mployees Building &oanH scheme.
e) Besides above$ the Bank will e"tend credit facilities under different scheme like !onsumer
!redit Scheme$ Small and .edium 4nterprise &oan (S.4)$ #B1s as per policy set B to be
set by the Bank under the policy guidelines of the specific scheme.
f) 'he rate of nterest B !ommission B !harges B 1ees etc. would be as per the approved
schedule of charges with variation permissible as per Bangladesh Bank guidelines and with
the approval of competent authority.
g) 'he interest rate to be charged and to be paid out on /uarterly basis e"cept the especial
schemes and unless otherwise specified in the approved terms.
h) 0epayment of term loan would be fi"ed preferably on monthlyB/uarterly basis.
i) n general$ the cash margin for &B! would be :>? of the &B! amount or on the basis of
Banker J !ustomer relationship subject to the minimum re/uirement of Bangladesh Bank
whichever in higher.
j) 1or the import of !apital machinery$ the cash margin for &B! would be ;A? J <>? or on
the basis of Banker J !ustomer relationship subject to the minimum re/uirement of
Bangladesh Bank whichever is higher.
k) +ny e"ception$ as mentioned above$ would be specifically approved by the competent
authority of the Bank.
l) Security accepted against credit facilities shall be properly valued and shall be affected in
accordance with &aws of the country in which the security is held. +n appropriate margin of
security will be taken to reflect such factor as the disposal costs or potential price
movements of the underlying assets.
+ccepted Securities are9 !ashB!ash e/uivalent$ &and and Building (in the form of registered
mortgage) hypothecation of )lant and .achinery$ goods$ assignment of bills B receivables$
book debts$ pledge of shares$ guarantee B !orporate Guarantee$ etc.
m) 5aluation of the lender property B Building B .achinery B 0aw materials shall be done by
the Banks enlisted professional surveyors duly checked by the Bank officials.
n) .ortgage formalities including e"ecution of registered irrevocable power of attorney must
be completed as per legal vetting of the Banks approved &awyer.
o) 'he value of the mortgage property shall be preferably being double of the facility to be
e"tended depending upon other security coverage.
'he security condition may be rela"ed depending upon the !redit worthiness of the
customer B BankerK!ustomer relationship B potentiality of the business of the client.
+ny e"ception of the parameters mentioned above is subject to be approved by the
competent authority as per delegated power approved by the Board of 7irectors
:.:.C !ross Border 0isk B )olitical and Sovereign 0isk9
0isk associated with cross border lending. Borrowers of a particular country may be unable
or uncivilling to fulfill principle andBor interest obligation$ distinguish from ordinary credit risk
because the difficulty arises from a political event$ such as suspension of e"ternal payments
K Synonymous with political and sovereign risk
K 'hird world debt crisis
1or e"ample$ e"port documents negotiated for countries like #igeria.
:.:.F )ricing )olicy9
nterest on various lending categories will depend on the level of risk and type of security
offered. 'he higher the risk$ the higher will be the interest rate. -owever$ e"ceptions shall be
made in case of lending in national priority sectors.
'he Bank from time to time circulate the interest rate B pricing of loans B charges B
commissions$ etc. to its branches with the approval of competent authority and as per
guidelines of Bangladesh Bank. +s on date the Bank fi"es a mid rate for lending based on
the +verage !ost of 1und. +ll pricing of loans shall$ however$ have relevance to the market
condition and be approved by the appropriate authority of the Bank.
:.:.@ !redit and .arketing 1undamentals9
a) n order to give high priority on the /uality of 0isk +ssets$ new !redit proposals must meet
the Banks !redit criteria
b) .a"imi%ation of profit is the basic aim of the Bank as such every profit opportunity should
be e"plored and professional skills are employed in the direction.
:.; !047' +SS4SS.4#' +#7 0SL G0+7#G9
+ll financial activities involve a certain degree of risk and particularly$ the financial institutions
of the modern era are engaged in various comple" financial activities re/uiring them to put
proper attention to every detail.
:.;.: !redit +ssessment9
+ thorough !redit and 0isk assessment shall be conducted for all types of credit proposals.
'he results of this assessment shall be presented in the approved !redit +ppraisal 1orm that
originates from the !redit officer B 0elationship .anager (0.) and is to be approved by the
.anagement B 4"ecutive !ommittee of the Board of 7irectors B Board of 7irectors. 'he
!redit officers B 0. is the owner of the customer relationship and must be held responsible
to ensure the accuracy of the entire credit application B proposal submitted for approval. 'he
!redit 2fficer B 0.s must be familiar with Banks lending guidelines and should conduct due
diligence on new borrowers$ principals and guarantees in line with policy guidelines.
!redit +ppraisal should summari%e the results of !redit 2fficers B 0.s risks assessment and
includes as a minimum$ the following details9
O +mount and type of loan(s) proposed
O )urpose of &oan(s)
O 0esults of 1inancial analysis
O &oan structure ('enor$ !ovenants$ 0epayment schedule$ nterest)
O Security +rrangements
L8! !oncept9
'he !redit 2fficers B 0. must know their customers and conduct due diligence on new
borrowers$ principals and guarantees to ensure such parties are in fact who they represent
themselves to be i.e.$ Lnow 8our !ustomer (L8!).
'he Banker J !ustomer relationship would be established first through opening of !7B S'7 B
SB accounts. )roper introduction$ photographs of the account holders B signatories$
passport$ 'rade &icense$ .emorandum and +rticles of the !ompany$ &ist of 7irectors$
resolution$ etc.$ all the registered papers as per Banks policy and regulatory re/uirements
are to be obtained at the time of opening of the account. + declaration regarding appro"imate
transaction to the account is to be obtained during opening of account. nformation regarding
business pattern$ nature of business$ volume of business$ etc. are to be ascertained. +ny
suspicious transaction must timely addressed and brought down to notice of -ead 2ffice B
Bangladesh Bank as re/uired and also appropriate corrective measures to be taken as per
the direction of Bank .anagement B Bangladesh Bank.
:.;.; 0isk .anagement B !redit 0isk 4valuation B +ssessment J &ending 7ecision 9
+ comprehensive and accurate appraisal of the risk in every credit proposal of the Bank is
mandatory. #o proposal can be put on place before approving authority unless there has
been a complete analysis. n order to safeguard Banks interest over the entire period of the
advance$ a comprehensive view of the capital$ capacity$ integrity of the borrower$ ade/uacy$
nature of security$ compliance with all regulatory Blegal formalities$ condition of all
documentation and finally a continuous and constant supervision on the account are called
for. t is absolute responsibility of the !redit 2fficer B 0. to ensure that all the necessary
documents are collected before the proposal is placed for approval. *here
&oansB+dvancesB!redit facilities are granted against the guarantee of the third party$ that
guarantor must be subject to the same credit assessment as made for the principal borrower.
*hile making lending decisions$ particular attention shall be given to the analysis of credit
proposals received from heavily leveraged companies and those dealing in nonKessential
consumer goods$ taking special care about their debt servicing abilities.
4mphasis shall be given on the following several credit principles9
a) )resent and future business potentiality for optimum deployment of Banks fund to
increase return on assets
b) )reference for self li/uidating Puality business
c) +voiding marginal performers
d) 0isk depression is basic to sound credit principles and policies. Bank shall be careful
about large and undue concentration of credit to industry$ one obligor and common product
line$ etc.
e) .anaging the amount$ si%e$ nature and soundness of oneKobligor e"posures relative to
the si%e of the borrower and Banks position among his other lenders.
f) )ersonal guarantee of the principal partners or the 7irectors of the !ompany shall be
obtained
:.;.< Basics of !redit 0isk 9
'he following risk areas shall be considered for analy%ing a credit proposal.
O Borrower +nalysis (.anagementB2wnershipB!orporate Structure 0isk)9
'he majority shareholders$ management teams and group or affiliate companies shall be
assessed. +ny issues regarding lack of management depth$ complicated ownership
structures or interKgroup transactions shall be addressed$ and risks to be mitigated. 'he
following /uestions may be asked to assess the .anagement 0isk9
*ho is the borrowerQ 7oes any particularBspecial characteristic of borrower need particular
attentionQ 1or e"ample$ if the borrower is a 'rust$ this calls for e"amination of 'rust 7eed.
+re there ade/uate abilities and e"perience in senior managementQ
s there ade/uate depth and succession planningQ
s there any conflict amongst ownersBsenior managers that could have serious implicationsQ
s the .anagerB!redit 2fficer satisfied about the character$ ability$ integrity and e"perience of
the borrowerQ
O ndustry +nalysis (Business and ndustry 0isk)9
'he key risk factors of the borrowers industry shall be assessed. +ny issues regarding the
borrowers position in the industry$ overall industry concerns or competitive forces (demand
supply gap) shall be addressed and the strengths and weakness (S*2' +nalysis) of the
borrower relative to its competition to be identified. 1or the above purpose the !redit
2fficersB0. may obtain B collect data from the statistical yearbook B economic trends of
Bangladesh Bank B public report B newspaperB journals etc. 'he following /uestions may be
asked to assess the Business and ndustry 0isk9
+re there any significant concentrations of sales (by customer$ industry$ country$ and
region)Q
-ow does the borrower rate with its competitors in terms of market shareQ
!an increased direct production costs be easily passed on to customersQ
7oes the borrower deal in any specific product that may be subject to obsolescenceQ
s the purpose of borrowing consistent with the objectives of the !ompanyQ
s the purpose legalQ 7oes it contravene any rules and laws of the country and any
instruction issued by the Bangladesh BankB-ead 2fficeQ
O SupplierBBuyer +nalysisB.arket 0isk9
+ny customer or supplier concentration shall be addressed$ as these could have a significant
impact on the future viability of the borrower.
O .arket 0isk9
'he sufficient market data is to be obtained to identify clientsBborrowers market share in the
industryBdemandKsupply gap in the market.
O 'echnological 0isk 9
'he product that is manufactured must be technologically viable i.e. whether the technology
applied is updated. 'he products stage in its life cycle must be understood. 'echnical
+spects of the products must be addressed. 'he !redit 2fficer B 0. must be satisfied with
the mitigating factors of technical and technological risk$ associated with the products.
O 1inancial +nalysis (-istorical B )rojected)9
+n analysis of a minimum of < years historical financial statements of the borrower should be
presented. *here reliance is placed on a corporate guarantor$ guarantors financial
statement should also be analy%ed. 'he analysis should address the duality and
sustainability of earnings$ cash flow and the strength of the borrowers balance sheet.
Specifically$ cash flow$ leverage and profitability must be analy%ed. n this regard the !redit
2fficer B 0. must look into the status of chartered accountant audit firm.
*here term facilities (tenor R : year) are being proposed$ a projection of the borrowers
future financial performance should be provided$ indicating an analysis of the sufficiency of
cash flow to service debt repayments. &oans shall not be granted if projected cash flow is
insufficient to repay debts. n this regard the possibilities of cost overrun and sensibility
analysis shall be done. 'he following /uestions may be asked to assess the 1inancial 0isk9
7oes the borrower produce financial statements on timeQ
s working !apital +de/uateQ
-as the customer actual title to stockQ
-ave financial covenants been metQ
-as there been any major sale of shares by directorsQ
+ny significant change in asset conversion cycleQ (+ccount 0eceivablesB payables nventory
etc.)
O +ccount !onduct9
1or e"isting borrowers$ the historic performance in meeting repayment obligations (trade
payments$ che/ue$ interest and principal payments$ etc.) shall be assessed. n this regard
the !redit 2fficer B 0. may look into the account turnover like debt summation B credit
summationK highest debit balanceB highest credit balance (or lowest debit balance)$ no. of
debit entriesB no. of credit entries for last three years (year wise)
O +dherence of &ending Guidelines 9
'he !redit +pplicationsB +ppraisals must be prepared in line with Banks lending guidelines.
t must be clearly stated whether or not the applicationBproposal is in compliance with Banks
!redit )olicy lending guidelines. 0elated /uestions to be addressed are9
s proposed application in compliance with Banks guidelinesQ
7oes the lending to clients also compliant with !entral Banks guidelineQ
*hat are the #iche )roductsQ
O nterest 0ate 0isk 9
'he interest rate must be fi"ed based on different risk factors associated with the type of
business such as li/uidity risk$ commodity risk$ e/uity risk$ and loan period risk. nterest rate
also arises from the movements of interest rate in the market. n assessing the pricing and
profitability$ the credit officerB0. must consider the income from ancillary business like
foreign e"change business$ group business$ volume of business etc. 0elated /uestions to be
addressed are9
*hat is the rate of interest chargedQ
s the rate fi"ed in consideration to the risk factorsQ
*ill the rate charged be profitable to the BankQ
O 1oreign 4"change 0isk 9
'he foreign e"change transaction is associated with foreign currency fluctuation risk.
'herefore the credit officerB0. must take care of for the 1ore" risk. 'he /uestions to be
addressed as9
7oes the business involve foreign currency dealingsQ
*hat are trends of foreign currency fluctuationQ
O !ost overrun 0isk 9
'his type of risk is generally involved in taking project finance decision. + high degree of cost
overrun may cause the failure of the project. 'herefore the credit officer must consider the
cost components of the project and their chance of devaluation. 'he /uestions to be
addressed areK
*hether the construction cost may increaseQ
*hether the imported machinery cost may increase for the fluctuation of the foreign
currency.
+re all types of cost components addressed during preparation of feasibility reportQ
7oes sensitivity analysis prove sufficient shock absorbing capability of the projectQ
O .itigating 1actors 9
'he !redit 2fficerB0. must address to different risks associated with the proposal. 'he
possible risk include but not limited to market risk$ financial risk$ foreign e"change risk$ risk of
cost overrun$ margin sustainability andBor volatility$ high debt load (leverageBgearing)$
overstocking or debtor issues$ repaid growth$ ac/uisition or e"pansion$ new business
lineBproduct e"pansion9 management changes or succession issues$ customer or supplier
concentrations$ and lack of transparency or industry issues obtaining factors for risks
identified in the credit assessment shall have to be described and understood.
'he Bank must assess the critical risks of facilities given B to be given and ways B factors of
mitigation of those risks. Some of the critical factors are9
5olatility
-igh debt
2verstocking
0apid growth
+c/uisition
7ebtors issues
Succession
O &oan Structure 9
'he amounts and tenors of financing proposed should be justified based on the projected
repayment ability and loan purpose. 4"cessive tenor or amount relative to business needs
increase the risk of fund diversion and may adversely impact the borrowers repayment
ability. 0elated /uestions to be addressed are9
+re facilities justified by the borrowers businessQ
+re any capital B long term e"penditure being financed by short time borrowing (either 27 or
'0)Q
*hat is the amount re/uiredQ s it sufficient or e"cess for the purpose mentionedQ
O Security 9
+ current valuation of collateral must be obtained from Banks approved enlisted surveyors
and the /uality and priority of security being proposed shall be assessed properly.
&oan shall not be granted based solely on security. +de/uacy and the e"tent of the insurance
coverage shall be assessed. 'he !redit 2fficerB0. must look into the clients interest B
dependability on the collateral offered as security.
s security offered acceptable and ade/uateQ
-as all the security been perfected in accordance with the loan applicationQ
-ave any valuation and inspection been undertaken since the last applicationQ
f you hold a guarantee$ do you consider it has valueQ
-as the credit rating of the Borrower deteriorated and have you considered the re/uirement
for additional securityQ
!an a valid charge be obtained on the securityQ
:.;.= #ame lending (0elationship +ssessment) 9
!redit proposals shall not be unduly influenced by an over reliance on the sponsoring
principals reputation$ reported independent means$ or their perceived willingness to inject
funds into various business enterprises in case of need. 'hese situations shall be
discouraged and treated with great caution. 0ather$ credit proposals and the granting of
loans will be based on sound fundamentals supported by a thorough financial and risk
analysis.
-as the borrower complied with the terms and conditions of the facilityQ
+dverse feature include9 any past dues B e"cesses B delays B che/ue returns and or default in
covenants and B or failure to meet interest when due.
7oes the account fluctuate with the seasonally of the businessQ
-as the relationship strategy and earnings for the last twelve months been metQ
:.;.= 0isk Grading 9
0isk grading is a key measurement of a Banks asset /uality and as such$ it is essential that
grading is a robust process. +ll facilities shall be assigned a risk grade. *here deterioration
in risk is noted$ the 0isk Grade assigned to a borrower and its facilities shall be immediately
changed. Borrower 0isk Grades shall have to be clearly stated on !redit +pplications.
)resently the Bank is followingBconducting the &ending 0isk +nalysis to assess the risk
grade. 'he concerned !redit 2fficer B 0. must clearly indicate the risk grade (as per the
finding) in the specific column of credit appraisal form so that the authority can take decision
on the matter. + standard 0isk Grading .atri" is depicted as under based on the 0isk Grade
Scorecard attached as an +ppendi"K:
0isk 0ating Grade 7efinition
Superior J
&ow 0isk
: 1acilities are fully secured by cash deposits$ government bonds or a counter guarantee
from top tier nternational Banks B &ocal Banks. +ll security documentations are in place and
in order.
Good J
Satisfactory 0isk
; 'he repayment capacity of the borrower is strong. 'he borrower should have e"cellent
li/uidity and low leverage. 'he company must demonstrate consistently strong earning and
cash flow and have an unblemished track record. +ll security documents are in place.
+ggregate Score of @A or greater based on the 0isk Grade Scorecard.
+cceptable J
1air 0isk
< +de/uate financial condition though may not be able to sustain any major or continued
setbacks. 'hese borrowers are not as strong as Grade ; borrowers$ but should still
demonstrate consistent earning$ cash flow and have a good track record. + borrower should
not be graded better than < if realistic audited financial statements are not received. 'hese
assets would normally be secured by acceptable collateral (:st charge over
stocksBdebtorsBe/uipmentBproperty). Borrowers should have ade/uate li/uidity$ cash flow and
earnings. +n +ggregate Score of CAK@= based on the 0isk Grade Scorecard.
.arginal J
*atch &ist
= Grade = assets warrant greater attention due to conditions affecting the borrower$ the
industry or the economic environment. 'hese borrowers have an above average risk due to
strained li/uidity$ higher than normal leverage$ thin cash flow andBor inconsistent earnings.
1acilities should be downgraded to = if the borrower incurs a loss$ loan payments routinely
fall past due$ account conduct is poor$ or other untoward factors are present. +n +ggregate
Score of DAKC= based on the 0isk Grade Scorecard.
Special .ention
A Grade A assets potential weaknesses that deserves managements close attention. f left
uncorrected$ these weaknesses may result in a deterioration of the repayment prospects of
the borrower. 1acilities should be downgraded to A if sustained deterioration in financial
condition is noted (!onsecutive losses$ negative net worth$ due for <>K@> days$ or if a
significant petition or repayment of facilities is still e"pected and interest can still be taken
into profits. +n +ggregate Score of AAKD= based on the 0isk Grade Scorecard.
0isk 0ating Grade 7efinition
Substandard
D 1inancial condition is weak and capacity or inclination to repay is in doubt. 'hese
weaknesses jeopardi%e the full settlement of loans. &oans should be downgraded to D if loan
payments remain past due for @> days but less than :F> days$ if the customer intends to
create a lender group for debt restructuring purposes$ the operation has ceased trading or
any indication suggesting the winding up or closure of the borrower is discovered. #ot yet
considered nonKperforming as the correction of the deficiencies may result in an improved
condition and interest can still be taken into profits. +n +ggregate Score of =AKA= based on
the 0isk Grade Scorecard.
7oubtful
and Bad
(nonKperforming)
C 1ull repayment of principal and interest is unlikely and the possibility of loss is e"tremely
high. -owever$ due to specifically identifiable pending factors$ such as litigation$ li/uidation
procedures or capital injection$ the assets are not yet classified as &oss. +ssets should be
downgraded to C if loan$ payments remain past due in e"cess of :F> days and interest
income should be taken into suspense (nonKaccrual). &oan loss provisions must be raised
against the estimated unreali%able amount of all facilities. 'he ade/uacy of provisions must
be reviewed at least /uarterly on all nonKperforming loans and the bank should pursue legal
options to enforce security to obtain repayment or negotiate an appropriate loan
rescheduling. n all cases$ the re/uirements of Bangladesh Bank in !B reporting$ loan
rescheduling and provisioning must be followed. +n +ggregate Score of <A J == based on
the 0isk Grade Scorecard.
&oss
(nonKperforming)
F +ssets graded F are long outstanding with no progress in obtaining repayment (in e"cess
of <D> days past due) or in the late stages of wind upBli/uidation. 'he prospect of recovery is
poor and legal options have been pursued. 'he proceeds e"pected from the li/uidation or
reali%ation of security may be awaited. 'he continuance of the loan as a bankable asset is
not warranted and the anticipated loss should have been provided for. 'his classification
reflects that it is not practical or desirable to defer writing of this basically worthless asset
even though partial recovery may be effected in the future. Bangladesh Bank guidelines for
timely write off of bad loans must be adhered to. +n +ggregate Score of <A or less based on
the 0isk Grade Scorecard.
:.< +))025+& +6'-20'89
i) +ll powers of the Bank are vested in the Board. 'hey are the source of all powers$ and any
person or body can e"ercise only the powers delegated by the Board in ways and manners
specified by them.
ii) .ercantile Bank &td. believes in decentrali%ation of powers. *ith a view to ensuring
prompt and efficient services to its multitude of clients spread far and wide$ the Bank
envisages delegation of optimum powers to its 4"ecutives and 2fficials at different levels of
operations. But$ while delegating powers$ the Board is also aware of the following principles
and factors9
(a) 'he Board can delegate the authority$ not its responsibility.
(b) 'he evil of dual subKordination may creep in the chain of command if authority is not well
defined and properly implemented.
(c) 4"ercise of the delegated authority must commensurate with the shouldering of the
responsibility.
iii) n order to implement the system of delegation of powers effectively$ and to derive the
desired benefit for the Bank as well as the 4"ecutives concerned$ the Bank must develop a
system to ensure that the delegated authority e"ercised by the 4"ecutives can be evaluated
realistically and /ualitatively. 1or that purpose$ the Bank will have to develop a .anagement
nformation System (.S) so that the Board gets prompt and systematic feed back as to how
effectively and efficiently the delegated authority is being e"ercised by the 4"ecutives. 1or
the purpose of investment of Banks 1und$ the cardinal principle is (Safety first$ Business
ne"t. 7elegation of power shall test the ability of the 4"ecutives to take decisions judiciously
with honesty and integrity to achieve the objectives of the Bank.
iv) 'he Board of 7irectors of the Bank in its =;nd meeting held on ;@th +pril ;>>< approved
delegation of a) Business )ower (&oans and +dvances)$ b) Business )ower (1oreign
4"change) to individual e"ecutives of the Bank.
v) 'he Bank intends to make it crystal clear to all concerned that the powers are delegated to
serve the greater interest of the institution. So$ to achieve this objective$ the General
Guidelines as described in section . . . . . . . . . 2f chapter . . . . . . . and the ceiling as
mentioned in +nne"ure . . . . . . Shall be followed meticulously.
vi) 'he credit approval function has been separated from the marketingBrelationship
management function.
vii) 6nless personally authori%ed by a separate letter$ mere mention of delegation in this
guidelines shall not entitle an official falling under the category to e"ercise the powers.
viii) 7elegated approval authorities shall be reviewed annually by .anaging 7irector , !42B
4"ecutive !ommittee of 7irectors B Board of 7irectors
i") +ll credit risks must be authori%ed by e"ecutives within the authority limit delegated to
them by the .anaging 7irector , !42B 4"ecutive !ommittee of 7irectors B Board of
7irectors. 'he GpoolingH or combining of authority limits is not permitted.
") 'he aggregate e"posure to any borrower or borrowing group is used to determine the
approval authority re/uired.
"i) +ny credit proposal that does not comply with &ending Guidelines$ regardless of amount$
has to be referred to -ead 2ffice for +pproval.
"ii) .anaging 7irector , !42B-ead 2ffice !redit 0isk .anagement B Board as per the
delegated power shall approve and monitor any cross border e"posure risk B e"ceptional
case.
"iii) +ny breaches of lending authority to be reported to .anaging 7irector , !42$ -ead of
nternal !ontrol and -ead of !0..
:.<.: 'raining and 4"perience9
t is essential that 4"ecutivesB2fficers authori%ed to e"ercise delegation of business power
must have relevant training and e"perience to carry out their responsibility effectively and a
minimum they should have9
O +t least A years e"perience working in !orporate B !ommercial banking as a relationship
managerB-ead of BranchB -ead of !redit$ etc.
O 'raining and e"perience in financial statement$ cash flow and risk analysis
O + thorough working knowledge of +ccounting
O + good understanding of the local industryBmarket dynamics
O +de/uate knowledge of the following areas9
ntroduction of accrual accounting.
ndustry B Business 0isk +nalysis.
Borrowing causes.
1inancial reporting and full disclosure.
1inancial Statement +nalysis.
'he +sset !onversionB'rade !ycle.
!ash 1low +nalysis.
)rojections.
&oan Structure and 7ocumentation.
&oan .anagement.
:.<.; 0eporting 2f +pproved #ew 1acilities +nd 7eclined )roposals 9
+ monthly summary of all new facilities approved$ renewed$ enhanced and a list of proposals
declined stating reasons thereof to be reported by !0. to the .anaging 7irector and !42.
:.<.< 'ime 0e/uirement for +pproval of !redit )roposals9
'ime re/uirement for approval of !redit proposals9
O +t Branch level 9 Branch +uthority as per their business delegation must take decision
within ma"imum of < J C days
O +t -ead 2ffice level 9 'he -ead 2ffice !redit !ommittee(-2!!)B 4"ecutive !ommittee of
the Board of 7irectorsBBoard of 7irectors shall take decision within ma"imum of 9
A J C days for simple type of facility
C J :A days for )roject &oan
:A J =A days for &oans under Syndication B !lub 1inance etc.
O Sanction letter to be issued within : J ; days time from the date of approval.
O n case of &arge &oan$ it must be reported to Bangladesh Bank.
O n case of the specific loans like 7irectors loan$ prior approval from Bangladesh Bank to be
obtained as per re/uirements B guidelines of Bangladesh Bank.
:.<.= Segregation of 7uties 9
'he following lending functions have been segregated9
O !redit +pproval B 0isk .anagement
O 0elationship .anagement B .arketing
O !redit +dministration
'he purpose of the segregation is to improve the knowledge levels and e"pertise in each
department$ to decrease the probability of compromise$ to impose controls over the
disbursement of authori%ed loan facilities and obtain an objective and independent
judgments of credit proposals. 'he job responsibilities of different units are as follows9
#ame of 6nit 3ob responsibility
SSSS
0elationship .anagement B !redit .arketing 'he persons in the department will be
responsible for 0elationship .anagement.
:. 'o act as the primary contact person with the borrower regarding marketing of credit
products.
;. 'o maintain thorough knowledge B up to date position of borrowers business and industry.
'he concerned officer must apply his intelligenceBcommon sense to ascertain whether the
proposals carry value or contribute to Banks profitability.
<. 'o cater to customer needs and summari%e the facilitiesB rate of interest B commission B
charges B security arrangement etc. and place it to the higher authority for further process.
=. 'o make periodic visit B inspection in borrowers shop B factory B warehouse etc. and submit
the report to the -ead of !redit .arketing.
A. 'o provide re/uired information to the !redit appraisal team for approval B concurrence or
other action and !redit +dministration 'eam in case of need.
D. 'o monitor the financial performance and account conduct of the borrower and intimate
the updated position to the !redit +pproval +uthority B branches.
C. 'o prepare a !all report for all customer contact B visit and place it to the reporting
authority.
!redit +ppraisal B +pproval :. 'o prepare credit proposals (memo) and place it to the
approval authority for decision.
;. 'o obtain necessary approval from appropriate approval authority
<. ssuance of Sanction &etter B declining decision to the branches
=. +ll sorts of correspondence to the branches B .arketing division for preparation of memo.
A. !onducting due diligence in line with Banks !0. )olicy guidelines and Bangladesh Bank
B Govt. rules and regulations.
#ame of 6nit 3ob responsibility
!redit +dministration :. 'o ensure completion of documentation formalities in compliance
with terms of approval.
;. 'o monitor insurance coverage to ensure appropriate coverage is in place over assets
pledged.
<. 'o control loan disbursement only after all terms and conditions of approval have been
met and all security documentation is in place.
=. 'o maintain control over all security documentation
A. 'o monitor borrowers compliance with covenants , agreed terms and monitor account
performance
D. 7irectly manage all 2verdue$ Special .ention$ Substandard$ 7oubtful , Bad and &oss
accounts to regulari%e B ma"imi%e recovery and ensure that appropriate and timely loan loss
provisions have been made.
C. 'o provide early signalsB warning to the branches B .arketing division B +ccount
0elationship officers.
F. 'o determine +ccount +ction )lan B 0ecovery Strategy
@. 'o pursue all options to ma"imi%e recovery
:>. 'o produce re/uired statements related to credit division including statement of new
facilities$ renewed facilities$ declined facilities and submit before the .anaging 7irectors ,
!42 B 4! B Board for review and guidance.
::. 'o deal with legal matters
:;. 'o process branch proposals regarding rescheduling B classified accounts
:<. 'o collect !B report from Bangladesh Bank and be responsible for !B$ !& returns of
Bangladesh Bank
:=. 'o submit all re/uired Bangladesh Bank returns and statements to other regulatory
authorities.
:A. 'o enlist surveyors$ lawyers$ insurers with approval of the Bank .anagement and to
monitor and review their performance periodically.
:.<.C nternal +uditB!ontrol9
'he Bank has a separate and independent +udit and nspection 7ivision responsible for
conducting audits and inspection of all Branches and 7epartments of -ead 2ffice. +udits
and nspection are carried out on periodic interval (at least once in a year) to ensure
compliance with regulatory guidelines$ internal procedures and &ending Guidelines as per
Bangladesh Bank !ore 0isk .anagement policy. Surprise inspection B special inspections
are also conducted as and when re/uired. 'he -ead of +udit , nspection 7ivision directly
reports to the .anaging 7irector and !42.
:.<.A 4stablishment of !ontrol .echanism9
+t present :< (thirteen) Branches of the Bank are interconnected with 2#&#4 S8S'4..
0est of the branches will be 2#&#4 within ;K< months. 'herefore$ it will be possible to
monitor any function B any transaction of the branches by the controlling authority at -ead
2ffice after establishment of 2#&#4 S8S'4. with other branches. +uthority may be given
to .anaging 7irector and !42$ +dditional .anaging 7irector$ 7eputy .anaging 7irector$
-ead of !redit$ -ead of !redit +dministration 7epartment$ -ead of nternal +udit ,
nspection$ -ead of Board +udit and -ead of !ompliance to go through any transaction of
the Branches as and when re/uired.
:.<.D !redit 'raining9
n order to discharge the duties efficiently and conduct the due diligence properly$ it is
necessary to arrange sufficient training for e"ecutives B officers of different areas particularly
the credit officers. !onsidering the re/uirements the Bank has established its 'raining
nstitute in -ead 2ffice in ;>>; where different types of banking related courses are offered
to 2fficers of different level. t is e"pected that all !redit and 0elationship 2fficers will be
trained gradually in specific fields of !redit 0isk .anagement.
!-+)'40K
:. 20G+#E+'2#+& S'06!'604 +#7 04S)2#SB&'4S9
'he appropriate organi%ational structure must be in place to support the adoption of policies
described in !hapterK of these guidelines. 'he key feature is the segregation of the
.arketing B 0elationship .anagement function from +pproval B 0isk .anagement B
+dministrative 1unctions.
!redit approval shall be centrali%ed within the !0. function. !redit application shall be
approved by the .anaging 7irector and !42 B +dditional .anaging 7irector B 7eputy
.anaging 7irector B -ead of !redit at -ead 2ffice B -ead of Branches as per their delegation
of business powers approved by the Board of 7irectors and beyond their authority$ the
proposals are to be placed before the 4"ecutive !ommittee of the Board of 7irectors B Board
of 7irectors for approval.
;.: 20G+#E+'2#+& S'06!'6049
'he following chart represents the management structures9
;.; Ley 0esponsibilities9
'he key responsibilities of the above functions are as follows. )lease you can show (+K7) for
sample job descriptions.
+) -ead of !orporate B !ommercial Banking9
'he responsibility of the -ead of !orporate B !ommercial Banking includes planning$
developing and managing the Banks corporate$ commercial and institutional business to
ensure high profitability and sustained growth in line with the Banks strategic plan$ credit
policies and business objectives in order to provide overall coordination of marketing efforts
for the Banks nonKpersonal business including the formulation of strategy$ establishment of
performance tracking systems and joint campaign with other 7ivisions of the Bank. -e will
serve on the Banks +sset and &iability .anagement !ommittee.
'he other key responsibilities of the -ead of !orporate B !ommercial Banking are as follows9
:. 2versee the marketing and business development activities of the banks nonKpersonal
business.
;. .a"imi%e Banks profitability through promotion of all bank products and appropriate loan
pricing.
<. 4nsure credit /uality is maintained and that reviews are current at all times.
=. 4nsure a prudent level of portfolio diversification.
A. 4nsure compliance with Bank !redit )olicies and !entral Bank regulations.
D. !ontribute to the development of relationship management skills of staff in !orporate
Banking.
C. )rovide inputBadvice to the .7 and !42BBoard of 7irectors regarding the formulation of
strategic operating plans.
F. .aintain an in depth knowledge of the local market.
B) 0elationship .anager 9
'he responsibility of 0elationship .anagers (0.s) is to serve as the primary relationship
contact person with the Banks corporate and commercial customers$ to ma"imi%e
relationship profitably through cross selling and to minimi%e credit losses through risk
assessment and timely identification of deteriorating !redit 0isk of !ustomers.
'he other key responsibilities of the 0.s are as follows9
:. .aintain thorough knowledge of borrowers business and industry through regular contact$
factoryBwarehouse inspections$ etc. 0.s should proactively monitor the financial
performance and account conduct of borrowers.
;. 'imely and accurate submission of !redit +pplications for new proposals and annual
reviews$ taking into account the credit assessment re/uirements outlined in clause :.;.: of
!hapterK of this !redit )olicy.
<. -ighlight any deterioration in borrowers financial standing and amend the borrowers 0isk
Grade in a timely manner. !hanges in 0isk Grades should be advised to and be approved
by concerned approval authority.
=. Seek assistanceBadvice at the earliest from !0. regarding the structuring of facilities$
potential deterioration in accounts or for any credit related issues.
A. )rovide good customer service while ensuring that the Banks interest is protected
D. Grow the customer base through marketing and business development efforts$ including
cross selling to e"isting customer base
C. 4nsure that credit /uality is maintained and customer reviews are completed in timely
manner.
F. 1ollow up with customers to ensure the timely receipt of financial statements$ loan
payments and all documentary re/uirements of the Bank.
@. 4nsure compliance with internal policies and procedures and e"ternal regulatory
re/uirements and that all internal and e"ternal audit recommendations are implemented.
!) -ead of !redit 0isk .anagement 9
'he Ley responsibilities of the -ead of !redit 0isk .anagement are as follows9
:. 2versight of the Banks credit policies$ procedures and controls relating to all credit risks
arising from corporateBcommercialBinstitutional banking and treasury operations.
;. 2versight of the Banks asset /uality.
<. 7irectly manage all Special .entioned$ Substandard$ and 7oubtful and Bad , &oss
accounts to ma"imi%e recovery and ensure that appropriate and timely loan loss provisions
have been made.
=. +pprove or decline$ within the delegated business authority$ the !redit +pplications
recommended by 0.. *here aggregate borrower e"posure will be in e"cess of the
delegated authority$ he will provide recommendation to +.7 B .7 , !42 B 4! B Board of
7irectors for approval.
A. )rovide adviceBassistance regarding all !redit matters to line management B 0.s
D. 4nsure that the lending e"ecutives have ade/uate e"perience and B or training in order to
carry out job duties effectively.
7) -ead of !redit 9
'he responsibility of the -ead of !redit is to ensure sound asset /uality and create a
conservative credit culture through lending activities$ credit approval process is responsive to
customer needs and credit losses are minimi%ed. -e will serve on the Banks +sset and
&iability .anagement !ommittee.
'he other key responsibilities of the -ead of !redit are as follows9
:. )romote strong asset /uality
;. 6pdating the Banks lending guidelinesBcredit policies as and when re/uired
<. 4nsure credit recommendationsBapprovals are taken in a timely manner
=. 4nsure a prudent level of portfolio diversification
A. .a"imi%e recovery of problem loans and minimi%e credit losses
D. 4nsure compliance with internal policies and procedures and e"ternal regulatory
re/uirements
C. !ontribute to the development of credit risk management skills of staff in !redit
+dministration and !orporate Banking departments
F. )rovide inputBadvice to the .7 , !42BBoard regarding the formulation of strategic
operating plans
4) -ead of !redit +dministration 7epartment (!+7) 9
'he responsibility of the -ead of !redit +dministration 7epartment (!+7) includes planing$
organi%ing$ directing$ controlling and reviewing the operational and administrative functions
of !redit +dministration 7epartment to ensure efficient and effective support to the
concerned 7ivisions in line with regulatory and Bank re/uirements while e"ercising
appropriate control and independent judgments.
'he other key accountabilities of the !redit +dministration 7epartment are as follows9
:. 4nsure loan documentation and securities are duly completed and in place prior to
disbursement of loans.
;. 4nsure that !B report reflectsBincludes the name of all the lenders with facility$ limit and
outstanding.
<. 4nsure compliance with all formalities regarding large loans and loans to 7irectors as per
7irectives of Bangladesh Bank !irculars , rules and regulations of Banking !ompanies +ct.
=. 4nsure that ade/uate insurance is in place on all pledged assets$ all approval conditions
have been met and e"ceptions$ if any$ are approved prior to disbursement of loans.
A. .aintain control over all security documentation.
D. .onitor borrowers compliance with covenant$ agreed terms , conditions and also monitor
account performance.
1) -ead of .onitoring$ 0ecovery and !ompliance 7epartment 9
'he key responsibilities of the -ead of .onitoring$ 0ecovery and !ompliance 7epartment
are as follows9
:. 7irectly manage all Special .ention$ Substandard$ 7oubtful and Bad and &oss accounts
in order to standardi%eBregulari%eBma"imi%e recovery and ensure that appropriate and timely
loan loss provisions have been made.
;. )rovide early signalsBwarning to the BranchesB.arketing 7ivisionB+ccount 0elationship
.anagersB2fficers.
<. 7etermine +ccount +ction )lanB0ecovery Strategy.
=. )ursue all options to ma"imi%e recovery.
A. 7eal with all legal matters.
D. )rocess branch proposals regarding rescheduling of classified accounts.
C. !ollect !B report from Bangladesh Bank and be responsible for sending !B$ !& returns
to Bangladesh Bank on time.
F. 4nsure all re/uired Bangladesh Bank returns and statements to other regulatory
authorities are submitted with accurate statistics in the correct format in a timely manner.
@. 4nsure that Bangladesh Bank circularsBregulations are maintained centrally and advised
to all relevant departments to ensure compliance.
:>. 4nlist surveyors$ lawyers$ insurers with approval of the Bank .anagement and to monitor
and review their performance periodically.
::. )roduce re/uired statements related to credit division including statement of newly
approved facilities$ renewed facilities$ declined proposals and submit a report before the
.anaging 7irector and !42 B 4! B Board for their review and guidance.
!-+)'40K
<. )02!4760+& G674&#4S9
'his chapter outlines the main procedures that are needed to ensure compliance with the
policies contained in chapter : of these guidelines.
<.: +pproval )rocess 9
n approval process the Bank segregates its relationship .anagement B .arketing from the
approving authority. 'he e"isting approval authorities are -ead of Branch$ Eonal -ead$ -ead
2ffice !redit !ommittee$ 4"ecutive !ommittee of the Board of 7irectors and Board of
7irectors as per their delegation of business powers defined in later section. 'he
recommending or approving e"ecutives shall take responsibility for and be held accountable
for their recommendations or approval. 7elegation of approval limits shall be as per policy
guidelines that all proposals where facilities are upto :A? of the banks capital shall be
approved at the !0. level$ facilities upto ;A? of the capital shall be approved by .anaging
7irector , !42 subject to the limit approved by the Board of 7irectors. +t present the Bank
has business delegation powers approved by the Board of 7irectors in its =;nd meeting held
on ;Ath +pril ;>><. !redit proposals in e"cess of ;A? of the Banks !apital to be approved
by 4"ecutive !ommittee of the Board of 7irectors or Board of 7irectors after
recommendation of !0.$ !orporate Banking and .anaging 7irector , !42.
'he Branch .arketing 'eam comprising of 4"ecutives and 2fficers will market the clients
and then prepare credit appraisal memo as per the prescribed format and within the purview
of the set ruleBpolicy guideline of the Bank. n case it is within the delegated business power
of the -ead of Branch$ the concerned 4"ecutive B 2fficer will place it to the -ead of Branch
who will make judgments (/ualitative and /uantitative judgment) and if found viable then he
will approve the &oan otherwise he may reject it or forward it to the -ead of !orporate B
!ommercial Banking at -ead 2ffice.
'he facility if beyond the limit of the business delegated power of -ead of Branch$ the
proposal will be sent to the -ead of !orporate B !ommercial Banking at -ead 2ffice along
with the branch recommendations. 'he )roposal on receipt by the -ead of !orporate B
!ommercial Banking will forward it to the -ead of !redit who in turn distribute it to the
respective !redit 2fficer at the -ead 2ffice to scrutini%e$ analy%e and prepare a memo with
due diligence along with their observations B results of analysis and to place it to the -ead
2ffice !redit !ommittee. n -ead 2ffice !redit 7ivision$ separate !redit 2fficers are
designated for looking after the proposal of separate Branches. 'here also e"ist separate
units for handling Garments related proposal B4"port 1inance$ )roject &oan$ Syndication and
Structured 1inance. 'he -ead 2ffice !redit !ommittee depending upon the delegated
business power either approve it (or reject it if found not viable) or place it to the 4"ecutive
!ommittee of 7irectors B Board of 7irectors.
<.; +ppeal )rocess9
+ny declined credit proposal may be represented to the ne"t higher authority for
reassessment B approval. -owever$ there shall be no appeal process beyond the .anaging
7irector , !42.
<.< 7elegation of )ower9
7elegation of approval of !redit facilities shall be as per policy guidelines that all proposals
where credit facilityBfacilities are upto :A? of the Banks !apital shall be approved by !0.
level$ facilities upto ;A? of the !apital shall be approved by the .anaging 7irector and !42
subject to the limit approved by the Board of 7irectors. !redit facilities in e"cess of ;A? of
the Banks !apital shall be approved by the 4"ecutive !ommittee of the Board of 7irector or
Board of 7irectors on recommendation of !0.$ !orporate Banking and .anaging 7irector ,
!42.
+t present the Bank has business delegation powers approved by the Board of 7irectors in
its meeting held on ;@th +pril ;>>< which may be revised from time to tome considering the
volume of the portfolio and other related factors.
*hile e"ercising the business delegation powers$ the following general guidelines shall be
followed meticulously9
:. 'he .anaging 7irector can e"ercise all the powers vested in other 4"ecutivesB2fficers of
the Bank.
;. 2ther than the .anaging 7irector$ the 7elegation of )owers shall be e"ercised by the
4"ecutivesB2fficers only to whom such schedule of powers is issued by a separate letter by
or under the order of the .anaging 7irector as approved by the BoardB!ommittee. n such
cases$ the 4"ecutive or 2fficer may also e"ercise 7elegation of )owers vested in other
4"ecutivesB2fficers lower in rankBgrade and working in his 7eptt.BBranch. S45)$ 45)s$ 5)s$
S+5)s$ +5)s and officers shall be authori%ed to e"ercise delegated powers only when
posted as nKcharge of Branches.
<. 6nless personally authori%ed by a separate letter$ mere mention of delegation in this
guidance shall not entitle an official falling under the category to e"ercise the powers.
=. 'he .anaging 7irector may suspend e"ercise of delegated )owers of any
4"ecutiveB2fficer or any category of 4"ecutiveB2fficer through specific or general order with
the prior approval of the BoardB!ommittee. n case of emergency$ he may also suspend
e"ercise of delegated )owers of any 4"ecutiveB2fficer or any category of 4"ecutiveB2fficer
subject to obtaining postKfacto approval by the Board within one month from the date of such
suspension.
A. 7elegated )owers may be reduced$ suspended or withdrawn at the discretion of the
Board of 7irectors B!ommittee.
D. 'hese rules containing schedule of powers shall be treated as strictly confidential and
shall always be in the custody of the 4"ecutiveB2fficer to whom it has been issued.
C. 'he sanctioning authority shall e"ercise their prudence and judgment in using these
powers.
<.<.: #20.S 120 4M40!S#G B6S#4SS 7S!04'2#+08 )2*40 (&2+#S +#7
+75+#!4S)
+.:. 7S!04'2#+08 )2*40S9
:. 7elegated powers shall be e"ercised by the authori%ed officials judiciously keeping in view
the interest of the Bank. n e"ercising the powers so delegated$ authori%ed officials shall
abide by credit restrictions$ !B clearance$ margin restrictions$ stipulation regarding period of
repayment in force from time to time$ etc. +dvances re/uiring prior approval of Bangladesh
Bank can be sanctioned only after such approval is obtained. 7elegations of powers do not
vest on the sanctioning official any authority to rela" or waive any credit
restrictionsBstipulation in force from time to time.
;. 'he first and fore most criterion for allowing credit will be the proper and correct selection
of borrower.
'he borrower should be selected on the following basis9
a) 'he borrower must be a man of integrity and must enjoy good reputation in the market.
b) 'he borrower must have the capacity and capability for utili%ing credit properly and
profitably.
c) 'he enterprise of the borrower must be viable and profitable. 'hat is$ the proposal of the
borrower must be evaluated properly and carefully so as to ascertain its profitability. 'he
enterprise must be able to generate sufficient fund for debt servicing.
<. + party to who credit to be allowed should be as far as possible within the command area
i. e. area of operation of the branch. 1or e"ample$ .oulvi Ba%ar Branch$ 7haka should not
normally accommodate a party of .ohakhali area$ 7haka. 7eviations$ if any$ are to be
e"plicitly e"plained in the proposal.
=. #o sanctioning officer can sanction any credit to any of his near relations and to any
firmBcompany where his relations have financial interest. Such cases should be sent to -ead
2ffice for consideration.
A. 'here shall be no power to sanction clean advance. !lean advance or advances may be
allowed only with the approval of the BoardB!ommittee.
D. #o loan or advances shall be sanctioned to any 7irector of our Bank or any firm or
company where they have interest as )roprietorB)artnerB7irector or to their family .embers
as defined in the Banking !ompanies +ct$ :@@=.
+. ; 74'40.#+'2# 21 S+#!'2##G )2*40S9
:. 'he schedule of business powers as per +nne"ureK+ lays down the ma"imum power per
party.
;. *hile determining sanctioning power per party (ndividualB1irmB !ompany$ etc.) against
different typeBnature of advances$ loans$ guarantee$ &B! etc. e"isting sanctioned limit
(une"pired)$ together with proposed amount of limit taken together$ should not e"ceed the
delegated power of sanctioning authority against specific typeBnature of limit.
<. + party should not be accommodated with different types of credit facilities nor should the
same party be allowed credit facilities in different names or from different Branches without
the authority of -ead 2ffice. + party will mean any one personBfirmBcompanyB concern and
will include hisBits sister concerns.
=. #o discretionary power shall be applied to accommodate parties to whom -ead 2ffice has
already sanctioned limit or proposals of which have already been rejected by -ead 2ffice.
A. Before issuance of any Bid Bond$ it must be ascertained whether or not the party will
re/uire )erformance Bond or any other credit facility.
D. +uthority beyond delegated powers shall be e"ercised by the BoardB !ommittee.
+. <. 06&4S 2# .+0G# 9
:. nterestBmargin on various loans and advances will be in accordance with instructions
issued from time to time by -ead 2ffice$ Board of 7irectors of the Bank and Bangladesh
Bank. n case where minimum margin is specified$ the percentage may be increased
according to market conditions$ salabilityBdurabilityB bulkBstorage position and inspection
facility of the goods. #orms given below shall be followed strictly9
i. -ypothecation with collateral9 .inimum A>?.
ii. -ypothecation without collateral9 .inimum D>?.
iii. )ledge of 1. 7. 0 duly discharged9 .inimum :>?.
iv. Sanchaya )atra$ 6nit certificate9 .inimum :>?.
v. 7ocumentary Bill9 .inimum :>?.
vi. &ife nsurance )olicy9 .inimum ;>? of surrender value.
vii. mmovable property9 .inimum A>?.
viii. Govt. +uthori%ed 7ebenture9 .inimum ;A? of face value.
i". !ompany Shares , 7ebentures approved by the Banks Board of 7irectors9 .inimum
=>? of market value or face value whichever is lower.
". 1or ndustrial *orking !apital margin on raw materialB finished goods T .inimum ;>?.
;. Sanction of advanceBlimit should be advised to the borrowers detailing properly the terms
and conditions and written confirmation of acceptance of the same to be obtained from the
party.
<. +ll formalities connected with the investigation into the credit worthiness of the parties$
processing the proposals$ compilation of credit reports and obtaining necessary documents
should be observed meticulously.
=. 7isbursement of loans presupposes observance of all norms and procedures as per rules
and guidelines in this 7elegation of )owers$ .anuals and also conveyed through different
circulars of -ead 2ffice and Bangladesh Bank from time to time. 'he disbursing officer shall
ensure that all documentation of credit have been duly completed before disbursement of
credit.
A. 'he Branch nKcharge shall remain responsible for constant supervision and followKup of
the advances allowed under the discretionary powers and keep -ead 2ffice apprised of the
disproportionate variations.
D. 0ecommending and supervisory officials shall remain accountable for their respective
roles.
C. Sanctioning officer will be accountable for nonKrecovery due to his injudicious decision.
C. +ll members of the !redit !ommittee (.anagement) shall also be accountable collectively
and individually for their injudicious decision.
+. = S+#!'2##G +6'-20'89
'he business powers can be e"ercised by the following when posted as under 9
'he .anaging 7irector , !42. +dditional .anaging 7irector(+.7) shall e"ercise delegated
powers on the recommendation of the !redit !ommittee.
+.7$ S45)s$ 45)s$ 5)s$ S+5)s and +5)s shall e"ercise delegation only when posted as
nKcharge of Branches. 'he .anaging 7irector is however$ authori%edBdelegated to allow
composite credit facilities within the delegation as per delegation allowed for individual
nature of loan. But !omposite limit so allowed shall not e"ceed 'k :> crore.
'here shall be a !redit !ommittee at -ead 2ffice. -owever in case of any disagreement
between the committee and the concerned 4"ecutive$ the matter may be referred to the
.anaging 7irector for disposal in the greater interest of the Bank.
+dditional .anaging 7irectorB7eputy .anaging 7irector and 4"ecutive 5ice )resident , nK
charge of !redit 7ivision shall e"ercise business power delegated to them.
+. A 06&4S 21 S+#!'2##G &2+#S9
:. Sanction orders will be communicated by -ead 2ffice to the Branches and by the
Branches to the parties under 7ouble signature as follows 9
a. 1or the limits sanctioned at -ead 2ffice level 9 By 4"ecutives not below the rank of +sstt.
5ice )resident.
b. 1or the limits sanctioned at Branch level 9 By 4"ecutivesB BranchKnK!harge.
;. )rescribed limit of business powers shall not e"ceed under any circumstances.
<. 5aluation of goodsBproducesBhypothecated to the Bank to secure any advance shall in no
case e"ceed9
=. Goods and produces against which advances are made should be readily marketable.
A. &oans , +dvances allowed against 170sB!ash !ollaterals$ )S)s etc. shall be adjusted
immediately before the face value of the instruments and outstanding advance amount
becomes e/ual or upon maturity$ whichever is earlier.
D. n case of advance against mortgage of property$ original 'itle 7eed and chain of
documents i.e. !.S )archa$ 0.S. Lhatian$ .utation !ertificate$ #onKencumbrance !ertificate$
.unicipal 'a" 0eceipt$ +pproved plan$ 0ent 0eceipt (upto date) etc. should be checked by a
paneled lawyer or by the Banks &aw 2fficer who must certify about correctness of
ownership and suitability as security against the advance.
C. .oney suitBcourt cases against any defaulting borrower is to be filed by the branches after
obtaining prior approval from -ead 2ffice.
F. Branches shall maintain Banks printed G!onfidential &imits$ 0egisterH which will record
serially all the limits sanctioned.
<.<.; #20.S 120 4M40!S#G B6S#4SS 7S!04'2#+08 )2*40S (1204G#
4M!-+#G4)
B.:. #'0276!'2#9
7iscretionary )owers with regard to the 1oreign 4"change transaction shall be e"ercised by
the authori%ed officials judiciously keeping in view the interest of the Bank. n e"ercising such
powers$ officials shall take note of any changes of 4"change !ontrol 0egulations of
Bangladesh Bank and the mport and 4"port regulations issued by the !! , 4. t may be
noted that such regulations are changed and amended regularly.
B.;. B+SS 120 74'40.#+'2# 21 S+#!'2##G9
:. 'he schedule for Business )owers(revised) as per +nne"uresKB lays down the ma"imum
power per party.
;. 2ne party can be accommodated for one item only. f accommodation for more than one
item is proposed$ the proposal can be approved by 2fficial who is authori%ed to sanction the
total amount i. e. the combined amount of two or more items together.
<. 1or all practical purposes$ one party will mean one personBfirmB companyBconcern
including hisBits sister concerns.
=. Before sanctioning of any financial accommodation to a party$ their e"isting liabilities in
various accounts (including those in the name of their sister concerns) shall be taken
together along with the proposed accommodation to determine the sanctioning authority.
A. 'he e"isting liabilities of a party shall be calculated by the following formula9
a. +ll outstanding or une"pired sanctioned limit (whichever is higher) in the form of &.$ &'0$
)!$ 4!!$ &2+#s$ !ash !redits$ S27 (General) etc.
b. :>>? of the !ontingent &iabilities after deducting !ash .argin received there J against.
D. )rior approval of 'he Board is needed for opening any 7eferred )ayment &etter of !redit
for any period andBor any amount. .oreover$ this delegation of power shall not cover
opening of &! for capital machinery$ which shall be opened with the approval of -. 2. only.
-owever in case of :>>? cash margin or cash collateral deferred payment &B! may be
opened as per delegation of )ower.
C. n case of opening &etters of !redit where postKimport finance shall be re/uired as per
arrangement$ care should be taken that &B! amount together with other duties and ta"es
constituting the total landed cost should not e"ceed delegated authority prescribed for postK
import finance.
F. +ll delegated powers may be e"ercised subject to any restriction imposed by Bangladesh
Bank$ !! , 4 or -ead 2ffice from time to time.
@. Before establishing &B!$ genuineness of the importers and the suppliers must be
ascertained. 'he importers must have permanent business establishment with good
reputation.
:>. +rrangement of preKshipment inspection of the goods by an internationally reputed
surveyor at the loading point indicating the name of carrying vessel with its voyage number
may be made as far as practicable at the cost of the openerBbeneficiary of the &B!.
::. 2utstation importers should not ordinarily be entertained. But$ incase of well known and
reputed outstation importers$ the authori%ed officer in his own responsibility can open &B!
after having been fully satisfied with the importers genuinenessBintegrity and reputation.
:;. t is the policy of the Bank that all types of regular importers$ including Garment
1actories$ shall be allowed suitable limit for opening of general and B'B &B! as well as postK
import finance. 'his will avoid any delay in handling such business. So$ BranchKnKcharges
shall obtain necessary limits for such parties at their earliest.
:<. Sanctioning authority must report details of accommodation to -ead 2ffice on regular
basis.
:=. 1oreign Guarantees shall be processed subject to the approval of Bangladesh Bank$
where necessary. 2utward 1oreign Guarantees shall be issued only after obtaining !ounter
Guarantee from the applicant of the guarantees. 'his shall be in addition to other collateral
securities$ wherever applicable.
:A. 'he Branch nKcharge will remain responsible for constant supervision and followKup of
the advances allowed under his discretionary powers and also the advances approved by
-ead 2ffice on his recommendation. Branch shall keep -ead 2ffice apprised of the
disproportionate variation$ if any.
:D. Sanctioning official shall be accountable for nonKrecovery due to his injudicious decision.
B.< S+#'2##G +6'-20'89
'he Business )owers can be e"ercised by the following officials when posted as under 9
a. .anaging 7irector$ +dditional .anaging 7irector and other 4"ecutives (S5) , above) of
the !reditBnternational 7ivision on the recommendation of the !redit !ommittee$ if any.
b. Branch nKchargeB.anagers on the recommendation of the !redit !ommittee$ if any.
B.=. 2)4#G 21 B+!L '2 B+!L &B!s9
:. n case of Back to Back &B!s and preKshipment finance on account of e"port oriented
garments , te"tile industries etc.$ the following norms shall be followed 9
i. *hile opening Back to Back &B!s for importBprocurement of raw materials on account of
clients$ their present outstanding amount of Back to Back &B!s$ Back to Back Bills will be
taken together into account within the sanctioned limit.
ii. Back to Back &B!s for new clients or e"isting clients having overdue Bills liabilities will be
opened only after obtaining prior approval from -ead 2ffice.
iii. Before opening of Back to Back &B!s the authori%ed officers must see that the importer is
in possession of 9
a. + valid customs Bonded *arehouse &icense.
b. 1reely negotiable e"port &B! (.aster &B!) with shipment validity sufficient to cover the
transitional period of import of raw material and manufacturing the garments and e"port
thereof.
c. Puota +llocation letter of 4"port )romotion Bureau in case of /uota item$ to be deposited
with the branch before opening of &B!.
iv. *hile sanctioning preKshipment finance for manufacturing the garments$ the authori%ed
officers must see that the entire fabrics and accessories have arrived at the factory premises
and are under process of manufacture. -e must be satisfied that there will be no difficulty in
e"ecution of the e"port order up to :>>? well in time i. e. within the present validity of the
e"port &B!. -e will also ensure that the amount of preKshipment !redit and the amount of
Back to Back liability together will$ under no circumstances$ e"ceed @>? of 12B value of the
e"port to be made.
;. +ll imports , e"ports are subject to mport , 4"port 'rade !ontrol 0egulations and
4"change !ontrol 0egulations. 'he authori%ed 2fficers while opening &B!s and negotiating
e"port documents will meticulously follow these regulations.
<. 2'-40 06&4S 9
:. Back to Back &B!s shall be allowed on account of the party on the basis of partys installed
capacity , past performance etc. against proper limits sanctioned by -ead 2ffice.
;. Back to Back &B! may be opened depending on the production capacity within the
sanctioned limit.
<. +dditional Back to Back &B! facilities beyond capacity can be opened with the approval of
competent authority as a special case.
=. #o Back to Back &B! bill shall be kept overdue beyond its due date of payment as per
acceptance communicated by the Bank.
A. +ll over draft (4"port) &oan to be allowed to pay out any overdue bill under Back to Back
&B! must have prior or postKfacto approval of -ead 2ffice.
D. Board shall be regularly apprised on the position of S27 (4"port) &oan and overdue bills.
C. 4"isting facilities$ if e"ceed the sanctioned limit$ shall be brought to normal limit or
additional security shall be obtained to regulari%e the facility.
F. )! allowed against any &B! shall be adjusted upon negotiation of the same &B!.
<.= !047' +7.#S'0+'2# , 7SB60S4.4#' +6'-20'89
'he 7isbursement +uthority has been separated from +pproval authority. 'he 7isbursement
+uthority is vested upon the !redit +dministration 7epartment (!+7).
'he flow chart for disbursement process is given below9
1igureKC.;
'he !redit +dministration function is critical in ensuring that proper documentation and
approvals are in place prior to the disbursement of loan facilities. 'he functions of !redit
+dministration are strictly segregated from 0elationship .anagementB.arketing in order to
avoid the possibility of controls being compromised or issues not being highlighted at the
appropriate level.
!redit +dministration procedures are in place to ensure the functions as mentioned in
flowchart attached as +ppendi"K<.:
<.=.: 7isbursement9
Security documents are to be prepared in accordance with approval terms and to be
legally enforceable. Standard loan facility documentations are to be drafted B prepared by
the legal counsel. +t present the function of preparation of documents (other than
syndication) are performed by the Branch and e"ceptions are referred to legal counsel for
advice.
7isbursements under loan facilities are made when all security documentation is in place.
!B report should reflectBinclude the name of all the Bangladesh Bank circulars and related
section of Banking !ompanies +ct. +ll !redit +pproval terms must be met. 'he check list
certificate is to be signed by !redit nKcharge and -ead of Branch. n order to cope with the
revised policy$ the disbursement authority will be vested to the -ead of !redit +dministration
7epartment upto 'k. A.>> !rore above which will be vested to the 7eputy .anaging 7irector.
n the absence of the 7eputy .anaging 7irector$ the power may be e"ercised by the Senior
4"ecutive 5ice )resident. 'he Bank has a plan to implement this practice within 7ecember
;>>A.lenders with facility$ limit and outstanding. +ll formalities regarding large loans and
loans to 7irectors are guided by
<.=.; !ustodial 7uties9
'he documents may either be prepared at Branch level or by -ead 2ffice (for Syndication
and &arge &oan) with the 5etting of legal counselBadviser of the Bank.
&oan disbursements and storage of security is to be done at Banks respective Branch.
+ppropriate insurance coverage is maintained (and renewed on a timely basis) on assets
pledged as collateral.
Security documentation is held under strict control$ preferably in locked fireproof storage and
with dual control.
<.=.< !ompliance 0e/uirements9
+ll re/uired Bangladesh Bank returns are submitted in the correct format in a timely manner.
Bangladesh Bank circularsBregulations are maintained centrally and advised to all relevant
7ivisions to ensure compliance.
+ll third party service providers (surveyorsBvaluers$ lawyers$ insurers$ !)+s etc.) are
approved and performance reviewed on an annual basis. Banks are referred to Bangladesh
Bank circular outlining approved e"ternal audit firms that are acceptable.
<.A S)4!1! G674&#4S9
+nnual !redit )rogram and 0efinancingB0ediscounting )olicy of Bangladesh Bank are
comprehensive and restrictive. *hile adhering to such a policy in general$ the following
guidelines must be observed9
6nsecured loans and advances to individuals9
+s a matter of policy$ these loans and advances are discouraged and are subject to following
restrictions$ if the collateral offered consists of assets that are not readily marketable. 'hese
loan re/uests must9
Be supported by financial statements showing all direct and contingent liabilities
!learly identify the purpose of the loan B advance and sources(s) of repayment
'he overdrafts must be in the form of approved lines. 2verdrafts may not be created to meet
other obligations of borrower e.g. payment of interest or repayment of a past due loan. 4very
effort must be made to ensure recovery within the agreed tenor.
0eceivable financing9 2utstanding must be ade/uately covered by eligible receivablesI
.a"imum life of eligible receivables must not e"ceed :; months.
'rade finance of suppliers credit9 'he basic rule is that the tenor of the facility should not
e"ceed the e"pected economic life of the items imported.
<.A.: 1acilities subject to guarantees ()ersonal or !orporate)9
t should be made clear to the guarantors that the Bank will call upon them to meet their
obligation in the event of the borrowers default. Guarantors must be informed of all changes
in their terms and conditions of the facility and where these involve weakening of the credit
e.g. release of collateral$ the e"tension of maturities or an increase in the pricing of the
facility$ the guarantors agreement should be obtained in writing. n the event of default$ the
guarantor should be advised immediately in writing to meet his obligations under the
guarantee. n case of his failure$ appropriate action should be imitated.
<.A.; !hanges in 'erms and !onditions9
)rior approval of -ead 2ffice is re/uired to accomplish any material change in a credit B
banking arrangement. 'his applies specifically to change in rate$ maturity$ collateral$
covenant$ waiver of default$ amendment and release of guarantee(s) and any other change
which would materially alter the credit arrangement from that initially or previously
authori%ed.
<.D !047' .2#'20#G9
'o minimi%e credit losses$ monitoring procedures and systems to be in place$ which will
provides an early indication of the deteriorating financial health of a borrower. 'he credit
monitoring process in Bank is vested on .onitoring$ 0ecovery and !ompliance 7ivision.
-ead of .onitoring$ 0ecovery and !ompliance 7ivision will report the e"ceptional list of
assets on daily basis on the following categories9
)ast due (which are not paid or renewed at maturity J Grade A) principal or interest
payments$ past due trade bills$ account e"cesses and breach of loan covenantsI
&oan terms and conditions are monitored$ financial statements are received on a regular
basis and any covenant breaches or e"ception are to be referred to the !0. and the 0.
team for timely followKup.
'imely corrective action is taken to address findings of any internal$ e"ternal or regulator
inspectionBaudit.
+ll borrower relationshipsBloan facilities are reviewed and approved through the submission
of a !redit +pplication at least annually as per format attached as +ppendi" :.;.:.
'he Bank should have a developed ' system which will enable to produce the above
information for -ead 2ffice as well as local review. .onitoring$ 0ecovery and !ompliance
7ivision will keep regularly follow up and corrective action to be taken in a timely manner
before the account deteriorates further.
<.D.: 4arly +lert )rocess9
+n 4arly +lert +ccount is one that has risks or potential weaknesses of a material nature
re/uiring monitoring$ supervision or close attention by the management.
f these weaknesses are left uncorrected$ they may result in deterioration of the repayment
prospects for the asset or in the Banks credit position at some future date with a likely
prospect of being downgraded to A !ategory or worse (mpaired status)$ within the ne"t
twelve months.
4arly identification$ prompt reporting and proactive management of 4arly +lert +ccounts are
prime credit responsibilities of all !redit 2fficers B 0. and must be undertaken on a
continuous basis. +n 4arly +lert report (+ppendi"K<.<.:) shall be completed by the !redit
2fficer B 0. and to be sent to the approving authority for any account that is showing signs
of deterioration within seven days from the identification of weaknesses. 'he 0isk Grade
shall be updated as soon as possible and no delay to be made in referring problem accounts
to the .onitoring$ 0ecovery and !ompliance 7ivision for assistance in recovery.
7espite a prudent credit approval process$ loans may still become troubled. 'herefore$ the
!redit 2fficersB0.s must ensure the early identification and prompt reporting of deteriorating
credit signs for swift action to protect the Banks interest. 'he symptoms of important early
alert shown in +ppendi"K<.<.; if there are other concerns$ such as a breach of loan
covenants or adverse market rumors that warrant additional caution$ an 4arly +lert report
should be raised.
.oreover$ regular contact with customers is to be maintained to enhance the likelihood of
developing strategies mutually acceptable to both the customer and the Bank.
0epresentation from the Bank in such discussions shall include the local legal adviser when
appropriate.
+n account may be reclassified as a 0egular +ccount from 4arly +lert +ccount status when
the symptom or symptoms$ causing the 4arly +lert classification have been regulari%ed or no
longer e"ist. 'he concurrence of the approval authority is re/uired for conversion from 4arly
+lert +ccount status to 0egular +ccount status.
<.D.; !lassification of &oans9
+ classified &oan or !ommitment is one$ which is classified as Substandard$ 7oubtful or
&oss as per policy of &oan classification set by Bangladesh Bank.
)osition of !lassified &oans and +dvances and other assets shall be placed before the
Board of 7irectors of the Bank and /uarterly submitted to Bangladesh Bank.
'he classification status must be reflected in the !B reports on regular basis (monthly for
'k. :.>> crore and above and /uarterly for all the facilities outstanding of 'k. A>$>>>.>> to
below 'k. :.>> crore. Besides$ statement for 'k. :>$>>>.>> to below 'k. ;A$>>>.>> and 'k.
;A$>>>.>> to below 'k. A>$>>>.>> has also to be reported.
'he following are the broad definition of the classified categories9 however$ circulars of
Bangladesh Bank B -ead 2ffice of the Bank regarding basis of loan !lassification and
provisioning must be followed.
O Special .ention +ccount (S.+)9
+s per recent circular from Bangladesh Bank$ the Bank has started to observe the rules and
regulations of Special .ention +ccount. +ccording to Bangladesh Bank regulation a
!ontinuous credit$ 7emand loan or a 'erm &oan which will remain overdue for a period of @>
days or more$ will be put into the GSpecial .ention +ccountH and interest accrued on such
loan will be credited to nterest Suspense +ccount instead of crediting the same to ncome
+ccount. 'his categori%ation helps the Bank to look at accounts with potential problems in
focused manner and captures early warning signals for accounts showing first signs of
weakness. &oans in the GSpecial .ention +ccountH are not treated as defaulted loan.
O Substandard (SS)9
+ wellKdefined financial weakness is present in loans of this category$ which could affect the
ability of the borrower to repay. 'his is clearly a troubled situation$ for one reason or another
that re/uires immediate and intensive effort to correct and reduce the possibility of loss.
O 7oubtful (71)9
+ serious doubt must e"ist that full repayment will not be forthcoming but the e"act amount of
the loss cannot be ascertained at the time of classification.
O Bad B &oss (B&)9
+dvance or portions of advances which are determined to be uncollectible based on
presently known factors.
+de/uate provision should be made as per Bangladesh Bank guidelinesBcirculars.
+ll classified loans re/uire e"ceptional and special policy treatment of particular importance
is timely recognition of problems so that prompt action can be taken. t is e"pected that each
classified advance will have an action strategy developed by BranchB0egional 2fficeB-ead
2ffice with detailed programme to get the advance paid or restored to acceptable credit
standards. !lassified assets should be recogni%ed by all lending personnel as the assets
that present the greatest danger of future write off and as such should be given priority
attention in all aspects of credit process.
<.D.< 0escheduling and declassification9
0esceduling and declassification of loans$ advances and other assets re/uire prior approval
of -ead 2ffice of the Bank and in some specific cases from Bangladesh Bank. 7uring
rescheduling B declassification of the &oan the Bangladesh Banks sets rules must be
followed meticulously in line with B0)7 circular no. . . . . . . . . dated . . . . . . . . . . . and
circular issued from time to time.
<.C 04!25408 +#7 12&&2* 6) 21 #2' )40120.#G &2+#S +#7 +75+#!4S9
&oans and advances in whatever form granted by the Bank to its clients are repayable either
on demand or at the e"piry of fi"ed period or as per repayment schedule agreed upon while
granting the facilities. f loan is repayable on installment basis$ default may be purely an
oversight on the part of borrower but in other cases$ it may be much more serious$ giving the
Bank the first tangible evidence that the borrower is in financial difficulty. +t this point the
procedure for dealing with potential loan losses comes into operation. 'he Branch .anagers
(-oBs) should$ therefore$ keep a close and constant watch on all their loans and advances
to ensure that timely action is initiated in each case for adjustment of the account or its
renewal$ if it is decided to continue the facility.
1or this purpose each Branch should maintain a diaryBcard in prescribed format in which the
due date of e"piry of credit facility$ a notice should be sent to the borrower reminding him of
the due date of repayment and making a formal demand for repaymentBrenewal as the case
may be$ 5igorous follow up action should thereafter be taken by issuing repeated reminders
and putting pressures on the borrower by calling on him personally. n other words$ all out
efforts should be taken to recover the advance on its e"piry. -owever$ if in spite of vigorous
persuasion the borrower fails to adjust the liability within the date of e"piry of the facility$ the
liability should be downgraded to Special .ention (GradeKA) to facilitate monitoring and
further follow up. 'he branches should however$ still make constant efforts to recover the
advance if necessary$ through legal process. Before filing of the suit$ -ead 2ffice approval
should be obtained.
<.C.: 0ecovery 6nit (06) and its 1unction9
n -ead 2ffice there is a recovery unit under !0. and a recovery unit in Branch under the
supervision of -ead of Branch (-oB). n order to facilitate follow up and recovery of #)+s
the branch as well as -ead 2ffice recovery unit shall renew at the close of each month at the
Special .ention +ccount B !lassified loan accounts incorporating their comments regarding
the prospects and measures taken for recovery. 'he 0ecovery 6nit (06) directly manages
accounts with sustained deterioration 0isk 0ating of Special .ention (A) to Bad B &oss (F).
'he Banks policy is to transfer 4M' accounts graded = J D to the 06 for efficient e"it based
on recommendation of !0. and !orporate Banking. *henever an accounts is handed over
from !redit 2fficer B 0elationship .anagement to 06$ a -andover B 7owngrade !hecklist
shall be completed.
'he 06s primary functions are9
7etermine +ccount +ction )lanB0ecovery Strategy
)ursue all options to ma"imi%e recovery$ including placing customers into receivership or
li/uidation as appropriate
4nsure ade/uate and timely loan loss provisions are made based on actual and e"pected
losses
0egular review of grade D or worse accounts
'he management of problem loans (#)&s) is a dynamic process and the associated strategy
together with the ade/uacy of provisions is regularly reviewed. + process shall be
established to share the lessons learnt from the e"perience of credit losses in order to
update the lending guidelines.
<.C.; +ccount 'ransfer )rocedures U9
*ithin C days of an account being downgraded to substandard (grade D> + 0e/uest for
+ction (01+ +ppendi"K<.A.:+) and a handoverBdowngrade checklist (+ppendi"K<.=) should
be completed by the !redit 2fficer B 0. and forwarded to 06 for acknowledgment. 'he
account should be assigned to an account manager within the 06$ who should review all
documentation$ meet the customer and prepare a !lassified &oan 0eview 0eport (!&0.
within :A days of the transfer. 'he !&0 should be approved by the -ead of !redit and
copied to the -ead of !orporate Banking and to the Branch where the loan was originally
sanctioned. 'his initial !&0 should highlight any documentation issues$ loan structuring
weaknesses$ proposed workout strategy and should seek approval for any loan loss
provisions that are necessary.
0ecovery 6nits ensures that the following is carried out when an account is classified as Sub
Standard or worse9
1acilities are withdrawn or repayment is demanded as appropriate. +ny drawings or
advances shall be restricted and only approved after careful scrutiny and approval from
appropriate e"ecutives within approving authority andBor as per Bangladesh Bank guidelines.
!B reporting is updated according to Bangladesh Bank guidelines and the borrowers 0isk
Grade is changed as appropriate.
&oan loss provisions are taken based on 1orce Sale 5alue (1S5) or as per classification
criteria as set by Bangladesh Bank.
&oans are only rescheduled in conjunction with the 0escheduling guidelines of Bangladesh
Bank. +ny rescheduling should be based n projected future cash flows and should be strictly
monitored.
)rompt legal actin is taken if the borrower is uncooperative.
U #ot established as yet but under active consideration
<.F #2' )40120.#G &2+# .2#'20#G B .+#+G4.4#'9
+ll #)&s are assigned to an +ccount .anager within the 06$ who is responsible for
coordinating and administering the action planBrecovery of the account and should serve as
the primary customer contact after the account is downgraded to substandard. *hilst some
assistance from .arketing B 0elationship .anagement may be sought$ it is essential that the
autonomy of the 06 be maintained to ensure appropriate recovery strategies are
implemented.
2n a /uarterly basis$ a !lassified &oan 0eview 0eport (!&0) to be prepared by the 06
+ccount .anager to update the status of the action B recovery plan$ review and assess the
ade/uacy of provisions and modify the banks strategy as appropriate. +t present all the
rescheduling B write off is approved by the 4! B Board. 'he -ead of !redit will approve !&0
for #)&s up to :A? of the Banks !apital$ .anaging 7irector , !42 will approve !&0 for
#)&s in e"cess of :A? of the Banks capital. 'he !&0s for #)&s above ;A? of capital shall
be approved by 4"ecutive !ommittee of the Board of 7irectors with a copy to Board.
<.@ #)& )025S2##G9
'he guidelines established by Bangladesh Bank for !B reporting$ provisioning and write off
of bad and doubtful debt and suspension of interest must be followed in all cases.
0egardless of the length of time a loan is past due$ provisions should be raised against the
actual and e"pected losses at the time they are estimated. +t present the approval to take
provisions$ write offs$ or release of provisionsBupgrade of an account is restricted to 4! B
Board. 'he 0e/uest for +ction (01+) or !&0 reporting format should be used to recommend
provisions$ writeKoff or releaseBupgrades.
'he 06 +ccount .anager shall determine the 1orce Sale 5alue (1S5) for accounts grade D
or worse. 1orce sale value will be the amount that is e"pected to be reali%ed through
li/uidation of collateral held as security or through the available operating cash flows of the
business net of any reali%ation costs. +ny shortfall of the 1orce Sale 5alue compared total
outstanding shall be fully provided for once an account is downgraded to C$ where the
customer is not cooperative no value shall be assigned to the operating cash flow in
determining 1orce Sale 5alue.
'he forced ale valueBvalue of the eligible security is guided by the Bangladesh Bank
!irculars issued from time to time. 'he valuation of the landed propertyB building B stocksB
plant , machinery etc. are done by Banks approved surveyors. 'he provisions are made as
per Bangladesh Bank guidelines.
1ollowing formula is to be applied in determining the re/uired amount of provision9
Gross 2utstanding MMM
&ess 9 (i) !ash margin held or 1i"ed
7epositsBother cash collateral under lien (MMM)
(ii) nterest in Suspense +ccount (MMM)
&oan 5alue
(1or which provision is to be created before considering
estimated reali%able value of other securityBcollateral held) (MMM)
&ess9 4stimated salvage value of securityBcollateral held (MMM)
(See #ote below)
#et &oan 5alue MMM
#ote9 'he amount of re/uired provision may in some circumstances be reduced by an
estimated reali%able forced sale value of (i.e. Salvage 5alue) of any tangible collateral held
(vi%9 mortgage of property$ pledged goodsB or hypothecated goods repossessed by the bank$
pledged readily marketable securities etc.). -ence in these situations it will be advisable to
evaluate such collateral$ estimate the most realistic sale value under duress and netKoff the
value against the outstanding before determining the #et &oan value for provision purposes.
!onservative approach should be taken to arrive at provision re/uirement and Bangladesh
Bank guideline to be properly followed.
=. 04#4*+& +#7 S'+'6S 5401!+'2#9
2n e"piry of a facility$ the borrower may come forward with a proposal either for renewal of
the facility for a further period or for enhancement of the e"isting facilities. -e may also agree
to offer additional stocksBsecurities or even furnish a guarantor. 'he -ead of Branch (Branch
.anager) should e"amine all such proposals and if he is satisfied$ the proposals should be
sent to Sanctioning +uthority at -ead 2ffice$ if beyond his business delegation power duly
supported by full blown credit analysis including report of verification of StocksBstatus of
!ollateral Securities etc. as is done in case of fresh proposals. 'he -ead 2ffice in turn will
process the renewalBenhancement proposal after verifying the following factors9
3ustification for renewalBenhancement
0easons for nonKpayment B adjustment of the loan in time
Security aspect in terms of outstanding loan
!redit worthiness of the client
=.: &4G+& +!'2#9
&egal proceeding are lengthy and time consuming as well as having an element of negative
publicity and as such every effort must made to settle a defaulters outstanding out of court.
-owever$ if situation compels the Bank to take legal action for recovery of stuck up loans and
advances$ the same shall be done with prior approval of -ead 2ffice. n order to e"pedite the
process$ the Government has already enacted the +rtha 0in +dalat (+mendment) +ct ;>><.
'herefore the -ead of Branch and .onitoring$ 0ecovery and !ompliance 7ivision in -ead
2ffice must ensure that &egal +ction are taken properly and in time. +ll legal process shall be
conducted by the Banks &egal 0etainer$ if necessary in consultation with Banks &egal
+dviser.
=.; *0'4 211 21 &2+#S B +75+#!4S9
2n occasion it may be re/uired to write off any loanBadvance or portion thereof which may
become unrecoverable or represent a total or partial loss. n ;>>< Bangladesh Bank has
issued circular providing instruction B guidelines for writeKoff of loan (B0)7 circular no. >;
dated 3anuary :<$ ;>><). t is$ however$ the responsibility of the -ead 2ffice to decide which
loansBadvances are to be writtenKoff.
+ll loans B advances writtenKoff must be recommended for prior approval of the -ead 2ffice
and the recommendation must be accompanied by a memo summari%ing the circumstances
necessitating the current writeKoff as well as recovery efforts to date. 6nder no
circumstances should the fact that all or any portion of a loan B advances that has been
writtenKoff be revealed to the borrower$ nor should the borrower be informed that the loan B
advances is on a nonKaccrual basis. 7espite$ the loans being writtenKoff the recovery process
will be continued for those loan and advances.
n case of writeKoff B waiver the Banks policy is to reali%e the entire )rincipal amount along
with :>>? interest taken into income account. 'hen the Bank may waive B unapplied
interest B *rite off ma"imum A>? of interest as kept in interest suspense account against the
respective client or as decided by the Board of 7irectors.
&ist of +bbreviation
+bbreviations 4laboration
+2+ +rticles of +ssociation
+&. +sset &iability .anagement
+5) +ssistant 5ice )resident
BB Bangladesh Bank
B0)7 Banking 0egulation , )olicy 7epartment
B27 Board of 7irector
!! !ash !redit
!!- !ash !redit -ypothecation
!!) !ash !redit )ledge
!B !redit nformation Bureau
!0. !redit 0isk .anagement
!42 !hief 4"ecutive officer
71 7oubtful
45) 4"ecutive 5ice )resident
14M 1oreign 4"change
17B)B1B) 1oreign 7ocumentary Bill )urchase
! nternal !ontrol and !ompliance
7B)BB) nland 7ocumentary Bill )urchase
L).G Llynveld )eat .arwick Goerdeler
&td &imited
&. &oan on mported .aterial
&+)1 &oan against )rovident 1und
&'0 &oan against 'rust 0eceipt
&'!& &ong 'erm !redit &ine
.!& .otorcycle &oan
.B+ .aster of Business +dministration
.26 .emorandum of 6ndertakings
.'!& .idK'erm !redit &ine
.S .anagement nformation Systems
27BS27 Short 'erm 2verdraft
)+7 )ayment against 7ocument
)*! )rice *ater -ouse and !oopers
0. 0elationship .anager
02+ 0eturn on +sset
S45) Senior 4"ecutive 5ice )resident
S+5) Senior +ssistant 5ice )resident
SS SubKStandard
'20 'erms of 0eference
S)2 Senior )rincipal 2fficer
!onclusion
Banking sector is very crucial for any economy. 'o have understanding of this sector is very
vital for any business graduate. am really glad to be oriented to this sector through the
nations largest commercial bank GSonali BankH. 'his bank performs hundreds of important
activities both for the public and for the govt. as a whole. t has an outstanding bearing to
thrive our business sector. t has strong performance on General Banking$ &oans
,+dvances$ ndustrial credit and foreign e"change. had the privilege to learn many things
from the 7ilkusha !orporate Branch through my active involvement in this branch.
Sonali Bank continues to play its lending role in socioKeconomic development of the country
as a companion of independent Bangladesh. Since the inception of Sonali Bank$ it has been
rendering its banking services to meet the needs of the state and the nation and to cope up
with the demands of mass people of the country giving priority to service. +lmost there is no
one financial sector in Bangladesh where Sonali Bank is not e"isted. #ot only loan sector but
also general banking$ foreign e"change dealings$ etc are efficiently and effectively guided by
Sonali Bank$ thats why it has been established as a representative of Bangladesh Bank.
0ecommendations
n order to get competitive advantage , to deliver /uality service$ top management should try
to modify the services at the loans and advance sector. 1or the improvement of sound
lending and reducing the rate of bankruptcy$ the following measures should be taken9
Sonali Bank is the first leading bank in Bangladesh. ts major operations are profit$ growth$
development and welfare oriented. .anagement system of this bank is fully democratic. t
always maintains the rules declared by Bangladesh Bank. Sonali Bank Staff !ollege
provides training facilities to its medium , junior level officers of the bank and also provides
e"ecutive development , internship programs. 'his is my observation that the lecture of
credit risk management and negative barriers of sanctioning finance should be discussed
widely than before. Because the management of Sonali Bank has been facing the high
involvement of lending risk , procurement of project finance with Banks growth$ profit ,
future.
'he management functions (from planning to control) are not clearly present in their various
activities. 2nly the cash section of the branch is computeri%ed. But for reducing bankruptcy
Sonali Bank should develop immediately !redit , )roject 1inance nformation System
through computer.
Sonali Bank has network manually not computeri%ed. Sonali Bank should had networking
system by which all branches of Sonali bank can be connected easily as a largest
commercial bank in Bangladesh. By using computeri%ed networking system Sonali bank
could disbursement of services on +'.$ 7ebit card$ .aster card$ PK!ash facilities.
2fficers who are working on !redit risk management , )roject finance procedure$ they
should give attention on timing of sanctioning finance. Because demand of any kind of
product is being fle"ible. So if other thing is remaining constant$ sanctioning procedure
should not be delayed.
)olicy should be distinctive and dynamic which has more acceptability to the borrowers.
)olicy should be made at the consideration of regional$ financial$ continental$ demographical$
economical$ psycho graphical.
+t last Sonali Bank should develop the proper environment so that borrowers can bargain or
negotiate about loan and finance. Because Sonali Bank must have think about borrowers
needs$ wants and demands and beside his profitability.
)olitical power should not be considered to maintain credit management module and project
finance procedure. n our Bangladesh most of the cases procedure is to weak for financing
so$ ultimate result is being bankrupted.
7ecision maker of credit risk management of Sonali Bank should work for the profitability of
bank as well as they should have some uni/ue power than before to sanction for sound
return on investment.
Bibliography
:. !houdhury. 7r. '. +.$ +n 2verview of Banks and 'heir Services. 0eading .aterials on
'heory , )ractice of Banking.
;. Bangladesh nstitute of Bank .anagement (BB.)$ ;>>>.
<. + hand book of Sonali Bank advances.
=. )ractical Banking +dvances.
A. -ead 2ffice )ersonnel 7ivision !ircular.
D. &ibrary of Sonali Bank Staff !ollege.
C. !redit nformation Bureau of Bangladesh Bank.
F. Bangladesh regulation and policy department.
(+ppendi"K:)
0isk Grading
0isk 0ating Grade 7efinition
Superior J
&ow 0isk
: 1acilities are fully secured by cash deposits$ government bonds or a counter guarantee
from top tier nternational Banks B &ocal Banks. +ll security documentations are in place and
in order.
Good J
Satisfactory 0isk
; 'he repayment capacity of the borrower is strong. 'he borrower should have e"cellent
li/uidity and low leverage. 'he company must demonstrate consistently strong earning and
cash flow and have an unblemished track record. +ll security documents are in place.
+ggregate Score of @A or greater based on the 0isk Grade Scorecard.
+cceptable J
1air 0isk
< +de/uate financial condition though may not be able to sustain any major or continued
setbacks. 'hese borrowers are not as strong as Grade ; borrowers$ but should still
demonstrate consistent earning$ cash flow and have a good track record. + borrower should
not be graded better than < if realistic audited financial statements are not received. 'hese
assets would normally be secured by acceptable collateral (:st charge over
stocksBdebtorsBe/uipmentBproperty). Borrowers should have ade/uate li/uidity$ cash flow and
earnings. +n +ggregate Score of CAK@= based on the 0isk Grade Scorecard.
.arginal J
*atch &ist
= Grade = assets warrant greater attention due to conditions affecting the borrower$ the
industry or the economic environment. 'hese borrowers have an above average risk due to
strained li/uidity$ higher than normal leverage$ thin cash flow andBor inconsistent earnings.
1acilities should be downgraded to = if the borrower incurs a loss$ loan payments routinely
fall past due$ account conduct is poor$ or other untoward factors are present. +n +ggregate
Score of DAKC= based on the 0isk Grade Scorecard.
Special .ention
A Grade A assets potential weaknesses that deserves managements close attention. f left
uncorrected$ these weaknesses may result in a deterioration of the repayment prospects of
the borrower. 1acilities should be downgraded to A if sustained deterioration in financial
condition is noted (!onsecutive losses$ negative net worth$ due for <>K@> days$ or if a
significant petition or repayment of facilities is still e"pected and interest can still be taken
into profits. +n +ggregate Score of AAKD= based on the 0isk Grade Scorecard.
0isk 0ating Grade 7efinition
Substandard
D 1inancial condition is weak and capacity or inclination to repay is in doubt. 'hese
weaknesses jeopardi%e the full settlement of loans. &oans should be downgraded to D if loan
payments remain past due for @> days but less than :F> days$ if the customer intends to
create a lender group for debt restructuring purposes$ the operation has ceased trading or
any indication suggesting the winding up or closure of the borrower is discovered. #ot yet
considered nonKperforming as the correction of the deficiencies may result in an improved
condition and interest can still be taken into profits. +n +ggregate Score of =AKA= based on
the 0isk Grade Scorecard.
7oubtful
and Bad
(nonKperforming)
C 1ull repayment of principal and interest is unlikely and the possibility of loss is e"tremely
high. -owever$ due to specifically identifiable pending factors$ such as litigation$ li/uidation
procedures or capital injection$ the assets are not yet classified as &oss. +ssets should be
downgraded to C if loan$ payments remain past due in e"cess of :F> days and interest
income should be taken into suspense (nonKaccrual). &oan loss provisions must be raised
against the estimated unreali%able amount of all facilities. 'he ade/uacy of provisions must
be reviewed at least /uarterly on all nonKperforming loans and the bank should pursue legal
options to enforce security to obtain repayment or negotiate an appropriate loan
rescheduling. n all cases$ the re/uirements of Bangladesh Bank in !B reporting$ loan
rescheduling and provisioning must be followed. +n +ggregate Score of <A J == based on
the 0isk Grade Scorecard.
&oss
(nonKperforming)
F +ssets graded F are long outstanding with no progress in obtaining repayment (in e"cess
of <D> days past due) or in the late stages of wind upBli/uidation. 'he prospect of recovery is
poor and legal options have been pursued. 'he proceeds e"pected from the li/uidation or
reali%ation of security may be awaited. 'he continuance of the loan as a bankable asset is
not warranted and the anticipated loss should have been provided for. 'his classification
reflects that it is not practical or desirable to defer writing of this basically worthless asset
even though partial recovery may be affected in the future. Bangladesh Bank guidelines for
timely write off of bad loans must be adhered to. +n +ggregate Score of <A or less based on
the 0isk Grade Scorecard.
1.1 Origin of the Report
Masters of Business Administration (MBA) Course requires a three months attachment
with an organization followed by a report assigned by the supervisor in the organization
and endorsed by the faculty advisor. As am already wor!ing for "ha!a Ban! #imited
("B#)$ too! the opportunity to do my internship in my own organization. My
organizational supervisor Mr. %yed Abdul &uader$ %enior Assistant 'ice (resident and
Manager of slampur Branch as!ed me to conduct a study on Comparative Analysis
between Bangladesh Ban!)s Best practices guidelines and "ha!a Ban! #imited e*isting
credit policy. My faculty supervisor Mr. %hama+e+zaheer$ lecturer of nstitute of Business
Administration$ ,niversity of "ha!a$ also approved the topic and authorized me to
prepare this report as part of the fulfillment of internship requirement.
1.2 Background of the Report
#ast year Bangladesh Ban! undertoo! a pro-ect to review the global best practices in the
ban!ing sector and e*amines in the possibility of introducing these in the ban!ing
industry of Bangladesh. .our /.ocus 0roups/ were formed with participation from
1ationalized Commercial Ban!s$ (rivate Commercial Ban!s 2 .oreign Ban!s with
representatives from the Bangladesh Ban! as team coordinators to loo! into the practices
of the best performing ban!s both at home and abroad. 3hese focus groups identified and
selected five core ris! areas and produce a document that would be a basic ris!
management model for each of the five /core/ ris! areas of ban!ing. 3he five core ris!
areas are as follows+
a) Credit 4is!s5
b) Asset and #iability6Balance %heet 4is!s5
c) .oreign 7*change 4is!s5
d) nternal Control and Compliance 4is!s5 and
e) Money #aundering 4is!s.
Bangladesh Ban! in one of it)s circular (B4(" Circular no.89) advised the commercial
ban!s of Bangladesh to put in place an effective ris! management system by "ecember$
:;;< based on the guidelines sent to them.
am wor!ing in the Credit "epartment of "ha!a Ban! #imited$ slampur Branch. n this
report$ will try to ma!e a comparative analysis between Bangladesh Ban!)s suggested
best practices guideline for managing credit ris! and "ha!a Ban! #imited e*isting credit
policy .
1.3 Objective of the Report
3he study has been underta!en with the following ob-ectives=
3o analysis the pros and cons of the conventional ideas about credit operation of a
Ban!.
3o have better orientation on credit management activities specially credit policy and
practices$ credit appraisal$ credit+processing steps$ credit management$ financing in
various sector and recovery$ loan classification method and practices of ">A?A Ban!
#imited ("B#).
3o compare the e*isting credit policy of "ha!a ban! limited with that of best practices
guideline given by Bangladesh Ban!$ the central ban! of Bangladesh.
3o identify and suggest scopes of improvement in credit management of "B#.
3o get an overall idea about the performance of ">A?A Ban! #td.
3o fulfill the requirement of the internship program under MBA program
1.4 cope of the Report
3he study would focus on the following areas of ">A?A Ban! #imited.
Credit appraisal system of ">A?A Ban! #imited.
(rocedure for different credit facilities.
(ortfolio (of #oan or advances) management of ">A?A Ban! #imited.
@rganization structures and responsibilities of management.
7ach of the above areas would be critically analyzed in order to determine the efficiency
of "B#)s Credit appraisal and Management system.
1.! ources of Information
nformation collected to furnish this report is both from primary and secondary in nature.
3he secondary information was collected from the different publication$ and boo!s. .or
collecting boo!s and periodicals have used the following library=
BA #ibrary
BBM #ibrary
Bangladesh Ban! #ibrary
1." #ethodolog$ of the Report
3he following methodology will be followed for the study=
Both primary and secondary data sources will be used to generate this report. (rimary
data sources are scheduled survey$ informal discussion with professionals and
observation while wor!ing in different des!s. 3he secondary data sources are annual
reports$ manuals$ and brochures of "ha!a Ban! limited and different publications of
Bangladesh Ban!.
3o identify the implementation$ supervision$ monitoring and repayment practice+
interview with the employee and e*tensive study of the e*isting file was and practical
case observation were done.
1.% &imitation of the Report
3his report will only consider credit ris!s of "ha!a Ban! limited. t will not cover
Asset and liability6 balance sheet ris!.
.oreign 7*change 4is!
nternal control And compliance ris!
Money laundering 4is!.
1.' Report Organi(ation
3his report is divided in five sections. 3he following section is the organization part i.e.
this section will give an overview of "ha!a Ban! #imited. n section iii$ Credit
management policy and practice of "B# is critically analysed followed by Bangladesh
Ban!)s Best practice guideline for credit management in section iv. %ection v deals with
findings and recommendations.
2.) *+ O,-R,I-. O/ 01*2* B*+& &I#I3-0 40B&5
"ha!a Ban! #imited is the leading private sector ban! in Bangladesh offering full range
of (ersonal$ Corporate$ nternational 3rade$ .oreign 7*change$ #ease .inance and
Capital Mar!et %ervices. "ha!a Ban! #imited is the preferred choice in ban!ing for
friendly and personalized services$ cutting edge technology$ tailored solutions for
business needs$ global reach in trade and commerce and high yield on investments$
assuring 7*cellence in Ban!ing %ervices.
2.1 Background of 0haka Bank &imited
"ha!a Ban! #imited is a scheduled ban! that was incorporated under the Companies Act
8AAB$ started its operation on Culy 8AAD with a target to play the vital role on the socio+
economic development of the country. Aiming at offering commercial ban!ing service to
the customers) door around the country$ the "ha!a Ban! limited established :; branches
up+to this year. 3his organization achieved customers) confidence immediately after its
establishment.
Eithin this short time the ban! has been successful in positioning itself as progressive
and dynamic financial institution in the country. 3his is now widely acclaimed by the
business community$ from small entrepreneur to big merchant and conglomerates$
including top rated corporate and foreign investors$ for modern and innovative ideas and
financial solution.
2.2 6apital Base
Authorized Capital= B"3 8;;;.;; million.
(aid up Capital = B"3 D<8.;9 million (as on <8.8:.:;;<)
2.3 #ission tatement
3o be the premier financial institution in the country providing high quality products and
services bac!ed by latest technology and a team of highly motivated personnel to deliver
7*cellence in Ban!ing.
2.4 logan
7*cellence in Ban!ing
2.! #otto
3he Ban! will be a confluence of the following three interests=
@f the Ban! = (rofit Ma*imization and %ustained 0rowth.
@f the Customer = Ma*imum Benefit and %atisfaction.
@f the %ociety = Ma*imization of Eelfare.
2." Objectives
Be one of the best ban!s of Bangladesh.
Achieve e*cellence in customer service ne*t to none and superior to all competitors.
Cater to all differentiated segments of 4etail and Eholesale Customers.
Be a high quality distributor of product and services.
,se state+of the art technology in all spheres of ban!ing.
2.% ,alues
F Customer focus
F ntegrity
F 3eam Eor!
F 4espect for individual
F &uality
F 4esponsible citizenship
2.' .orkforce
3otal number of employees stood at DGH as on "ecember <8$ :;;<.
2.7 Branches

"ha!a Ban! limited has 8A conventional Branches and : slamic Ban!ing Branches.
Among total of :8 Branches$ 8< branches are located in "ha!a City$ B branches are
located in Chittagong. 3he other B branches are located in %ylhet$ 1arsingdi$
1arayangon-$ %ira-gon- each. 3he registered office (>ead @ffice) of "ha!a Ban! #imited
is at Biman Bhavan$ 8;; Moti-heel C6A$ "ha!a+8;;;.
2.1) #anagement Information $stem
%ince its -ourney as commercial Ban! in 8AAD "ha!a Ban! #imited has been laying great
emphasis on the use of improved technology. t has gone to online operation system since
:;;<. And the new Ban!ing %oftware .le*cube is under process of installation. As a
result the ban! will able to give the services of international standards.
2.11 6orrespondent Relationship
3he Ban! established correspondent relationships with a number of foreign ban!s$
namely American 7*press Ban!$ Ban! of 3o!yo$ %tandard Chartered ban!$ Mashreq
Ban!$ >ong ?ong %hanghai Ban!ing Corporation$ C3 Ban! 1A+1ew Ior! and AB
Ban! #td. 3he Ban! is maintaining foreign e*change accounts in 1ew Ior!$ 3o!yo$
Calcutta$ and #ondon. 3he ban! has set up letter of credit on behalf of its valued
customers using its correspondents as advising and reimbursing Ban!s. 3he Ban!
maintains a need based correspondent relationship policy$ which is gradually e*panding.
3he number of .oreign Correspondents is B;G.
2.12 Organi(ation tructure
2.13 0epartments of 0B&
f the -obs are not organized considering their interrelationship and are not allocated in a
particular department it would be very difficult to control the system effectively. f the
departmentation are not fitted for the particular wor!s there would be haphazard situation
and the performance of a particular department would not be measured. "ha!a Ban!
#imited has does this wor! very well. "ifferent departments of "B# are as follows=
>uman 4esources "ivision
(ersonal ban!ing "ivision
3reasury "ivision
@perations "ivision
Computer and nformation 3echnology "ivision
Credit "ivision
.inance 2 Accounts "ivision
.inancial nstitution "ivision
Audit 2 4is! Management "ivision
2.14 1uman Resources #anagement of 0B&
"ha!a Ban! #imited recognizes that a productive and motivated wor! force is a
prerequisite to leadership with it)s customers$ it)s shareholders and in the mar!et it serves.
"ha!a ban! treat every employee with dignity and respect in a supportive environment of
trust and openness where people of different bac!grounds can reach their full potential.
3he ban!)s human resources policy emphasize on providing -ob satisfaction$ growth
opportunities$ and due recognition of superior performance. A good wor!ing environment
reflects and promotes a high level of loyalty and commitment from the employees.
4ealizing this "ha!a Ban! limited has placed the utmost importance on continuous
development of its human resources$ identify the strength and wea!ness of the employee
to assess the individual training needs$ they are sent for training for self+development. 3o
orient$ enhance the ban!ing !nowledge of the employees "ha!a Ban! 3raining nstitute
("B3) organizes both in+house and e*ternal training.
3he remuneration is very competitive in comparison with industry average. Beside these
the recruitment procedure is comprehensive.
2.1! 8roduct and ervices
3he product and services that are currently available are given below=
2.1!.1 0epositor$ 8roduct
"ha!a Ban! #imited is now offering different types product for mobilizing the savings of
the general people.
"eposit (roduct
Current "eposit
%aving deposit Account
%3" Account
.i*ed "eposit
7*cel Account
.oreign Currency "eposit Account
1.C" 1on 4esident .oreign Currency Account