Credit Risk Management Division Head Office, Dhaka CREDIT POLICY - 2017 - GUIDELINES FOR CREDIT RISK MANAGEMENT- PREFACE: The Bank has adopted the Crecit Policy, which is designed with sound and prudent bank lending practices in use. The Pojcy has been developed from existing policy and procedural instructions as well as extemal sources. This Policy and subsequent updates issued by the Bank will help further define the bank's credit policy and serve as a primary reference source forall credit-related issues. Any proposed changes must fist have the approval of Board of Directors of the Bank. Lastly, the Bank has revised its Credit Poicy in 2016. The purpose of this Policy is to describe the products and services offered by the Bank to its Customers and the Bank's management of those products and services. The variety of products and services described in this Policy are designed to meet the needs of the Bank's Customers. The Bank is always looking for ways to improve its existing products or services and to offer new products and services that wil meet the needs of its Customers. As those modifications or new offerings are made, the Bank wil update this Policy. A comprehensive IT System has been ‘developed to capture all Key customer data, risk management and all transaction information, The Bank should aiso ‘comply with relevant rules, regulations and prudential guidelines. ‘Al Executives / Officers of Branch as well as Head Office especially those are entrusted with the responsibly of Credit marketing, approval processing, credit monitoring, recovery and compliance, must keep themselves thoroughiy ‘conversant with the contents ofthe Credit Policy for meticulous compliance. It will be the responsibilty of the Head of Branches to ensure that the Policy Guidelines laid down herein are well conversant by the Credit Officers! Relationship Managers and are strity folowed at ther end. ‘The Credit Policy to be revised minimum once in a year to cope with the fast changing scenario of dynamic global economy, liberalization and globalization and to comply with the Bangladesh Bank Guidelines and regulatory authorities. The contents and instructions laid down in the Credit Policy are strictly PRIVATE and CONFIDENTIAL and meant for “internal Use” only, Page tteINTRODUCTION: ‘The Credit Policy of any banking institution is @ combination of certain accepted, time tested standards and other dynamic factors dictated by the realities of changing situations in different market places. The Polcy outlined herein is intended to be general in nature and wil be supplemented by various procedures, which wil contain implementing dotais. The policy has been developed in fght of the regulation outlined in Credit Risk Management Guidelines of Bangladesh Bank and other internal policy documents, NRB Commercial Bank Limited is committed to provide high quality services to its constituents through diferent financial products and profitable utiization of fund and contribute tothe growth of GDP of the county by financing trade and commerce, helping industriaization, boosting export, creating employment opportunities for the educated youth and encouraging micro-credit leading to poverty alleviation and improving the quality of life of the people and thereby contributing tothe overall socio-economic development ofthe county. Credit risk is most simply defined as the potential that a bank borrower or counterparty wl fal to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit isk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between credit risk and other risks. The effective management of credit risk isa ertical component of a comprehensive approach to risk management and essential o the long-term success. ‘The sound practioes set out inthis policy specifically address the following areas: () establishing an appropriate credit tisk environment; (i) operating under @ sound credit approval process; (ji) maintaining an appropriate credit administration, measurement and montoring process: and (iv) ensuring adequate controls over credit risk. These practices should also be applied in conjunction with sound practices related to the assessment of asset quality, the adequacy of provisions and reserves, and the disclosure of credit risk, all of which have been addressed in Basel Committee documents. In formulating a credit judgment and making quality credit decision, the lending officer must be equipped with all information needed to evaluate a borrower's character, management competence, capacity, abity to provide collaterals and external conditions which may affect his abilty in meeting financial obligations, The Credit Policy has covered the following areas: + Poly Guidelines ‘+ Organizing Credit Risk Management + Approval process & CRM origination process + Credit Risk Mitigation process + Credit Monitoring ‘+ Management information System (MIS) ‘+ Managing Credit risk of Problem Assets, Pag 20145CHAPTER POLICY GUIDELINE: Credi facilities are extended to the various types of customer for different purposes. The Bank should have a detailed understanding of a loan’s purpose in order to assess risk and be able to structure financing to the benef of both the customer and the Bank. Loans thet have a legitimate purpose in accordance with the polices of the Bank serve to provide liquidity to the economy and financial support to the commercial & industrial sectors for economic growth, A. Lending Guidelines: The basic principles of lending are descrited in this section. It must be clearly understood at the outset that these principles are not inflexible and ate given as guidelines for protecting the Loans and Advances of the Bank. The followings are the general principles to be considered for lending funds to customers on a basis consistent with the «global operational objectives and business strategies of the Bank + Support or expand the domestic productive capacity of Bangladesh, + Utiize domestic inputs and suppliers which help strong integration ofthe economy. ‘Create the potential for exports and the development of foreign exchange. ‘+ Support the development and growth of individual firms. ‘+ Maximize the opportunity for employment growth Reduce import dependency. * Conform to the instructions ofthe Bangladesh Bank and provisions of local and national laws. * Credit facility wil be allowed in a manner, which wil in no way compromise with Banks standards, ‘© All Credit extension must comply with the requirements of Bank's Memorandum and Articles of Association, ‘Banking Companies Act as amended from time to time / Bangladesh Bank's instructions and cther applicable rules and regulation. ‘+ A prudent banker should always adhere to the following principles of lending funds to his customer: e.g. (1) Background, character and capabilty of the borrowers, (2) Purpose ofthe facility, (3) Term of faciity, (4) Safety (6) Security, (6) Profitabiity, (7) Source of repayment, (8) Diversity. B. Loan Portfolio Management: Lending is the principal business actvity for most commercial banks. The loan portfolio is typically the largest asset ‘and the predominate source of revenue. As such, itis one of the greatest sources of risk to a bank’s safety and soundness. Whether due to lax credit standards, poor portfolio risk management, or weakness in the economy, loan portfolio problems have historically been the major cause of bank losses and failures. The Bank will dversity is credit Portfolio inthe following concentration risks: + Seotor wise exposure, Division wise exposure * Group wise exposure. ‘+ Single borrower wise exposure ‘© Top borrower wise exposure. Effective management of the loan portfolio and the credit function is fundamental to a bank's safety and soundness. Loan portfolio management (LPM) is the process by which risks that are inherent in the credit process are managed ‘and controlled. Review of the LPM process is important as itis a primary supervisory activity. Assessing LPM involves evaluating the steps bank Management takes to identfy and control risk throughout the Credit process. Pape 30145Objective of Loan Portfolio: The Approval authority must ensures that loans are made with the following three basic objectives in mit ‘+ Toextend loans on a sound and colectible basis. + Toinvest the bank's funds proftably forthe benef of shareholders and the protection of depositor. ‘© Toserve the legitimate credit needs of their communis, ic Plan for Loan Portfolio Management: itis an essential component of credit risk management to establish limits on concentrations across all possibie dimensions of the credit portfolio. The Bank willoutine its portfolio in the folowing manner: 1. Agriculture, Fishing, and Forestry 2. Industrial Finance (Large/Mediur/ smal Micro/ Cottage/ Service) © Term Loan ‘+ Working Capital finance. ()) Secured by eligible securties (i) Secured by other than eligible securties, 3, Trade & Commerce © Retail Trading ‘© Wholesale Trading ‘+ Export Financing ‘+ Import Financing + Lease Finance + Others ()) Seoured by eligible securities (i) Secured by other than eligible securities 4. Construction (commercial real estate, construction and land development loans): + Residential Real estate + Commercial Real estate + Infrastructure development © Others (i) Secured by eligible securties, (i) Secuted by other than eligible securities 5. Transport Road Transport ‘© Water Transport © Air Transport 8. Consumer financing ‘+ Loans forthe purchase of flats or other single-family dwellings + Loans for the purchase of motorized personal transport + Loans for the purchase of durable consumption goods * Credit card loans * Other personal loans 7. Loans to financial institutions + Loans to NBFIs + Loans to insurance companies ‘+ Loans to merchant banks and brokerage houses Other, including loans to microfinance institutions and NGOs om tot8. Miscellaneous As a general practice, NRB Commercial Bank Limited will concentrate its business in Trade Finance / Export - Import business and all types of Commercial Loan, Industrial / Project Finance / Syndication and structured Finance / SME Financing! Agricultural) Rural and other specialized programs except otherwise restiiced by the Government or indicated as unethical and banned items, The Bank's policy is to handle the specialized business sectors! segments by setting up separate Divisions! Departmentslunts at Head Ofice, The Policies for the specialized segments! sectors will to be circulated to all ‘concems from time to time. In addition, “industrial Loans,” can be disaggregated in a diferent way, focusing on the economic sectors rather than the type of enterprise and type of oan. The folowing breakdown is preferred: © RG + Textile Food and alied industries + Pharmaceutical industries + Chemical, fetiizer, etc. © Cement and ceramic industries ‘© Ship building industries + Ship breaking industries * Power and gas ‘Other manufacturing or extractive industries + Service industries © Others Bank’s exposure in a single sector is preferably 20%, The sectors like, Textile, Spinning & Readymade Garments, trade finance may have exposure of 25 to 35% each. ‘The Bank's policies for financing in diferent major sectors such as: (a) Textile, Spinning & Readymade Garments (b) Trading (c) Ceramic & Bricks (d) Cement (e) Construction! Real estate! House building ({) Telecommunication (9) Power Generation (h) Transportation (i) Information Technology (IT) Project () Agricuture & Agro-based Industry (K) Hospital’ Clinic) School College University () Pharmaceuticals/Healthcare/Medicine (m) ElectricalElectronic appliance (n) Finance fo NBFI (0) Glass & Glass Products (9) Plastic and Plastic materials (q) Leather and Leather products (t) Jute & Jute Industry (s) Steel and Engineering (t) Food and Food products (Ecible ol, Beverage etc.) (u) Scrap Vessel (v) Paper! Pulp/ Partex! Packaging! Publication (w) Work Order Finance (x) Chemicals (y) Consumer Finance including Credit Card (2) SME Finance (aa) Specialized Credit Scheme (bb) Employee of NRBCL (cc) Others, C. Discouraged business types: ‘© Miltary Equipment Weapons Finance ‘© Tobacco Crop Cultivation ‘© Companies listed on CIB black lst or known defautter Highly Leveraged Customer ‘© Logging, Mineral Extraction/Mining or other actiity that is ethically or environmentally sensitive ‘© Counter parties in countries subject to UN sanctions © Land Purchase ‘© Brick field having no NOC from Department of Environment ‘+ Lending to Holaing Companies Page 52106D. Types of Credit Facilities: ‘The Bank's Polcy is to introduce diverstied’ new types of Products) Product derivatives alongwith usual Banking Products. The Bank offers the following faites: Stock Finance, Machinery Finance, Construction Finance, Residence Finance, Business Vehicle Finance, Personal Vehicle Finance, Consumer Finance, Financial Obigation Finance, Pre Shipment import Finance, Post Shipment Import Finance, Pre Shipment Export Finance, Post Shipment Export Finance, Work Order Finance, SME Finance, Agriculture Finance, Green Finance, Guarantee Finance, Finance to Financial Institution, Finance of Composite Cred Finance Review, Syndication Finance, Treasury Finance, Equity Finance and the related products as mentioned in the Delegation of Business Power. ‘Syndication means joint financing by more than one bank to the same cients against a common security, This is done basically to spread the risk. It also provides a scope for an independent evaluation of risk and focused monitoring by the agent /Iead bank. In Syndication financing banks also enter into an agreement that one of the lenders may act as Lead Bank. In such case, lead bank has to co-ordinate the actives at various stages of handling the proposal i. appraisal, sanction, documentation, sharing of security, disbursement, inspection, follow-up, recovery, distribution of instalments. / interest etc. It may also cell meeting on syndication members, whenever necessary to finalize any decision, Loan for employees of NRBC Bank will be House Building Loan, Car Loan, Personal Loan, House Fumishing Loan etc. as mentioned in HR Policy of the Bank. E. Single Borrower / Group Limits J Loan Syndication! Club Finance: Group Relationship would be established as per Bangladesh Bank guidelines provided / to be provided from time to time. The Bank may extend the maximum credit facilities (funded / non-funded) to a single client / enterprise / group as per guidelines of Bangladesh Bank circulars issued / to be issued from time to time on following criteria a} Clients who falls under SuperiorIGood/Acoeptable category as per Bank's Risk Grading System. b) Covered by adequate collateral security or Guarantee. ©) Established long term business / Banking relationship, 4) The total exposure extended by the Bank to any single cient or enterprise or organization / group shall not at any Point of ime exceed 35% of the Bank’s total capital subject to the condition that the maximum exposure (funded {ecilties) do not exceed 15% of the otal capital fund. ©} In case of export sector, single borrower exposure limt would be 50% of the Bank's total capital. But funded {ecilties shall not exceed 15% of the total capital f) Loan sanctioned to any individual or enterprise or group amounting to 10% or more of the Bank's capital shall be ‘considered as large loan. This loan celing may be changed as per Bangladesh Bank Guidelines issued from time torime 9) A Public Limited company, which has 50% or more pubic shareholdings, shall not be considered as an enterpriselorganization of any group. h) The Bank will maintain large loan exposure as per Bangladesh Bank Guidelines. i) Inine with basic principles of lending, the Bank always discourages to lend its maximum ceiling to a single client | group to minimize the risk. The Bank will prefer as a policy guideline to arrange syndicated loan! participate in the syndicated finance! consortium loan arrangement or in club finance j) The large loan limit may be relaxed in the sectors circulated by Bangladesh Bank. But, maximum funded limit will ‘ot exceed 25% of Bank's capital in any circumstances. F Lending Caps: ) The Bank Management will establish a specific industry sector exposure cap to avoid over concentration in any ‘one-industry sector. Sector-wise allocation of Credit shall be made annually wit the approval of the Executive Committee ofthe Board / Board of Directors. Pap bot45b) Diversification of Credit Portfolio willbe encouraged so as to reduce the rsk of dependence on a particular sector {or balanced socio-economic development ofthe county. ¢} Branches shall submit a report outining trend and outstanding to the Head of Credit Administration Division on ‘quarterly basis for onward submission to the Executive Commitee ofthe Board of Directors! Board of Directors {or information’ perusal’ guidance G. Loan Facility Parameters: The Loan faity parameters fr the Bank have been set 2s under: a) The Bank in general will approve / renew trade finance facility forthe period of 01 (one) year from the date of approval ast expiry date. b) The Bank will extend medium term loan for 5 years period, c} The Bank wil extend long term loan for maximum period of 10 years including grace period of 6 months to 18 months (depending on the nature of Project) for projact finance but in case of need, in syndication or club financing, the Bank may extend the period of loan as per consensus ofthe syndicated members. In case of House Building Loan (Residential), the repayment period will be maximum of 20 years with maximum 24 months grace period. Client may be advised to service interest during grace period. in case of Bangladesh Bank Refinance Scheme, the repayment period will be maximum 20 years or as advised by Bangladesh Bank from time to time. In case of House Building Loan (Commercial), the repayment period wil be maximum of 12 years with maximum cof 24 months grace period. Client may be advised to service interest during grace period. 4d) House Building Loan to Bank's employee shall be governed as per policy guidelines of "Employees House Building Loan’ scheme @) Besides above, the Bank wil extend credit facities under special program like Consumer Credit Scheme, Small Loan Scheme, SME Financing, Agricutural’ Rural Credit, Doctor's Credit Scheme, Women Entrepreneurship Development Project, Personal Loan, Car Loan, Home Loan, Overseas Employment Loan, Education Loan, Refinance Scheme for Solar energy, Bio Gas and ETP, Agriculture Credit etc. as per policy set! to be set by the Bank under the policy guidelines ofthe specific scheme. 4) The rate of Interest! Commission/ Charges’ Fees etc. would be as per the approved circular! schedule of charges ‘88 per Bangladesh Bank guidelines and with the approval of competent authority g) The interest rate to be charged and to be paid cut on monthiyiquartely basis except the special schemes and Unless othernise specified in the approved terms. fh) Repayment of term loan would be fixed preferably on monthlyiquarterty basis i) Margin for LIC preferable in cash should be on the basis of Banker — Customer relationship subject to minimum requirement of Bangladesh Bank. i) For import of Capital machinery, margin for L’C would be determined on the basis of Banker ~ Customer relationship within the purview of delegated power of approving authority subject to minimum requirement of Bangladesh Bank. kj Security accepted against credit fcities shall properly be valued and shall be effected in accordance with Laws of the country in which the security is held. An appropriate margin of security wil be taken to reflect such factor as the disposal costs or potential price movements of the underiying assets. Acceptable Securities are: Cash/Cash equivalent like FDR, Scheme Deposits, balance on CD, SB & STD accounts etc, Land and Building (in the form of registered mortgage with registered IGPA), hypothecation / ‘ownership of Plant and Machinery, stock of goods, assignment of bls / receivables, book debts, pledge of shares, guarantee / Corporate Guarantee, ete. 1) Valuation ofthe landed property/ Building! Machinery? Stock of Raw materials / Finished products shall be done by the Bank's enlisted professional surveyors duly checked by the Bank officials Page 72148m) Mortgage formalities including execution of registered revocable power of attorney must be completed as per legal vetting ofthe Bank's approvedienlisted Lawyer. 1) The value of the mortgage property shall preferably be doubled of the facility to be extended depending upon other security coverage. The Managing Director may relax the security conditions depending upon the Credit worthiness of the customer /Banker-Customer relationship / potentiality ofthe business of the client. Any other exception of the loan facity parameters mentioned above, are subject to be approved by the Executive Committee ofthe Board of Directors/ The Board of Directors. wereign Risk: Risk associated with cross border lending. Borrowers of a particular country may be unable or unviling to fulfil principle andior interest obligation, distinguished from ordinary credit risk because the difficulty arses from a politcal event, such as suspension of external payments = Synonymous with political and sovereign risk = Third world debt crisis, In this regard Bangladesh Bank guidelines issued from time to time to be folowed, |. Risk based credit pricing: Banks must price loans to cover all costs, including a certain number of basis points over the life of the loan to account for each of the following Cost of funds- The rate at which the Bank is able to attract funds of equivalent tenor to the loan. In Bank that apply funds transfer pricing, this rate is a wholesale rate, usually the swap rate (fixed or floating, depending on whether the loan is fited or floating) of an equivalent tenor. Expected Joss- The number of basis points that corresponds to the expected loss on the loan, which will be higher on foans with more credit risk and lower on loans with less credit risk. Although Bank does not make loans with the expectation of suffering any loss, this amount is not zero for any loan, no matter how wel collateralized or guaranteed. Cost of allocated capital- The cost of allocated capital is the amount of capital the bank has alloceted to the loan as coverage for unexpected loss, multiplied by the target retuin on equity for the bank as a whole, and expressed in terms of basis points. As a simplification, banks often use the risk-based capital requirement as 1 proxy for the amount of capital that should be allocated to the loan, Term cost of liquidity- The number of basis points that captures the cost arising from the fact that loans of longer and longer tenor require stable funding of longer and longer tenor, which will be costly forthe bank above ‘and beyond any interest-rate risk considerations (which will be captured inthe swap rate). Cost of liquid asset buffer- Banks rarely “maturty-match’ a loan with a specific source of funding of equivalent tenor. They righlly know that a mix of current accounts, savings accounts, and fixed deposits will render stable source of funds under most circumstances. However, in extremely adverse and rare circumstances, @ run on deposits may occur and the bank may be forced to sell assets quickly at low prices or seek additional deposits or other funds at high rates. For this reason, a liquid asset buffer must be held for these Unexpected situations. Since these assets either earns no interest at all, or very litle interest for the bank, there is ‘2n opportunity cost for holding the assets that must be expressed in terms of basis points and included in the determination of the foan rate. Loan administration costs- For any loan, big or smal, there are staff costs involved in originaton and ‘monitoring. Some of these costs are up-front and some are ongoing, but they all must be expressed in terms of basis points over the Ife ofthe loan. Competitive margin- Finally, after all other costs have been included in the rate, the bank will add on a certain ‘number of basis points to eam a margin. This component is the only one that is fully at the discretion of the bank, given its funding and expense structure, This margin may even be negative, ifthe bank desires to gain a Page0 ottemporary compettive advantage. However, it should not be negative on any kind of loan product for an extended period of time, The Bank from time fo time will circulate the interest rate pricing of loans! charges/ commissions, etc. t is branches with the approval of the Management of the Bank and as per guidelines of Bangladesh Bank. As on date the Bank fixes a mid rate for lending based on the Average Cost of Fund. Al pricing of loans shall, however, have relevance to the market condition and be approved by the Management ofthe Bank on the basis of commendation of ALCO. K. Credit and Marketing Fundamentals: * To set a high priority on the quaity of credit exposure, new proposals must meet Bank's credit criteria for improving risk positions, + Maximization of wealth is the basic aim of the bank, as such every profit opportunity should be explored and professional skills be empioyed in tis direction. + To avoid unnecessary wastage of time, energy and ambiguity a clear, concise and summary type communications shall be used. * Tobe thoroughiy familiar with the Bank's policies and functions, * To keep the expense burden of credit operations to the barest minimum and endeavor to improve the cost efficiency of credit operations. + Tocontribute one's best in all matters where his approval, concurrence or other action is involved. * Toapply prudence in al credit matters + To.avoid all temptations which may jeopardize or compromise the Bank's risk assets, ee 9005CHAPTER«II ORGANIZING CREDIT RISK MANAGEMENT A. Role of the Board of Directors: The board has a vital role in extending credit as well 2s managing the credit risk of the bank, itis the overall responsbilly of @ bank's board to approve credit risk strategies and significant policies relating to cred risk ‘and its management which should be based on the overall business strategy. Overall strategies as well as significant policies have to be reviewed by the board on regular basi. The responsiblies of the board with regard to credit risk management shall include the following: a) Ensure that appropriate policies, plans and procedures for credit risk management are in place. Ensure that bank implements sound fundamental policies; ) Define the bark’s overall risk appetite in relation to credit risk; ©} Ensure that top management as well as staff responsible for credit risk management possess sound expertise and knowledge to eccomplish the risk management function; d) Ensure that bank's significant credit risk exposure is maintained at prudent levels and consistent with the available capital e) Review trends in portfolio quality and the adequacy of bank's provision for credit losses; ) Ensure that internal audit reviews the credit operations to assess whether or not the bank's policies and procedures are adequate and properly implemented; 9) Review exposures to insiders and other related parties, including policies related thereto; h) Limit involvement in individual credit decisions to those powers specifically reserved to the Board by the bank's aticles of association, by-laws, and credit risk management policy. i) Ratify exposures exceeding the level of the management authority delegated to management and be aware of exposures; and |) Qutine the content and frequency of management reports to the board on credit risk management B Role of Senior Management: The responsibiliy of senior management is to transform strategic directions set by the board in the shape of policies and procedures. Senior management has to ensure that the policies are embedded in the culture of the bank. Senior management is responsible for implementing the bank's credit risk management strategies and policies and ensuring that procedures are put in place to manage and control credit risk and the quality of ‘red porttlio in accordance with these policies. The responsibilties of senior management with regard to credit risk management shall include: | Developing credit poicies and credit administration procedures for board approval b). Implementing credit risk management policies to ensure an effective credit isk management process; ‘0) Ensuring the development and implementation of appropriate reporting system; ) Monitoring and controling the nature and composition of the bank's credit portolio: @) Monitoring the quality of crecit portolo and ensuring that the portfolio is thoroughly and conservatively valued and probable losses are adequately provided fr; Establishing internal controls and setting clear ines of accountability and authority; and g) Building lines of communication for the timely dissemination of credit risk management policies, procedures and other credit risk management information to al the credit stats. C. Role of the Credit Risk Management Committee: The Bank will have @ credit risk management committee (CRMC), at least comprising of head of credit risk ‘management Department and or credit department, head of recovery, head of RMD and treasury. The head of credit departmentiCRMD shall act as 2 member secretary of CRMC. This committee shall report to Board's risk committee ‘and Board who shall be empowered to oversee credit risk taking activities & overall credit risk management functionThe CRMC should be mainly responsible for 2) Implementation of the credit risk policy/strategy approved by the Board b) Monitoring credit risk on a bank-wide basis and ensure compliance with limits approved by the Board, ©) Making recommendations to the board, for ts approval, clear policies on standards for presentation of credit proposals, financial covenants, rating standards and benchmarks. @) Deciding delegation of credit approving powers, prudential limits on large credit exposures, standards for loan collateral, portfolio management, loan review mechanism, risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning, regulatony/legal compliance, etc. D. Segregation of Duties: The following lending functions have been segregated Credit Approval / Risk Management Relationship Management / Marketing Credit Administration Monitoring, Law, Recovery and Compliance The purpose of the segregation is to improve the knowledge levels and expertise in each department, to decrease the probabilty of compromise, to impose controls over the disbursement of authorized loan facilties and obtain an objective and independent judgment of credit proposals. The job responsibilties of diferent units are as follows: 1. Relationship Manager/ Marketing: * Toactas the primary contact person with the borrower regarding marketing of credit products, + To maintain thorough knowledge! up to date position of borrower's business and industry. The concemed officer must apply hs inteligence/common sense to ascertain whether the proposals carty value or contribute to Bank's proftabilty * To cater to customer needs and summarize the facies, rate of interest / commission / charges / security arrangement et, and place itto the higher authority for further process. ‘+ Tomake periodic visit inspection in borrowers shop! factory! warehouse etc. and submit the report to the Head of Credit Marketing ‘+ To provide required information to the Credit appraisal team for approval! concurrence or other action and Credit ‘Administration Team in case of need. ‘+ To monitor the financial performance and account conduct of the borrower and intimate the updated positon tothe Credit Approval Authority / branches ‘© Toprepare a Call report for all customer contact / visit and place it tothe reporting authority. 2. Credit Approvall Appraisal: ‘+ Toptepare credit proposals (memo) and piace ito the approval authority for decision. ‘+ Toobtain necessary approval from appropriate approval authority ‘+ Issuance of Sanction Letter / decning decision to the branches ‘+ Allsorts of correspondence to the branches / Marketing Division for preparation of memo. ‘+ Conducting due diligence inline with Bank's CRM Policy guidelines and BB J Govt rules & regulations 3. Gredit Administration: ‘+ Totensure completion of documentation formaltes in compliance with terms of approval ‘+ Tommonitor insurance coverage to ensure appropriate coverage isin place over assets pledged * To control loan disbursement only after all terms and conditions of approval have been met and all securty documentation are in place. + To maintain control over all security documentation, ‘To monitor borrower's compliance with covenants & agreed terms and monitor account performance. Pas ot‘+ To produce required statements related to credit division including statement of new facilities, renewed faciltes, ‘decined facities and submit before the Managing Directors & CEO ! EC / Board for review and guidance. ‘+ To prepare the statements and retums relating to loans and advances and submit the same to Bangladesh Bank periodically. 4. Law, Recovery & Monitoring: + To manage all Special Mention, Substandard, Doubtful and Bad and Loss accounts in order to standardizelreguiarizeimaximize recovery and ensure that appropriate and timely loan loss provisions have been made ‘+ To provide early signals! warning to the Branches! Marketing Division / Account Relationship Managers / Officers ‘+ Todetermine Account Action Plan’ Recovery Strategy ‘+ Todeal with al legal matters. ‘+ Toprocess branch proposals regarding rescheduling of classified accounts. ‘+ To collect CIB report from Bangladesh Bank and be responsible for sending CIB, Bangladesh Bank return including CL and statement to other regulatory authorities on time. ‘+ Toensure that Bangladesh Bank circularsitegultions are maintained centrally and advised to all relevant divisions to ensure compliance ‘+ To enlist surveyors, lawyers, insurers with approval of the Bank Management and to monitor and review their performance periodically. E, Internal Audit/Controt: ‘The Bank wil have separate and independent Aucit and Inspection Division responsible for conducting audits and inspection of all Branches and Departments of Head Office, Audits and Inspection are carried out on perio interval {at least once in a year) to ensure compliance with regulatory guidelines, internal procedures and Lending Guidelines ‘88 per Bangladesh Bank requitement. Surprise inspection / special inspections are also be conducted as and when required, The Head of Audit & Inspection Division directly reports to the Managing Director and CEO. F, Establishment of Control Mechanism: All branches of the Bank are interconnected with on line system. Therefore, twill be possible to monitor any function! any transaction of the branches by the controling authority at Head Office. Authority may be given to the Managing Director and CEO, Additional Managing Director, Deputy Managing Director, Head of Credit, Head of Credit Administration Division, Head of Board Audit, Head of Internal Audit & Inspection, and Head of Compliance to go through any transaction ofthe Branches as and when required. G. Credit Training: In order to discharge the duties efficiently and conduct the due diligence propery, it is necessary to arrange sufficient training for executives / officers of different areas particularly the credit officers, Considering the requirements the Bank will establish its Training Institute in Head Office where different types of banking related courses will be offered to Officers of different level. It is expected that all Credit Officers and Relationship Managers will be trained gradually in specific fies of Credit Risk Management Page 29846CHAPTER. APPROVAL PROCESS & CRM ORIGINATION PROCESS A. Organizational Structure and Responsibilities ‘The appropriate organizational structure must be in place to support the adoption of policies described in Chapter-| of these guidelines. The key feature Is the segregation of the Marketing / Relationship Management function from Approval / Risk Management /Administrative Functions, Credit approval shall be centralized within the CRM function. Credit application shall be approved by the Managing Director and CEQ/ Additional Managing Director! Deputy Managing Director Head of Credit at Head Offce /Head of Branches as per their delegation of business powers approved by the Board of Directors and beyond their authority, the proposals are to be placed before the Executive Committee of the Board of Directors! Board of Directors for approval Organizational Structure: ‘The following chart represents the management structure: Managing Director & CEO _aeeee t ‘Additional Managing Director! Deputy Managing Director Head of Credit Risk Management Head of Corporate / Commercial ‘Other Direct Reports (crm Banking (ternal Audit, te) ‘CREDIT APPROVAL (INCLUDES REGIONAL Relationship Management / (CREDIT CENTERS) >) Marketing (RM) rei Administration ay report sparsely to weripans ceo) BUSINESS DIVELOPMENT Ly Monitoring Law & Recovery (including regional recovery centers if applicable) Presently, the credit marketing Division (Corporate Banking Division) is independent from Credit Risk Management Division. Mentionable that, divisions namely () SME Financing Division (i) Consumer & Retail Banking Division (ji) Agricuiture Credit Division may be created with approval from the Board of Director of the Bank in due course. At present, these actives are done under the guidance of Credit Risk Management Divisio. Pape Bol8. Approval Process: In approval process the Bank segregates its Relationship Management / Marketing from the Approving Authority. The existing approval authorities are Head of Branch, Zonal Head, Division Head at Head Office, Deputy Managing Director, Managing Director & CEO, the Executive Committee of the Board of Directors and the Board of Directors as per thet delegation of business powers defined in later section. The recommending or approving Executives shall take responsibilty for the recommendations or approval. Delegation of approval limits shall be as per policy guidelines of the Bank. The Detais of Credit approval process ofthe Bank s presented by a flow chart Sanctioning Authority: ‘The business powers can be exercised by the following when posted as under. + The Managing Director, Additional Managing Director and Deputy Managing Director at Head Office shall exercise delegated powers approved by the Board of Directors of the Bank ‘The Head of Branch will exercise delegation of business power approved by the Board of Directors of the Bank + There shall be Credit Committee at Head Office and Branch. However in case of any disagreement between the committee and the concemed Executive, the matter may be referred to the Managing Director for disposal forthe greater interest of the Bank, ‘Other than the Managing Director, the Delegated Business Powers shall be exercised by the Additional Managing! Director Deputy Managing Director and Head of Branch only to whom such schedule of powers i delegated by a separate letter issued by Human Resources Division, Head Office under the order of the Managing Director as approved by the Board. Managing Director may mocify/ partaly delegate the power at the time delegating the power. ‘* NRBC Bank Officials should not join in Bank's borrower company as employee or in any form just after retirement ‘rom the service ofthe Bank Due Diligent Approving authorities are accountable for their decisions and should consider whether or not approving a credit isthe right thing o do for both the bank and the borrower. A recommendation does not imply that he or she believes a credit to be without risk. Rather, it means that he/she understands the Bank’s credit standards and applicable policies, has identified the risks involved in the credit and believes that those risks are prudent for the bank to undertake, No one should ever approve credit without doing the analysis necessary to fully understand it Credit sk analysis begins with the clear and careful identification of rsk factors such as: ‘© Background ofthe borrower ‘© Purpose of the loan Sources of repayment ‘+ Owners background, character and management capabilty ‘+ Value of Primary & collateral securties and particulars of guarantors) (tf any) ‘+ Cash flow and financial standing of borrower! owner ‘+ Ability to penetrate market segments and competitive factors, Pape HotsCrodit Approval Process [Onine or omireAgptzaton F ce avery Miwa Repon [> Sexton ‘somos troco™ + Sen of docs by (Caetete prones) Heeger Compete ar, ead one royscon tawales ns) ape 5015@©— eu 1 [emt ‘Any query at any approvalirecommending level goes back to the previous stage with a note mentioning addtional informationidocurnent. x ap tots “ LeCredit Operation under Business Delegatior 1. Sanction advices will be communicated under two signatures including Head of Branch’ Zone! Division. 2. Sanction of credit facilties should be advised to the borrowers detailing properly the terms and conditions and ‘written confirmation of acceptance ofthe same to be obtained from the customer. 3. For analysis of the credit proposal, the concemed executive! officer wil prepare and! or collect the folowing documents: ‘+ CIB Report from Bangladesh Bank + Call Visit Report ‘+ Valuation Certificate by enlisted surveyor company + Legal opinion from the lawyer ‘+ Management! Market! TechnicalFinancial Social cost Analysis * Checking with Credit Policy 4, All formaities connected with the investigation into the credit worthiness of the customers, processing the proposals, compilation of credit reports and obtaining necessary documents should be observed meticulously 5. Disbursement of loans pre-supposes observance of all norms and procedures as per rules and guidelines narrated in this Delegation of Powers, Manuals and also conveyed through different circulars of Head Office and Bangladesh Bank from time to time. The disbursing officials shall ensure that all documentation of credit have been duly completed before disbursement of credit 6. The Branch In-charge shall remain responsible for constant supervision and follow-up of the advances allowed under the ciscretionary powers and keep Head Otfice apprised of the disproportionate variations, 7. None of the Head of the Branch of the Bank can approve any transaction(s) beyond his/her business delegation except the transaction exceeding the limit (Drawing Power) due to application of interest 8. There will be no OD password for Debit Transactions exceeding the mit. Branches have to take approval from Head Office for limit enhancement if beyond their delegation. if approved, Credit Administration Division, Head Office will have the authority to set the mit (Drawing Power) for debit transactions as approved by Head Ofice 9. Account Opening: Branch wil approach for set up limit (Drawing Power) for new account, beyond their Business Delegation Power. Ifthe mit (Drawing Power) of the account approved from Head Ofce, Credit Adminstration Division, Head Office will set up the mit (Drawing Power) forthe specific account. 10. Within Business Delegation of Power, limit have to be set up with two users password i. Manager Operation / Credit In-charge and Head of Branch will jointly set up the mit for transaction. If anyone is not availabe, branch may ask Credit Administration Division for limit set up within Business delegation 11. While sanctioning Back-to-Back facilities, detail Guidelines to be followed as revised in the Credit Policy. cretionary Powers for Exercising Business Deleaat 1. Delegated powers shall be exercised by the authorized officials judiciously Keeping in view the interest of the Bank. In exercising the powers so delegated, authorized officals shall abide by credit restrictions, CIB clearance, margin restrictions, stipulation regarding period of repayment in force from time to time, ete. NOCi Consent of Bangladesh Bank shall be obtained accordingly, if required. Delegation of power does not vest on the sanctioning official any authority to relax or waive any credit restrition/stipulation in force from time to time, 2. The customer to whom credit to be allowed should be as far 2s possible within the command area i.e. area of ‘operation of the branch, For example, Gulshan Branch, Dhaka should not normally accommodate a customer of Dhanmondi area, Dhaka, Deviations, any, are to be explicitly explained inthe proposal 3. No sanctioning officer can sanction any credit to any of his near relations and to any finm/compeny where his relations have financial interest. Such cases should be sent to Head Otfice for consideration. 4. There shall be no power to sanction any clean advance ie., without any security (primary! collateral guarantee) If for any reason, clean advance needs to be approved, shall be placed before the Boardthe Executive Committee of the Board for considerationRules on Margi Margin on various loans and advances willbe in accordance with instructions issued from time to time by Head Office, Board of Directors ofthe Bank and Bangladesh Bank. In case where minimum margin is specified, the percentage may be increased according to market conditions, sale abilty/durabilty/ buk/storage position and inspection facilty of the goods, Percentage given below shall be followed meticulously as mentioned at Delegation of Business power. ‘Trade Finance Operation: Trade finance operation of the Bank willbe routed through Authorized Dealer (AD) Branch’ International Division of the Bank. However the AD Branch’ International Division (Central Processing unit) may open LIC on behalf of the ‘customers of Nor-AD branch at the request of Non-AD B Branch. Post import finance in taka currency may be extended by Non-AD Branch. Post Export finance lke IDBP/ FOBPIFBPIIBP facity for the customers of Nor-AD Branch will be processed through AD Branches! International Division (CPU). Necessary steps to be taken to strength trade finance operation for AD/ Non AD Branches/ or and AD Branches through centralized processing unit at Head Office! Principal Branch of the Bank. Credit Assessments and Risk Grading: All financial actvities involve a certain degree of risk and particularly, the financial institutions of the modem era are engaged in various complex financial activities requiring them to put proper atention to every detail 1. Credit Assessm ‘A thorough Credit and Risk assessment shall be conducted for all types of credit proposals. The results of the assessment to be presented in the approved Credit Appraisal Form that originates from the Branches and Regional Office wil be forwarded to Corporate Banking Division along with their recommendation. The Relationship Managers (RM) of the Corporate Banking Division wil conduct assessment with due diligence on new borrowers, Existing borrower for enhancement of existing credit line/ sanction of new credit facility, principals, guarantors, After proper analysis the Corporate Banking Division will forward it to Credit Risk Management (CRM) Division with their proper recommendation. CRM division will place the credit proposal as received from the branch as per standard format with theic necessary observation’ recommendation before the management for consideration to approve andior to place the same before the EC! Board for approval. The Credit Officer / RMs must be familiar with Bank's Lending Guidelines and should conduct due diigence on new borrowers, principals and guarantors in ine with policy guidelines. Credit Appraisal should summarize the resutts of Credit Officers / RMs risks assessment and includes, as a minimum, the following details: ‘+ Amount and type of loan(s) proposed '* Purpose of Loan(s) + Results of Financial analysis + Loan structure (Tenor, Covenants, Repayment schedule, Interest) + Security Arrangements * KYC Concept: ‘The Credit Officers / RM must know their customers and conduct due diligence on new borrowers, principals and guarantors to ensure such parties are infact who they represent themselves to be i ., Know Your Customer (KYC).. The Banker ~ Customer relationship would be established first through opening of CD/ SND / SB accounts. Proper introduction, photographs of the account holders / signatories, passport National ID, Trade License, Memorandum and Articles of the Company, certificate of incorporation, certificate of commencement of business, List of Directors, Board resolution, etc. ie. all the required papers as per Bank's policy and regulatory requirements are to be obtained at the time of opening of the account. A declaration regarding approximate transaction to the account is to be obtained at the time of opening of account. Information regarding business pattern, nature of business, volume of business, etc to be ascertained, Any suspicious transaction must be timely addressed and brought down to the notice of Head Office!Bangladesh Bank as required and also appropriate corrective measures to be taken as pet the direction of Bank Management / Bangladesh Bank 2, Risk Management | Credit Risk Evaluation / Assessment - Lending Decision: ‘A comprehensive and acourate appraisal of the risk in every credit proposal ofthe Bank is mandatory. No proposal cen be put on piace before approving authorty unless there has been a proper and complete analysis. In order to ‘safeguard Bank's interest over the entire periad ofthe advance, a comprehensive view of the capita, capacty, integrity of the borrower, nature of security, compliance with all regulatory “legal formaites, condition of all documentation and finaly a continuous and constant supervision on the account are called for. It is absolute responsiblity of the Credit Offic’ RM to ensure that all the necessary documents are collected before the proposel is placed for approval. Where Lloans!Advances/Credit facilities are granted against the guarentee ofthe third party, that guarantor must be subject to the same credit assessment as made forthe principal borrower. While making lending decisions, particular attention shall be given to the analysis of credit proposals received from heavily leveraged companies and those dealing in non-essential consumer goods, taking special care about their debt servicing abiltes. Emphasis shall be given on the following credit principles: a) Present and future business potentiality for optimum deployment of Bank's fund to increase retum on assets b) Preference for seliquidating quality business c} Avoiding marginal performers. ) Tobe careful about large and undue concentration of credit to one obligor, common product tne or industry et. ) Managing the amount, size, nature and soundness of one-obligor exposures relative to the size of the borrower and Bank’s position among his other lenders. Personal guarantee ofthe principal partners or the Directors of the Company shall be obtained. 3. Basics of Credit Ri ‘The following risk areas shall be considered for analyzing a credit proposal, Borrower Analysis (Management/Ownership/Corporate Structure Risk) ‘The majorty shareholders, management teams and group or affiiate companies shall be assessed. Any issues regarding lack of management depth, complicated ownership structures or inter-group transactions shall be addressed, and risks to be mitigated Industry Analysis (Business and Industry Risk): The key risk factors ofthe borrower's industry shall be assessed. Any issues regarding the borrower's postion in the industry, overall industry concerns or competitive forces (demand supply gap) shall be addressed and the strengths and weaknesses (SWOT Analysis) of the borrawer relative to its competition to be identffed. For the above purpose the Credit OfficersiRM may obtain / collect data from the statistical yeat-book J economic trends of Bangladesh Bank! Public report newspaper! journals etc. ‘Supplier/Buyer Analysis/Market Risk: Any customer or supplier concentration shall be addressed, as these could have a significant impact on the future viability ofthe borrower. Market Risk: ‘The sufficient market data is to be obt gop in the market ‘Technological Ris ‘The product that is manufactured must be technologicaly viable i. whether the technology applied is updated. The product's stage in its Ife cycle must be understood. Technical Aspects of the products must be addressed. The Credit [CR Pape 0H do identity clents/borowers’ market shere in the industryidemend-supplyOfficer / RM must be satisfied with the mitigating factors of technical and technological risk, associated with the product. Environmental Risk Management: Environmental risk is a facitating element of credit risk arising from environmental issues. These can be due to environmental impacts caused by and / of due to the prevailing environmental conditions. These increase risks as they bring an element of uncertainty or possibly of loss in the context ofa financing transaction, The overall purpose of Environmental Risk Management is to understand and manage risks that arise from environmental concerns. This brings a focus on planning and implementing polices and procedures to mitigate environmental risks. The specific purposes are to: > Examine the environmental issues and concerns associated with potential business activities proposed for financing > Identify, evaluate and manage the environmental risks and the associated financial implications arising from these issues and concems > Enhance the credit isk appraisal process. In this regard, the Bank will follow the Environmental Risk Management Guidelines provided by Bangladesh Bank and Bank will adopt the changes of Environmental Risk Management process given by Bangladesh Bank! competent authority from time to time. Financial Analysis (Historical / Projected) An analysis of a minimum of 3 years historical financial statements of the borrower should be presented. In case of dependency on a corporate guarantor, guarantors financial statement should also be analyzed. The analysis should address the dualty and sustainabilty of earnings, cash flow and the strength of the borrower's balance sheet Specifically, cash fow, leverage and proftabilty must be analyzed. \Where term facilities (tenor > 1 year) are being proposed, @ projection of the borrower's future financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayments. Loans shall not be granted if projected cash flow is insufficient to repay debts. In this regard the possibilities of cost overrun and sensibilty analysis shall be done. ‘Account Conduct: For existing borrowers, the historic performance of repayment and transaction behavior (rade payments, instalment payments, cheque, interest and principal payments, etc.) shall be assessed. In this regard the Credit Officer / RM may Took into the account tumover lke debit summation / credit summation / highest debit balance’ highest credit balance ‘or lowest debit balance fr last three years (year wise) or atleast minimum 01 year (ast year) ‘Adherence to Lending Guidelines: The Credit Applications! Appraisals must be prepared in line with Bank's lending guidelines. it must be cleary stated \whether or not the applcation/proposal isin compliance with Bank's Credit Policy lending guidelines. Interest Rate Risk: ‘The interest rate must be fixed based on diferent risk factors associated with the type of business such as liquidity risk, commodity risk, equity risk, and loan period risk. Interest rate also arises from the movements of interest rate in the market. In assessing the pricing and profitability, the Credit OfficerRM must consider the income from ancilary business Ike foreign exchange business, group business, volume of business ete. Foreign Exchange Risk: ‘The foreign exchange transaction is associated with foreign currency fluctuation risk. Therefore the Credit Otficer/RM must take care of forthe Forex risk Pa Dols QkCost Overrun Risk: This type of risk is generally involved in taking project finance decision. A high degree of cost overrun may cause the failure ofthe project. Therefore the credit oficer must consider the cost components of the project and their chance of devaluation. Mitigating Factors: The Credit Oficer/RM must address to different risks associated with the proposal. The possible risk include but not limited to market risk, financial risk, foreign exchange risk, sk of cost overun, margin sustainabilty and/or volatity, high debt load (leverage/gearing), overstocking or debtor issues, rapid growth, acquisition or expansion, new business line/product expansion: management changes or succession issues, custome or supplier concentrations, and lack of transparency or industry issues. Mitigating factors for risks identifed in the credit assessment shall have to be descrived and understood, ‘The Bank must assess the critical risks of facilities glven J to be glven and ways / factors of mitigation of those risks. Some ofthe critical factors are: - Volatity ~ High debt = Overstocking = Rapid growth ~ Acquisition = Debtors issues = Succession + Loan Structure: The amount and tenor of proposed faciities should be justified based on the projected repayment abiity and loan purpose. Excessive tenor or amount relative to business needs increase the risk of fund diversion and may adversely impact the borrower's repayment abiity Security ‘A current valuation of collateral must be made by Bank's approved enlisted surveyors and the quality and privity of security being proposed shall be assessed propery. The Bank will folow the guidelines of Bangladesh Bank regarding ‘zaceptabilty security and value of security for consideration. Loan shall not be granted solely on security consideration, Adequagy and the extent of the insurance coverage shall be assessed, The Credit Officer/RM must look into the client's interest / dependability on the collateral offered as secur ‘+ Name Lending (Relationship Assessment): Credit proposals shall not be unduly infuenced by an over reliance on the sponsoring principal's reputation, reported independent means, or their perceived wilingness to inject funds into various business enterprises in case of need. ‘These situations shall be discouraged and treated with great caution. Rather, credit proposals and the granting of loans wil be based on sound fundamentals supported by a thorough financial and risk analysis. 4, Credit Risk Grading (CRG): Risk grading is @ key measurement of a Bank's asset qualty and as such, itis essential that grading is @ robust process. Al facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to ‘a borrower and its facilties should be immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications. Presently the Bank is following/conducting the Credit Risk Grading (CRG) to assess the risk grade. The concerned Credit Offcer / Relationship Manager (RM) must clearly indicate the risk grade (as per the finding) in the specific column of credit appraisal form so thatthe authority can take decision on the materCORG is a tool for assessing the credit risk involved in loan portfolio ofthe bank. (Not applicable to Small Enterprise & Sort term Agri & Mioro Credit). Devised by Bangladesh bank Its mandatory The applicability of CRG is mote pronounced in the pre sanction stage, Strict adherence of CRG process will help identify the potential risk ofthe quality ofthe asset, For new existing customers, based on information of financial, Industry, Management, Security, Relationship aspect RG is conducted for assessment of customer credit worthiness. The Bank will also develop Intemal Credit rating arrangement forthe compliance of Basel and the Internal Credit rating to be approved by the Bod Exceptions to Credit Risk Grading: ‘+ Head of Credit Risk Management may downgradelclassify an account. In such event, the Credit Risk Grading Form will then be filed up by Credit Risk Management Division and will be referred to Corporate Banking/Credit ‘Administration Division/Recovery Unit for updating their MiSirecords. ‘+ Recommendation for upgrading of an account has to be well usted by the recommending officers. Essentially ‘complete removal ofthe reasons for downgrade should be the basis of any upgrading, ‘+ In-case an account is rated marginal, special mention or unacceptable credit risk as per the risk grading score sheet, this may be substantiated and credit risk may be accepted ifthe exposure is adtltionally collateralized through cash collateral, good tangible collaterals and strong guarantees. These are exceptions and should be exceptionally approved by the appropriate approving authority + Whenever required an independent assessment of the credit risk grading of an individual account may be conducted by the Head of Credit Risk Management or by the Internal Aucitor documenting as to why the cred deteriorated and also pointing out the lapses. Credit Risk Grading Revi Credit Risk Grading for each borrower should be assigned at the inception of lending and should be periodically jew of the credit risk grading are mentioned below, SHORT REVIEW FREQUENCY (AT LEAST) “SUP Annually _| +f a) Annually I ACOPT Annually MarginalWatch lst MGAWL I Half yea Special Mention SM ‘Quarterly ‘Sub-standard ss seit ‘Quarterly Pee Doubtful OF Quarterly Bad & Loss BL Quarterly ‘Based on the CRG, the pricing, review frequency and other precautions are to be undertaken. The review frequency may be changed as per Bangladesh Bank Guidelines issued from time to time. 6. The role of external credit assessment institutions (ECAls): © The analysis of a potential borrower's creditworthiness by an ECAl may provide useful input and assist the bank's credit analysts in organizing thinking and forming an opinion about the potential borrower in question. ‘= Banks may make reference to ECAl ratings (registered by Bangladesh Securities and Exchange Commission 2s well as recognized by Bangladesh Bank) in their credit risk management policies and loan underwriting Practices, but they must rely on their own assessments. 7. Analysis of specifi repayment capacity: In order to make good credit decisions, lenders must know how to analyze financial stetements submited by loan applicants. Lenders are expected to follow sound risk management practices in the contest of commercil credit analysis activities. A review of the company's current position with respect to the existing authorized level Page 2018,of commercial lending actvities, capital adequacy position and compliance with commercial credit analysis regulations, guidelines and rulings is essential in determining the creditworthiness of an applicant. 8. Avoidance of undue influence on credit decision: The Board and senior management must set the proper “tone from the top” in not pushing through loans to related persons that violate laws, BB guidelines and circulars, the bank's own crecit risk management policy, and best banking practice. Ability to repay must be the primary criterion for approval. Banks must have polices and processes to prevent related persons from participating in the proposal and approval discussions. The Board and senior management willbe held responsible for ensuring that the bank does not enter into so- called "daisy chains’ or other reciprocal arrangements that are designed to evade the rules, agoregate limits, and sound practices in lending to related persons. A daisy chain is created when Bank A lends to a related person or persons of Bank B, Bank B lends to a related person or persons of Bank C, and Bank C lends to @ related person or persons of Bank A. (Chains offen have even more than three links, to further disguise the coordinated violation) A reciprocal arrangement is created when Bank A lends to a related person or persons of Bank B, and Bank B lends to a related person or persons of Bank A. 9. Training and Experience: itis essential that Executives/member of the Commitee authorized to exercise delegation of business power must have relevant training and experience to carry out their responsibilty effectively and a minimum they should have: © At least 5 years experience working in Corporate! Commercial banking as a Relationship ManagerlHead of Branch’ Head of Crecit, ete. + Training and experience in financial statement, cash flow and risk analysis + Athorough working knowledge of Accounting = A.good understanding ofthe local industry/market dynamics ‘+ Adequate knowledge ofthe folowing areas: Introduction of accrual accounting Industry / Business Risk Analysis, Borrowing causes. > Financial reporting and ful disclosure, Financial Statement Analysis +The Asset Conversion/Trade Cycle, + Cash Flow Analysis. Projections. + Loan Structure and Documentation + Loan Management 9. Time Requirement for ApprovaliDectined of Credit Proposals: ‘© AtBranch level: Branch Authorty as per their business delegation must take decision within maximum of 5-10 days after due diligence and obtaining all required papers and documents including CIB report on the customer. Proposals beyond their business delegation shal be sent to Head Orfce within 7 days after receiving the complete proposal rom the customers and all required papers and documents including CIB report onthe customer. ‘+ AtHead Office Level: (a) CORPORATE BANKING DIVISION (CBD): Corporate Banking Division shall take decision for recommendation or refusal within maximum of 7 days. (>) CRM DIVISION: It the proposed facilites are within the approved delegation of business power of the Management, disposal to be made within 7 -10 days after receiving the proposal from CBD. Pape 308If the proposed facilities are beyond the approved delegation of business power of the Management, disposal to be made within 14-21 days. For the Project loan the time shall be 14-30 days. For the loans under Syndication’ Club financing, time span shall be 30-60 days. The Head Office Credit Committee (HOCC)/ Executive Committee of the Board of Directors/Board of Directors shall teke decision within maximum of: > 7-10 days for simple type of facility > 15-30 days for Project Loan > 30-60 days for Loans under Syndication / Club Finance et. ‘+ Sanction letter to be issued within 1 ~2 days te from the date of receipt of formal approval ‘+ Incase of Large Loan, it must be reported to Bangladesh Bank ‘+ In case of the specific loans like Director's loan, prior approval from Bangladesh Bank to be obtained as per requirements / guidelines of Bangladesh Bank 11, Reporting Of Approved New Facilities and Declined Proposals: ‘A monthly summary of all new facilites approved, renewed, enhanced and a list of proposals declined stating reasons thereof to be reported by CRM to the Managing Director and CEO. 12, Appeal Process Any declined credit proposal may be presented to the next higher authorty for re-assessment) consideration. However, there shall be no appeal process beyond the Managing Director & CEO. 13, Credit Administration & Disbursement Authority: ‘The Disbursement Authority has been separated from Approval authorty, The Disbursement Authority is vested upon the Credit Administration Division (CAD). The flow chert for disbursement process is given below: APPROVAL AUTHORITY (C drerova LETTER Copy HEAD OF HEAD OF cab BRANCH , + Ensuring compliance with terms and ‘condition ofthe approval letter and completion of documentation DISSURSENENT LETTER UPTO TK5.09 CRORE + BEYOND TK. 6.00 CRORE RECOMMEND TO DMD Pap 2h mee GRYThe Credit Administration function is critical in ensuring that proper documentation and approvals ae in place prior to the disbursement of loan facilties. The functions of Credit Administration are strictly segregated from Relationship ManagementMerketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level. Credit Administration procedures are in place to ensure the functions, Disbursement: Security documents are to be prepared in accordance with approval terms and to be legally enforceable through the enlisted! competent lawyer, Standard loan faclty documentaton’s are to be drafted / prepared by the legal counsel + Disbursements under loan facies are made when al loan and security documentation isin place and clean CIB report obtained from Bangladesh Bank. All formalities regarding large loans and loans to Directors are guided by Bangladesh Bank circulars and related section of Banking Companies Act. All Credit Approval terms must be met The checklist cetficate isto be signed by Credit in-charge and Head of Branch. In order to cope with the revised polcy, the disbursement authorty willbe vested tothe Head of Credit Administration Division upto Tk. 5.00 Crore above which will be vested to the Deputy Managing Director. in the absence of the Deputy Managing Director the power may be exercised by the Head of CAD. Custodial Duti + Loan and security documents are o be preserved al respective Branch’ Zonal OficelHead Office ‘= Appropriate insurance coverage to be maintained (and renewed on a timely basis) on pledged! Hypothecated as security + In future Bank will implement centralized documentation process. In this regard, separate unit at Head office! Principal Branch wl be created. ‘+ Securty documents are held under strict contro, preferably n locked fireproof storage & with joint contro. ‘Compliance Requirements: + Allrequired Bangladesh Bank returns are submitted in the correct format ina timely manner. © Bangladesh Bank circularsregulations are maintained centrally and circulated to all relevant Divisions and Branches to ensure compliance +All hit pany service providers (surveyorsivalues, lawyers, insurers, External Credt Rating Agencies ett.) are approved and performance reviewed on an annual bass, Specific Guidelines: Annual Credit Program and Refinancing/Rediscounting Policy of Bangladesh Bank are comprehensive and restrictive, \While achering to such a policy in general, the folowing guidelines must be observed Unsecured Loans and Advances to Individuals: AAs a matter of policy, these loans and advances are discouraged and are subject to folowing restrictions, ifthe Collateral offered consists of assets that are not eadliy marketable, These loan requests must: ‘+ Be supported by financial statements showing all direct and contingent liabilities ‘+ Clearly identify the purpose ofthe loan / advance and sources(s) of repayment ‘+ The overdrafts must be inthe form of approved lines. Overdrafts may not be created to meet ather obligations of borrower e.g. payment of interest or repayment of a past due loan. Every effort must be made to ensure recovery within the agreed tenor. + Receivable Financing: Outstanding must be adequately covered by eligible receivables; Maximum if of eligible receivables must not exceed 12 months * Trade Finance of Supplier's Credit: The basic rule i tat the tenor of the facilty should not exceed the expected ‘economic ife ofthe items imported. Pa 25018‘Changes in Terms and Conditions: Prior approval from Head Office is required to make any material change in a credit / banking arrangement, This applies specticaly tothe changes in interest rate, commission’ charges, maturity, securtycollateral, margin, covennt, waiver of defauit, amendment and release of guarantees) and any other change which would materially alter the credit arrangement from that of intially or previously approved. (credit Monitoring: To minimize credit losses, monitoring procedures and systems should bein place, which will provide an ealy indication of the deteriorating financial health of a borrower. The credit monitoring process in Bank is vested on Credit Administration Division. Head of Credit Adminstration Division will report the exceptional ist of assets on daly basis on the folowing categories ‘+ Past due (which are not paid or renewed at matufy) principal or interest payments, past due trade bills, account ‘excesses and breach of loan covenants; ‘+ Loan terms and conditions are monitored, financial statements are received on a regular basis and any covenant breaches or exception are to be referred to the CRM and the RM team for timely follow-up. ‘+ Timely corrective action is to be taken to address findings of any internal, external or regulatory inspection/auelt ‘+ Allborrowerrelaionships/oan faclities are reviewed and approved through the submission of a Credit Application atleast annually. ‘+ Credit Administration Division will Keep regular folow up and corrective action to be taken in a timely manner before the account deteriorates further. Page 2505CHAPTERV CREDIT RISK MITIGATION PROCESS Bank may uses different strategies such as collateral and guarantees etc. to mitigate credit risks, Credit Risk Nitigation strategies can be of agreements made between the bank and the borrower, or between the bank and a third party, which lower the credit risk to the bank. The existence of credit risk mitigation is not substitute for proper loan underwriting and loan administration. They are correctly viewed only @s secondary sources of loan repayment, never primary sources. Given the often lengthy, arduous, and costly process of realizing the collateral or invoking the guarantee, bank is cautious against making their loans collateral- or guarantee- dependent. A loan is considered collateral-dependent when repayment is expected to be provided solely by the seizure and sale of the collateral, the continued ‘operation of the collateral, or, sometimes, both together. A. Collateral security: The following scheme for categorizing loans by colateral type is recommended: 1. Shares and securities 2. Commodities/export documents: a) Export documents »} Commodities + Export commodities + Import commodities + Other commodities hypothecated 3) Machineryixed assets (exctuding land, buiding/it) 4) Real estate a) Residential Real estate b) Commercial Real estate 5) Financial obligations 8) Guarantee of indWviduals (personal guarantee) 7), Guarantee of institutions (corporate guarantee) a) Guarantee of bank or NBFI b) Other corporate guarantee 8) Miscellaneous a) Hypothecation of crops b) Other 9) Unsecured loans ‘Amount and type required It is imperative that the bank, when extending credit, demands the type and amount of coiateral 2s stated in its credit risk management policy. The loan-to-value ratio must be low enough to absorb declines in the value of the collateral that may occur with a small, though not insignificant probabilty. Details are described at Delegation of Business Power.B. Valuation Methodology: 4, Valuation Procedure: ‘The bank and financial institution used to take collaterals as securty against their approved credit faclity, Security accepted against credit facilities shall property be valued. An appropriate margin of security will be taken to reflect such factor as the disposal costs or potential price movements of the underlying assets. Bank will required to get landed property/Building/Machinery! Stock of Raw Materials/Finished Products assessed while processing credit proposal by the Bank's enlisted 3* party professional surveyors as per credit policy of the Bank. In this regard, the Bank will adopt valuation methodology. 2. The particulars of valuation methodology are as under: itis determined whether the collateral is eligible in terms of the diectves of Bangladesh Bank. Folowing asset is considered as security against the oredit faclities:-Deposts (FDR Scheme, Balance in SBICD/ SND , Otter Bank Deposit), Government bondlsevings certficate, Guarentee given by Govemment or Bangladesh Bank, Gold or gold ‘omaments pledged with the benk, Easily marketable commodities & stock, Machinery kept under contol of the Bank, Company Steres & Debentures listed with DSEICSE and COBL, ICB Unit funds, Govt. Authorized Debenture, Land and building For land and buildings, its ascertained thatthe ttle documents are in order. Tile documents together with chain of documents are got examined by bank's legal advisor, who gives his opinion in respect of valid tte of the owner tothe colateral and its acceptabilty as mortgagable property. Apart from this few key point have to be considered for valuation of Land & Building :- Area of the mortgaged land, Classification of land, Surroundings of Land, Distance from Important place, Route to communication, Location of land, Importance of Location, neome from the land and buiding ete 3. Basis of valuation: 2) Land: To determine the basis of valuation of land is rather a dificult and tricky proposition as there is no ‘uniformityrthumb rule in price of land. ithas been observed on many occasions that the plot lying side by side ‘and having equal facies may fetch diferent price without any apparent and convincing reasons, Valuation ‘ofthe land is made on the basis of plot being purchased and sod in the locality during specific period of time {and inguity from the local people and inhabitants of the area at a random basis to arrive at an average ‘consensus value as to the present price of the land in the locality. The location, size and the facility in and around used to consider at the time of valuation. Mouza rate of specific location also be considered at the time of valuation. b) Building: Bulling is being valued considering the present cost of construction materials, labor cost and workmanship ete. as well as material used for the construction ofthe buiding along with quality of finishing work, fing and fixtures etc, Depreciation being calculated in term of building valuation. Collaterals, having been of acceptable standard, are then visited by responsible officials of the bank to ascertain its location, location status, nature of the collateral, boundary, suitability, how does the property meet eligi crteria etc. 4, Revaluation Frequency: Immovable propery lke land and building will be revalued once in every 03 years. Cash/Quasi Cash securty will be revalued at the time of renewal/enhancementreduction of credit faci. At the time of loan review, collaterals are assessed by adoption of the above mentioned processes, 5, Enlistment Procedure of Valuators: ‘Apart from bank’s own valuation, value of colaterals are invariably done by Bank's enlisted surveyors, who are enlisted fora period of one year by the Board of Directors of the bank from among the firms who are experienced, reputed and have capacity to do the job and do not have any adverse report in respect of valuation. Renewal of Pane 30185enlistment of the surveyor firms are done on expiry of their enistment validity for the next one year, subject to their satisfactory performance, Enlistment criteria for professional survey firms: a) Work Experience: = Length of Service- Minimum 05 years ~ Association with Banks With 05 commercial banks as enlisted survey fms ~ _ The survey company will have own cil engineers and surveyors ') Office: The survey firms should have ov office at Dhaka’ Chittagong! Khulna/ Sylhetfany District ©) Market Reputation: Enlistment of other Bank & Financial Institution and thei reputation. 4) Experience of Key Person: Capabilty & Capacity of Key Persons. For enistment as survey firms, the concerned firm will submit the folowing decuments:- Company profile, Owner ‘and surveyor's profile, Bank enlistment certificate, Bank account statement for last 03 years Enisted suney firs will execute an “indemnity Bond" on 30000 taka nonjucal stamp paper to the eflec that in case of Bark suffers any lossdamege due to their over vauatoridefect of ttle of any security, conealment and Tmenipuiation of facts, they would be lable to rake good the same and Bank wil reserve the right to demand ‘compensation and to take action within the justifiable framework as would be deemed ft by the Bank. Enisted survey fis wil submittheir survey report as per terms of reference to be provided by the Bank Enlistment shall be reviewed once in a year. Enlisted firms having satstctory record of performance shall get renewal with the approval from the Management of the Bank. The Management may cancel the enlistment for delinquents and unsatisfactory performance at any time. The list of suvey firms may require expansion in course oftime, 6. Process of Enlistment ‘+ Request ofthe surveyors addressing the Managing Director & CEO ‘+ A-sheet used to prepare after evaluation of certain criterion ofthe Surveyors such as Reputation, Experience, Capacity, Manpower, Coverage & other eniistment ‘+ Aero used to place before the Board of Directors for their kind approval + After enlistment the respective surveyor provided letter of Indemnity to Bank, ‘+ A Circular used to issue to all the Branches after enlistment of the surveyor 7. Performance Monitoring Plan: The Bank enlisted the surveyors for 02 years from the date of approval ofthe Board of Directors. And enlistment shall be reviewed for next period subject tothe fnsicompany's satisfactory performance. The Bank reserves the right to cancel enlistment without assigning any reason. Head Office representative wil also physically visit few properties on sample basis & Where needed or felt and place a report to the Management Branch is instructed to provide their observation Report justifying the surveyor's valuation Report along with all the credit proposals to Head Office. In observation report the Branch must incorporate the following : Acceptabilly of the Report. Suitability ofthe property as collateral Authentcty ofthe present value and forced sale value ofthe property collaterals, ‘+ Possessors ofthe proposed propery. ‘After specific period Branch will provide evaluation report of the surveyors and after proper grading few surveyor willbe discontinued with intimation to the Board of Director. Pam 0488. Performance Monitoring: ‘The valuation of the property will be counter checked by the Branch official. Price deviation more than 20% should be checked and discussed. Ifneeded, further visit ofthe site to be made by Bank’ Branch and survey firs cofcials. Complains against the survey firms regarding their performance will be taken in account at the time of renewal of enlistment. The Menagement may cancel the enistment for deinquent’s and unsatisfactory performance at any time. ©. Third Party Guarantee: ‘The bank must understand that the credit risk on a loan is not eliminated by the existence of a third-party ‘guarantee. The bank merely substitutes the credit risk of the guarantor for that of its own client. With regard to guarantees, banks should evaluate the level of coverage being provided in relation to the credit ‘quality and legal capacity ofthe guarantor. Additional creit- enhancing steps are the following 42) The corporate guarantee must be supported by a Memorandum of Association (MOA) and Articles of Association (AOA) of the company giving the corporate guarantee. Additionally, the corporate guarantee to be approved in the board meeting of the corporate guarantor. b) The guarantor company must be rated in any of investment grade categories by at least one ECA ©) The balance sheet of the third party giving a corporate guarantee is to be analyzed. Net worth, total assets, profitability, ex'sting credit lines, and security arrangements of the company giving the corporate guarantee to be analyzed to ensure that the company is not exposed to financial obligation beyond its capabilty @) Once the financial stability of the corporate guarantor has deteriorated in terms of the above, the bank shall ask for remedial measures from the borrower (replacement/new collateral) @) Reciprocal guarantee arrangements between two banks will be disregarded. For example, if Bank A guarantees loans made by Bank 8 to certain clien(s), and Bank B guarantees loans made by Bank A to certain clients), only the difference between the two guaranteed amounts will be considered as a Credit enhancement for the purposes of determining the overall level of credit risk at the bank whose ‘borrowers benefited from the higher amount Pan 068CHAPTER-V CREDIT MONITORING ‘A. Borrower follow up & Corrective action: Conducting customer cals and site visits to obtain key data is a crtical and continuous process. For this reason tis important forthe lender to be out inthe field as often as possible because: ‘Problems are often evident here fist ‘+ Problems are often disguised in financial statements, ‘+ The loan proceeds may have been diverted to some other purpose. Depending on the size of loan and isk rating of the customer the lender should conduct a customer call quarterly. To do this the Bank should ‘+ Develop a call schedule plan (Monthly! quarterly). ‘Plan other necessary data gathering + Determine the frequency of site visits by utiizing the loan ciassification. The less favorable the Classification, the more frequent the visits should be. In addition, bank needs to watch carefully the financial standing of the borrowers. The key financial performance indicators on proftabilty, equity, leverage and liquidity should be analyzed. While making ‘such analysis due consideration should te given to business/industry risk, borrowers’ position within the industry and external factors such as economic condition, government policies and regulations. For ‘companies whose financial position is dependent on key management personnel andior shareholders, for example, in stall and medium enterprises, institutions would need to pay particular attention to the ‘assessment of the capabilty and capacty of the management’ shareholders). In case of an existing borrower, bank should monitor the borrower's account activity, repayment history ‘and instances of excesses over credit limits, For trade financing, banks should monitor cases of repeat in extensions of due dates for trust receipts and bils. Bank should regularly review the credit in terms of the borrower's ability to adhere to financial covenants stated in the credit agreement, and any breach detected should be addressed promptly. B, Internal loan review process: Senior Management Support # Objectivity Credibility Loan review should report to the board of directors and receive strong support from senior menagement. Objectivity is critical. Senior Management sets the example; it must be willing to accept unfavorable! undesired information without recriminations. Credibility is vital. A good loan review team acts as a consultant, identifying problems and recommending solutions. Loan review staff should be competent and experienced. Loan review can provide excellent training for potential oan managers. Objectives of Loan Revi 1, Evaluating credit quality of the loan portfolio through an independent assessment of risk ratings. 2. Assessing adequacy of the loan loss reserve with conclusions based on: ‘+ Historical loan loss and recovery experience, ‘+ Projected loan losses and recoveries, + Review of problem loans, * Overall portfolio quality, Current and anticipated economic conditions, and + Abily of the bank to replenish (Joan loss) reserves through earings. Pa os3, Determining Trends: ‘+ Loan review should attempt to extrapolate trends and identify potential problem areas andlor unique opportunities, after examination of such factors as the quality of loan administration and personnel, ctedit concentrations, and vulnerabity to economic conditions. ‘+ A review of current conditions alone is not sufficient because banking is a dynamic business, never static 4, ‘Identifying Problems: ‘* Credit concentrations may pose a problem, e.g ‘+ Once identtied, examination of the source ofthe probiem is important 5, Evaluate adherence to loan policy, laws, and regulations. Are individual loans in compliance with policy, laws and regulations? Why are the violations occurring? Is there a pattem to non-compliance? Perhaps the bank's loan policy is unrealistic or should be altered Perhaps additonal traning of loan officers is needed 6. Assessing portfolio in relation to profitability and funds management objectives ‘+ Evaluating profitability of individual credits ‘+ Evaluating the proftabilty of the portfolio as a whole, 9. Evaluate effectiveness offoan administration & personnel by focusing on the effectiveness of: ‘+ Loan policy + Loan approval systems, + Ongoing foan monitoring, ‘Problem loan administration, and + Loan review itself 3. Early Alert Process: ‘An Early Alert Account is one that has risks or potential weaknesses of a material nature requiting monitoring, supervision or close attention by the management If these weaknesses are left uncorrected, they may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date with a Ikely prospect of being downgraded to § Category or worse (Impaired status), within the next twelve months, Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit responsibilities ofall Credit Officers / RM and must be undertaken on a continuous basis. An Early Alert report shall be completed by the Credit Administration Dvision and to be sent to the approving authority for eny account that is showing signs of deterioration within seven days from the identification of weaknesses. The Risk Grade shall be updated as soon as possible and no delay to be made in referring problem accounts to the Monitoring, Recovery and Compliance Division for assistance in recovery. Despite a prudent credit approval process, loans may stil become troubled. Therefore, the Credit Officers/RMs ‘must ensure the early identfcation and prompt reporting of deteriorating credit signs for swift action to protect the Bank’ interest. The symptoms of important early alert are by no means exhaustive and hence, if here are other Cconcemns, such as a breach of loan covenants or adverse market rumors that warrant additional caution, an Early ‘Net report shall be raised, Moreover, regular contact with customers is to be maintained to enhance the likelihood of developing strategies mutually acceptable to both the customer and the Bank. Representation from the Bank in such discussions shall include the local legal adviser when appropriate ‘An account may be reclassified as a Regular Account from Early Alert Account status when the symptom or symptoms, causing the Early Alert classification have been regularized or no longer exist. The concurrence of the approval authority is required for conversion from Eary Alert Account status to Regular Account status. Pape onesDocumentation Weakness: Failing 10 fle collateral agreements/security agreements with appropriate public departments. Transferring the colateral to another country/state. Guaranties with expired dates. Changes in legal status. Unauthorized corporatelpartner signatures, Collateral Deterioration: ‘© Changes of value in the marketplace + Rising interest rates decrease real estate and investments ‘© Technological advances ‘+ Rapid depreciation of equipment or inventory ‘+ Tex law changes (teal estate) Natural disasters + Spoilage or mishandling of coliateral Extended Credit and High ines of Credi ‘+ Borrower is atthe top of line each month ‘+ Failure to meet financial covenants in loan agreement ‘+ Delays in payment of principal and interest ‘© Use of overtraftsiow belances in current account ‘© Credit inquiries from other lenders * Change of accountants Other Indications of Problem Loans: ‘Delay in receipt of financial statements ‘+ Delay in management promises or returning telephone calls + Change in senior management 4, Classification of Loans, Provisioning & Accounting of Interest of Classified Loans: In order to strengthen credit discipline and improve the recovery position of loans and advances by the Bank, Bangladesh Bank introduced a system covering loan classification, the suspension of interest due and the making provisions against potential loan loss. With a view to strengthening credit discipine and bring classification and provisioning regulation in line with international standard, Bangladesh Bank modifies foan classification and provisioning regulation from time to time vide BRPD circulars. In this regerd, for loan classification and provisioning system, the Bank wil follow Bangladesh Bank Guidelines from time to time. Pam 188CHAPTERVI w NT INF N POLICY ‘A Management Information System (MIS) must provide qualty data to the Board and senior management ‘on the segmented portfolio on a timely basis that will enable the analysis of the current and future risk, and exposure by both the business areas responsible for its management. The business must have and maintain an accurate database containing all application information for both approved and dectined applications, collateral and security information. Data retention specifications must be incorporated in the Credit Instruction Manual. Data archiving procedures and MIS must be adequate to faciitale the evelopment of credit scores and models when required The following indicators (both number and amount where relevant) must be traced and tracked on a ‘monthly basis atthe each business level for Single Products and Multi products: 4. Management information System (MIS) ‘+ Applications received, processed + Applications Approved, Declined * Approval rate, Average credit score of approved limits ‘+ High side overrides/ Low side overrides, Policy Overrides, ‘+ New Business Booked in Amount’ and ‘Number’ ‘© Bank Directors’ Loan information ‘© Rejection Reason Analysis 2. MIS Portfolio: ‘+ Limit increases, Limit Decreases, Renewals. ‘+ Unutiized and Undrawn amounts. © Attrition (voluntary and involuntary). * Net Interest Income (Nl) %, Net Fees Income (NEI) %, Operating Prof %, Trading Profit (TP)%, Risk Adjusted Return (RAR) % [Note: These ratios and percentages seem to apply to the entire bank, not tothe credit function or individual portfolios of credits Delinquency (0+DPD, 60+DPD, 90+DPD, 120+ DPD, 160+ DPD, 180+ DPD or more) ‘© First instalment Default (FID) or First Payment Defaults ‘© Risk grading of customer exposures. ‘Early Alert Reporting, Classified A/C Reporting, Loss Given Defaut, Colateral Values, Deviations. ‘© Overdue Annual Reviews (aged) and Extended Account, ‘+ Gross Write-ofs, New Provisions, Releases, Recoveries, Net Bad Debt, Provisioning Balance Repossessions/oreclosures - initiated, in progress, Inventory. ‘+ Expenses associated with foreclosure provess. ‘+ Foreclosure Assets sold, Write-downs taken periodic and on sale. ‘+ Expenses incurred in maintaining and seling repossessed property. ‘+ Database of Non-Performing Loans (NPL) that are due to environmental reasons, * Clients’ Classification based on Environmental and Social Risk Rating (ESRR) + Environmental and Social Risk Rating (ESRR) wise portfolio MIS. ‘Monthly Loan Set off data and reason analysis repor. + Loan performance repor. Paget3. Segmentation of MIS: The Bank will generate reports for the above indicts for single and multiple products by: Original oan amount or credit line © Debt burden # Risk Score range © Customer profile * Collateral Profle (fully secured! partly secured etc), Breakdown of collaterals held Loan purpose © Loan Size and Tenor * Geographic location ‘Customer Relationship based on Turnover ‘Industry according to SBS code. ‘+ Segment / industry-wise / product-wise loan sanctioned vs. utiization vs. outstanding © Utiization of approved limits (TL / WC) ‘© Risk based pricing performance monitoring ‘+ Loans under “different customer group" performance report Credit Test report i any testis undertaken ‘+ Product wise campaign reports ‘Al indicators must be compared and reviewed with historical performance, expected results and competitive benchmarks where avaiable. Forecasts for future periods must be updated based on actual performance and revised expectations 4, Periodic stress testing: An important element of sound credit risk management is analyzing what could potentially go wrong with individual credits and the overall credit portfolio if conditionsienvironment, in which borrowers operate, change significant. The results of this analysis should then be factored into the assessment of the adequacy of provisioning and capital of the bank. Such stress analysis can reveal previously undetected areas of potential credit risk exposure that could arse in times of criss. Possible scenarios that banks should consider in carrying out sess testing include: ‘© Significant economie or industry sector downturns, Adverse market-isk events; and © Unfavorable liquidity conditions, 5. Loss Control limit: The MIS should wam the Board and Senior Management when the loss experience on a particular type of loan is approaching the established limit so that Management can make an informed decision about whether or not to cease or scale back on that type of lending. The Bank will prepare sector wise classification report and wil place the same before the Board of Directors/ Management for information and taking necessary decision on future lending in different sectors. Pape ScCHAPTER-VIL MANAGING CREDIT RISK OF PROBLEM ASSETS Problem loans are an inevitable consequence of lending. Any time @ loan is funded; unforeseen events could arise and make it difficult for the borrower to live up to the terms of the loan agreement. Problem loans often begin with commercial loan officer errors for example, inaccurately assessing the character of the borrower, misinterpreting the figures on a spread sheet, or simply not saying no to the loan request. These causes of problem loans should and can be minimized 1. Interaction with borrower: ‘Once a potential problem loan has been identified, the banker needs to follow following steps: @) Develop a preliminary plan before meeting with the borrower. b) Schedule a meeting with the borrower soon after learning about the problem loan. ‘© Discuss the problem, explore available alternatives to solve the problem, and establish what actions are acceptable and not acceptable. ‘© The lender decides what additional information, such as. monthly financial statements, the borrower should supply, s0 that the bank can more closely track the situation, + The borrowers also outine interim steps to resolve the problem. 2. Rescheduling and Declassification: Loan recovery is essential for all Banks & financial institutions involved in lending of money. It is recommended that lending procedures are consolidated into an integrated strategy aimed at reducing late payment and default in loan portfolios. Late payments are unacceptable for Barks & financial institutions. Not only do they signal cash problems, unreliability or unwilingness to repay, they also interfere with liquidity planning and therefore immediately produce financial costs for Banks & financial institutions, Once a borrower's problem has been analyzed, a recovery plan may be putin place, The frst decision to be made in this context to cary out this recovery plan. Loan Rescheduling is @ process to recover Bank's dues from the customers and it refers to a change in the term structure of an existing loan andor consolidation of different loans into a single loan. {tis important to bear in mind, that both rescheduling is extremely costly forthe financial institution. This option should only be chosen if the value generated by maintaining the client relationship and bringing in the outstanding loan exceeds the costs incurred by the loan process. It's also important to understand that the extra time spent on @ problem loan is basically unproductive ~ it serves to protect Bank assets but it does not generate additional revenue. Principles for rescheduling of lo Bank shall comply with following Policy Guidelines while considering Loan Rescheduling proposal of Non- performing loans (Loans classified as Sub-Standard, Doubtful and Bad/ Loss) + When a borrower asks for rescheduling of loan, the bank shall meticulously examine the causes as to why the Joan has become non-performing. If it is detected from such review that the borrower has diverted funds elsewhere or the borrower is a habitual loan defaulter, the bank shall not consider the application for loan rescheduling and shall take/continve all legal steps for recovery of the loans. ‘If borrower while applying for rescheduling, pays the required down payment in cash at a time, the bank must address the application within 03 (three) months upon receipt. If the borrower gives any cheque, pay ‘order or any other instrument against down payment, the bank must ensure encashment of such instrument before processing of the rescheduling case. Any previous payment from time to time shall not be treated as a down payment. ‘+ Banks while considering loan rescheduling, must consider overall repayment capabilty ofthe borrower taking into account the borrower's liability position with other banks and financial institutions. In this regard, Bank shall obtain Upto date CIB Report in the name of the customer from Bangladesh Bank. oe PageBanks shall review the borrower's cash flow statement, audited balance sheet, income statement and other financial statements in order to ensure whether the borrower would be able to repay the rescheduled instalimentslexisting libilty or not. ‘© Bank officers shall conduct spot inspections of the borrower's companyibusiness place to ensure that the concemed companyibusiness enterprise would be able to generate a surplus to repay the liability of rescheduling. Banks shall preserve such reports in their branches for Bangladesh Bank's inspection. ‘+ If Bank is satisfied after due diigence as mentioned above that the borrower will be able to repay, the loan may be rescheduled. Otherwise, bank shall take all legal steps to realize the loan and make necessary provision. ‘+ Rescheduling of any loan must be justified in written statement by the bank’s Credit Committee. The statement must give reasons why the rescheduling is beneficial to the long run profitability and capital adequacy of the bank, including the factors that cause the Credit Committee to believe thatthe loan will imately be repaid in full. The statement must aiso explain the impact of this rescheduling on the bank's liquidity position and the needs of other customers. ‘+ The Bank will avoid the routine rescheduling and repeat rescheduling of loans in those cases where borrowers ate experiencing financial dificulty or there is doubt that the full amount of the loan will be recovered. In particular, Bank will place strict limits, or even prohibit, rescheduling of loans to business enterprises in Unproductive sectors, or unprofitable business enterprises in productive sectors. f exceptions are made for certain sectorsibusiness enterprises that do not meet the above guidelines, those sectorsibusiness enterprises should be identified in the policy and a justification for rescheduling should be given. ‘+ Incase of interest waiver, Reduced Interest rate or Interest free Block A/C for sick or classified customers will bbe considered on the Bank-Customer Relationship and opportunity of recovery of Bank's dues subject 10 approval from the Executive Committee of the Board/ The Board of Directors of the Bank. All interest waiver ‘proposal wil be proposed by Monitoring and Recovery Division. In this regards, the Bank wil follow the guidelines of Bangladesh Bank issued from time to time, 3. Restructuring of loans & advances: The term to maturity of aterm loan may be extended subject tothe following conditions and restrictions: ‘The loan must be performing (Unclassified: Standard or SMA) ‘+ The decision should be made at the level where the loan was originally sanctioned. + Maturity date may be extended by a period of tine not exceeding 25% of current remaining time to maturity. Process of extending the term to matunty of aterm loan: ‘© Extension of race period. The expiry date may remain same or extended. ‘+ Extension of expiry dat. Any exceptional ime extension proposal from the process mentioned above will be placed before the Board, In this regards, the Bank will flow the guidelines of Bangladesh Bank issued from time to time. 4, Recoveries and Follow Up of Non-Performing Loans & Advances: Loans and advances in whatever form granted by the Bank to its cents are repayable ether on demand or at the expiry of fixed period or as per repayment schedule agreed upon while granting the facies. If oan is repayable on instalment 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 frst tangible evidence thatthe borrower isin financial dificult. At this point the procedure for dealing with potential loan losses comes into operation. The Head of Branch 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 itis decided to continue the facility For this purpose, each Branch should maintain a diarylcard in prescribed format in which the due date of expiry of credit facity, a notice should be sent to the borrower reminding him of the due date of repayment and making a formal demand for repaymentirenewal asthe case may be. Vigorous follow up action should thereafter be taken by issuing repeated reminders and putting pressures on the borrower by calling on him personaly. In other words, all Cut efforts should be taken to recover the advance on its expiry Pages 46However, ifn spite of vigorous persuasion the borrower fais to adjust the liabilty within the date of expiry ofthe facity, the lability should be downgraded to Special Mention (Grade-5) to facilitate monitoring and further follow Up. The branches should however, stil make constant efforts to recover the advance if necessary, through legal process. Before filing ofthe suit, Head Office approval should be obtained. 4, Law and Recovery Unit (RU) and Its Function: In Head Office there is a recovery unit under CRM and a recovery uni in Branch under the supervision of Head of Branch (HO8). In order to facilitate follow up and recovery of NPA's, the branch as well as Head Office recovery Unit shall review at the close of each month all the Special Mention Account | Classified loan accounts incorporating their comments regarding the prospects and measures taken for recovery. The Recovery Urit (RU) directly manages accounts with sustained deterioration (a, Risk Rating of Special Mention (6) to Bad / Loss (6). The Bank's policy is to transfer EXIT accounts graded 4 6 to the RU for efficient exit based on recommendation cof CRM and Corporate Banking. Whenever an account is handed over from Credit Officer! Relationship Management to RU, a Handover / Downgrade Checklist shall be completed. The RU's primary functions are ‘+ Determine Account Action Plan/Recovery Strategy ‘+ Pursue all options to maximize recovery, including placing customers into receivership or liquidation as ‘appropriate. ‘+ Ensure adequate and timely loan loss provisions are made based on actual and expected losses, ‘© Regular review of grade 6 or worse accounts The management of problem loans (NPLs) is @ dynamic process and the associated strategy together with the ‘adequacy of provisions is regularly reviewed. A process shall be established to share the lessons leamt from the experience of credit losses in order to update the lending guidelines. Incentive Program: ‘A process of incentive programme may be established to encourage Recovery Unit Account Managers to bring down the Non-Performing Loans (NPLs). The incentive rate may be adopted from time to time with the approval from the Management of the Bank. 5. Account Transfer Procedures: Within 07 days of an account being downgraded to substandard (grade 6) 2 Request for Action and a handoverldowngrade checklist should be completed by the Credit Officer / RM and forwarded to RU for acknowledgment, The account shall be assigned to an account manager within the RU, who will review all documentation, meet the customer and prepare a Classified Loan Review Report within 15 days of the transfer. The CLR shall be aporoved by the Head of Credit and a copy to be endorsed to the Head of Corporate Banking and to the Branch where the loan was originally sanctioned. This intial CLR shall highlight any documentation issues, loan structuring weaknesses, proposed workout strategy and shall seek approval for any loan loss provisions that are necessary. Recovery Units ensures that the following is caried cut when an account is classified as Sub Standard or worse: © Facies are withdrawn or repayment is demanded as appropriate. Any drawings or advances shall be resticled and only approved after careful scrutiny and approval from appropriate executives. within ‘approving authority andlor as per Bangladesh Bank guidelines, ‘+ CIB reporting is updated according to Bangladesh Bank guidelines and the borrower's Risk Grade is changed as appropriate. + Loan loss provisions are taken based on Force Sale Value (FSV) or as per classification oriteria as set by Bangladesh Bank, * Loans are only rescheduled in conjunction with the Rescheduling guidelines of Bangladesh Bank, Any rescheduling should be based on projected future cash flows and should be strictly monitored. ‘+ Prompt legal action is taken ifthe borrower is uncooperative. Papeete6. Renewals and Status Verification: On expiry of a facility, the borrower may come forward with a proposal either for renewal ofthe facility for a further period or for enhancement of the existing facilities or for both. He may also agree to offer adtltional stocks'securties or even furnish a guarantor. The Head of Branch (Branch Manager) should examine all such proposals and if he is satisfied, the proposals should be sent to Sanctioning Authority at Zonal Office or Headl Office as, as the case may be, if beyond his business delegation power, duly supported by full blown credit analysis including report of verification of Stocks/status of Collateral Securities eto, 2s is done in case of fresh proposals ‘The Head Office in turn wil process the renewallenhancement proposal after verifying the following factors Justification for renewal / enhancement. Reasons for non-payment / adjustment of the loan in time. Security aspect in terms of outstanding loan, Credit worthiness of the client. 7. Legal Action: Legal proceeding are lengthy and time consuming as well as having an element of negative publicity and as such effort must made to settle a defauiter’s outstanding out of court. However, 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 Head Office. In order to expedite the process, the Government has already enacted the Artha Rin Adalat (Amendment) ‘Act 2003. Therefore the Head of Branch and Monitoring, Recovery and Compliance Division in Head Office must censure that Legal Action are taken properly and in time. All legal process shall be conducted by the Bank's Legal Retainer, f necessary in consultation with Bank's Legal Adviser. 8. Write Off of Loans / Advances: In course of recovery / settlement of long outstanding cases, it may be required to write off any loanladvance or Portion thereof which is unrecoverable or considered a total or partial loss. In 2003 Bangladesh Bank has issued a circular providing instruction / guidelines for write-off of loan (BRPD circular # 02 dated January 13, 2003 and OS Circular # 01 dated 29.12,2004). It is, however, the responsibilty of the Head Office to decide which loansladvances are to be written-of, In this regard, Bank will comply with the Guidelines of Bangladesh Bank issued from time to time Loans / advances which are recommended for write-off must be accompanied by a memo summarizing the citcumstances necessitating the current write-off as well as recovery efforts to date, Under no circumstances should the fact that all or any portion of a loan / advances that has been writen-off be revealed to the borrower, ‘nor should the borrower be informed that the loan / advances is on a non-accrual basis. Despite, the loans and advances being written-off, the recovery process willbe continued for those loan and advances, ‘The Bank will Keep separate ledger balance for the write off loans and advances and show year wise in the Annual Report of the Bank and amount current year write of loans to mentioned in ‘notes to account” separately. Page 80146ANNEXURE: Documentation: “Documentation” should be viewed as @ process of ensuring shield against risk of non-repayment of loan comprehensively in 03 (tree) dimensions: }) The Type of Borrower il) The Type of Loan or credit facies & il) The Type of Security Arrangement A, General Documents: Irrespective of type of borrower, loan and security are: 19, 20. 2, 2 Demand Promissory Note Letter of Authority Letter of Arrangement Letter of Disbursement Letter of Revival Personal Net Worth statement Copy of National ID Credit Approach in Business Pad of the Borrower Credit Application in prescribed format duly filed in Photograph of the Borrower Photograph of the business/inventory Photograph of the mortgaged property Up to date CIB Report Credit report of the Borrower/Supplier Liablity Declaration of the borrower along with an Undertaking that they have no liability with ‘any bank or financial institution except as declared. Undertaking stating that, they will not avail any credit facility from any other bank or financial institution without prior consent of the bank Undertaking stating that customer does not have any relationship as Director or Sponsor with the bank Undertaking stating that customer shall_not sell or transfer the ownership of the business/factoryishop until all amounts due to the bank bank are fully paid or without NOC of the bank. Credit Risk Grading Score Sheet (CRGS) Post-dated cheque covering the credit facilty Acceptance by the Borrower of the Sanction Letter Proper Stamping Page stotB. As per type of Borrower: SL ['SL|_ Type of Borrowe Individual Borrower | Proprietorship Firm Partnership Firm Limited Company ‘Letter of Guarantee of a Third Person ‘Personal Net-Worth Statement (PNS) of Guarantor + Personal Net Worth Statement (PNS) of the Borrower * pee Trade License (up to date) ‘+ Personal Net-Worth Statement (PNS) of Proprietor ‘+ Trade License (up to date) + Partnership Deed (Registered) ‘Letter of Guarantee of the partners + Personal Net‘Worth Statement (PNS) of Partners Letter of Partnership. Trade License (up to date) + Memorandum and Aricles of Association (Certified by RISC) + ListPersonal profile of the Directors ‘Certificate of incorporation + Form Xil Certified by RUSC (Particulars of Directors) Board Resolution in respect of availing loans and execution of document with Bank + Letter of Guarantee of the Directors ‘Personal Net-Worth Statement (PNS) of Directors + Deed of Mortgage and Hypothecation for creation of Charge on fixed & floating assets (existing & future) with RJSC ‘© Modification of charge with RJSC through form 19 ‘Certified copy of charge creation certificate from RUSC ‘© Undertaking stating that the borrower shall not meke any ‘amendment or alteration in Memorandum and Article of Association without prior approval of Bank. ‘© Approval of the Bank for any inclusion or exclusion of Directors | in and from the company ‘Certificate of Commencement (for Public Limited Company) Joint venture Agreement (In case of Joint Venture company) ‘© BOI Permission (In case of Joint venture company)C._ As per type of Loan / Credit facility: ‘SL|_ Type of Loan Document 1. | CC (Hypo) ‘© Letier of Hypothecation of stock in Trade ‘* Supplementary Letter of Hypothecation ‘+ IGPA {spel out acronym to sell Hypothecated goods ‘© Letter of Continuity ‘* Periodical Stock Report ‘+ Letter of Disclaimer form the owner of rented Warehouse + Insurance Policy cover note | 2 [CC (Pledge) ‘* Lette of Pledge ‘+ IGPA to sell Pledged goods ‘© Letter of Continuity ‘+ Periodical Stock Report ‘+ Letter of Disclaimer form the owner of rented Warehouse 1 Pali ~ 3 | Overdraft ‘© Letter of Continuity Ed |__| (Genera + Insurance Policy cover note 4 | Loan Against Work + Bid Document) Tender Notice Order * Letter of Awarding + Assianment of Bils against work order __| 8. | SOD (FO) © The Financial Instrument duly discharged on the Back Lien on the Financial instrument L Letter of Continuity. SOD (Scheme Lien on the Scheme Deposit Deposit) Letter of Continuity 7. | Term Loan ‘© Term Loan Agreement + Letter of Installment Letter of Undertaking ‘© Amortization Schedule Home Loanfor ~~~ Power of afiomey for developing the property purchase of Flator | «Letter of Installment Floor Space ‘* Letter of Undertaking Amortization Schedule Letter of Allotment of Flat or Floor Space Tripartite Agreement among Purchaser, Developer and Bank (If| under construction) Undertaking of the borrower to the effect that he will mortgage the flatfioor space favoring the Bank at the moment the same is registered in his name by the seller (it Under construction) ‘Agreement between Land Owner and Developer Sharing Aareement between Land Owner and Developer ___ /9. Consumers’ loan Personal Loan PNS of the Borrower PNS of the Guarantor Letter of Guarantee of the Guarantor Letter of Guarantee of the Spouse of the Borrower | Insurance Policy cover note Ei ‘AS pet type of borrower and nature of security Papeizatei Lease Finance Lease Agreement Lease Execution Certificate Quotation / Price Offer duly accepted by borrower BRTA Registration Slip (In case of Motor Vehicle) Insurance Policy cover note 2 Hire Purchase Loan Ti House Building Loan Hire Purchase Agreement Quotation / Price Offer duly accepted by borrower BRTA Registration Sip (In case of Motor Vehicle) Letter of Installment Letter of Undertaking Amortization Schedule ‘Approved Pian form the competent authorty 4 House Building Loan(To Developer) Power of Attorney for development of property ‘Agreement between Land owner and Developer Sharing Agreement between Land owner and Developer Copy of approved plan of construction from concerned authority Letter of Installment Letter of Undertaking Amortization schedule Copy of Tile deed of the property on which construction will be made 6, TDBP [spel out acronym) ‘Acceptance of LIC issuing Bank (duly verified) Letter of Indemnity 6, Guarantee Facility ‘Counter Guarantee Bid Document or the document where requirement of Guarantee Syndicated Loan ari passu Sharing Agreement Facility Agreement Escrow Account Agreement Creation of Pari passu Sharing charge with RISC Partcipation Letter ‘Subordination Agreement Deed of Floating charge on the Balance for Escrow Account Accepted Mandate Letter Information Memorandum 8. OR Letter of Trust Receipt Insurance Policy Cover note__ PageC. As per type of Security: SL Type of Security Document 1 Corporate Guarantee Corporate Guarantee of Guarantor Company on Non-Judicial Stamp | Resolution of the Board of | the Guarantor. Company (Memorandum of the Guarantor company must permit to do so.) 2. | Hypothecation of Letter of Hypothecation StockiReceivable s GPA to sell hypothecated Stock / Receivables Letter of disclaimer form the owner of Rented Warehouse 3. | Pledge of goods in Letter of Pledge Trade IGPA to sell pledged goods | Letter of disclaimer form the owner of rented Warehouse 4, | Assignment of ‘Assignment of Bill by the beneficiary through IGPA Bill Letter of Acceptance of Assignment by the work giving authority ._| Lien on Financial The Instrument duly discharged on the back of i | Instrument like FDR etc. Letter of Lien (‘ist Party Lien’ - if the Borrower is the owner of the Instrument, "3rd Party Lien if the Owner of the Instrument is one other than Borrower) Letter of Authority to encash the instrument as and when needed by the 6. | Lien on Demated NOC of the Company incase of Sponsors Share Stock/Shares Confiscate Request Form (Form19-1) duly signed by the pledgor. Pledge Request form (By Law 11.9.3) duly signed by the holder ofthe share 7 7. | Park-Passu Pari Passu Securly Sharing Agreement among lenders. Security NOG from existing lenders if the propertylassets are already under pari passu sharing Certificate of RUSC on oreation of charge on Fixed and floating assets of the company. Form XIX for modification of charge on Fixed and floating assets with RISC Page hot8. | Morigage oflanded| © property ; ° Original Title Deed of the property Certifed copy of Purchase Deed along with eed - Delivery receipt duly endorsed (In absence of original Title Deed) Registered Parition Deed among the Co-owners (if required) Mortgage Deed duly Registered along with Registration Receipt duly discharged Registered IGPA favoring Bank to sell the property Bia Deeds of the mortgaged property Cerffed Mutation Khatian along with DCR Record of Rights ie, CS, SA, RS Parcha, Mohanagar Jorip parcha (i within Mohannagar Area) B.S. Khatian Affidavit to be swom by the owner of the property before 1% class Magistrate that he has vali title in the property and not encumbered otherwise Up-to-date Rent Receipt Upto-date Municipal Tax Payment Receipt (if property within Municipal Area) Up-to-date Union Parishad Tax Payment Receipt (it property within UP) Approved Plan of Construction from concemed authority (ifthere is any construction upon the land) Original Lease Deed (In case of Lease hold property) Lawyer's. satisfaction certificate regarding appropriateness of mortgage formalities Lawyer's opinion in respect of acceptabilty of the property as collateral security. Physical Visit Report by Bank Officials Survey Report from professional Surveyors Location Map Photograph of the Mortgaged Property Board Resolution of the Mortgagor company duly supported by the provision of Memorandum and Article of Association (when one company ‘mortgaged on behalf of the loan of other company) NNEC {spell cut acronym] along with search fee paid receipt NOC of the competent Authority for Mortgage. fee ‘* Mutation letter favoring Lessee (in case of Leasehold Property) Page 50146Documentation relating to Bank-to-Bank Loan takeover process: Photocopies of security documents i.e, mortgaged property documents, Corporate Guarantee, etc, Lawyer's Opinion regarding acceptance of the securities Liability position of the borrower to the disposing bank Confirmation Letter of the disposing bank about redemption of mortgage and handing over of all original security deeds and documents directly after adjustment of loan through Pay Order. Undertaking of the owner of the property that they wil mortgage the property after being redeemed by disposing bank. Page stotNote: 1 NRB COMMERCIAL BANK LIMITED ICE DELEGATION OF BUSINESS POWER OF MANAGEMENT AND EC Delegation of Business Power is the maximum amount of credit exposure against per customer to be approved by delegated official. Customer means individual/ professional/ firm/ company/ group/ NBFI/ MFI/ education entity under board of trustee/ any eligible organization. Publicly listed companies where public share is 50% or more to be considered separate customer from the group. Exposure means Sanctioned Credit Limit - Margin (Cash/FDR with NRBCB) - Cash Security (Balance in SB /STD/ FC¥/ FOR/Scheme Deposits with NRBCB). Delegated official/ Committee will abide by credit restrictions and regulatory norms issued from time to time by Bangladesh Bank. Delegation of Power does not allow sanctioning official to relax ‘or waive any credit restriction/ stipulation in force from time to time. No HOB will exercise the delegation until receipt of authority letter from HRD, Head Office as issued by Managing Director of the Bank. Managing Director of the Bank may time to time stop/ suspend/ reduce delegation of any HOB/ authorized official of head office. Prudence and judgment will be applied at the time of exercising delegated business power. Proposals beyond delegated power will be vested on the next level of sanctioning authority. All large loan proposals and beyond or the proposals beyond the above mentioned business to be placed before the Board of Directors for consideration. Managing Director will place delegation before the Board of Directors from time to time considering business opportunity. There will be credit committee to conduct due diligence of business proposal. Committee will be comprised of AMD, DMD, HOCRMD and HOCBD in head office and HOB, MOP and Credit In- charge in branches. Committee members will sign the proposal/ office note/ memorandum in lieu of preparing meeting minutes separately, EC may relax collateral coverage, allow any facility not mentioned above but not over large loan amount. Managing Director may allow i. any funded facility maximum Tk 50.00 lac within the delegated power mentioned above without collateral, ii. relax collateral coverage by 30% as mentioned above, il, reduction of interest rate within the band of midratet1.50% against the funded facilities approved by branch/ head office management/ EC/ Board, iv. reduction or waiver of fees & charges, penal interest, margin, equity, advance rental, pre Payment charge etc. ¥. inclusion of new director in borrower company, vi. Time Loan-Forced to the extent of bank commitment under L/C or 8G for settlement of PAD, ‘Accepted Bill, BG claim having expiry on the following day of creation, wil. LIC, LTR, Time Loan, HP, LF, BG, Loan/ SOD (FO), Vehicle Loan, HBL, Term Loan etc. for maximum Tk 100.00 lac (net off margin/ cash collateral) in addition to their existing limits approved by EC/ Board but not exceeding the large loan amount (LLA), Vili. continuation of expired limits for interim period till renewal/ review, ix. any facility not mentioned above against 100% cash collateral/ margin, X. release of partial security in proportion to liability adjustment under the limits approved by branch/ head office management/ EC/ Board, xi, transfer of loan from one branch to another,xii, consent to access pari passu security sharing agreement with other lenders, xill, sharing of L/C opening commission and other charges with NBFls, other banks opened at their request or against their letter of comfort xiv. waiver of insurance clause under the limits approved by branch/ head office management/ EC/ Board against undertaking of the borrower to keep the bank harmless from any loss HOBs will not have any delegation to sanction composite credit facilities. However, opening of L/C with eventual facility ike \TR/ Time Loan/ Hire Purchase/ Lease Finance/ HBL will be considered as single credit facility There will be efforts to follow Green Banking concept in every process to reduce use of paper and expedite process time. Hence, following activities will be focused to maximize use of computer/ automation instead of paper: i. generation and preservation of loan statement at head office and branches in soft copy will be followed instead of paper printing for monitoring purpose, ii, sanction advice will be prepared in one copy to forward required number of scan copies to concerned branch and divisions instead of printing multiple hard copies, iii, credit committee members will sign business proposal/ note/ memorandum instead of Preparing and printing meeting minutes separately, iv. CIB reports as down loaded to be preserved in head office server and make it available for use of authorized officials instead of get it printed, ¥. delegated officials and credit officers will visit NRBCB archive and Bangladesh Bank website ‘on regular basis to read credit circulars and guidelines and keep them update at all times to avoid reproduction and printing of circulars.NRB COMMERCIAL BANK LIMITED. HI E DELEGATION OF BUSINESS POWER OF EC AND MANAGEMENT Amount indicat below is eredit exposure expressed in ae nee Partials Delegated Amount, Margin & Seer pe Fioaeco | ano omo | 1) | Stock Finance to accommodate working capital Inthe form of 1. Cash Cregit-Hypo {Cc} to maintain stock, | Amount 3500 100 8 50 finance overhead expenses, meet financial equirement for one year valiity on | revolving basis | 2 Overdraft (00) to procure stock, fiance receivables and overhead expenses, meet | syarn flagnciol requirement for one year vali le for one year valty | | meer 4 | 20% 30% 20% 20% onrevoling basis at 4. Time toon (1) to procure sock lcly | ° cing seasonal festa ems, sare | parts, pay emergency utility bill or connection charge, meet __financial x Description of fi eauitement for one year valiity on revolving basis but maximum 270 days enor | gaamarsis.s | 2 Ey cy a foreach time loan 4 Dealer Loan {D4 to lit sock tom principal forone year validity on revoking bass 5, Bank Guarantee {B6) to procure stock on crectformaximum one year validy coher 6 Inland Ltter of credit ic) o procure stock | Coverage | 2588 | 100% | 300 | 00% from local sources under siaht basis or deferred uoto 180 deys tenor |W Mecinry anc to proce cap wactney | | er equment through impor, rom lea source ‘made in Bangladesh or 3 party imported brand — baal oe e 2 new) reconditioned machinery, france | instalation, commission, repair, refurishment | of machinery inthe form of en 1 Hire Purchase for 37 years term having | Advance | 30% | 30m | 30% | 30% ovanersip inte name of te borower ental 2 tease Finance for 37 years term having nership inthe name ofthe bank 3 Term toan for 38 years term having | caer ownership in the name of the borrower 50% 78% 15% 75% covering instalation and commission cost, | C°¥e"*8* | emergency cost for repair/ refurbishment | ia) Consatn Freres te ecommodete | prey | 3500 ay z 1. House Building Loan (Commercial) for §-12 | ~ years term to construct factory/ | Equity 30% 30% 20% 30% commercial’ apartment building, purchase commercial space/ building/ shon Primary 2 Tetm Loan for 3-7 years term for renovation | Security sax | 140% | sao | 40% or emergency repair of existing bulding/ | CoverageRB COMMERCIAL BANK LIMITED DELEGATION OF BUSINESS POWER OF EC AND MANAGEMENT ‘amount indestad boiow ie eredit exposure exprosted in aT x ‘Deserition af Finance Paricalors Delegated Amount, Margin & Security F__[ waco | amo [pmo ‘commercial space, pay off informal loans agsinst deposit of ttle deed iv) | Residence Finance to accommodate capital ‘expenditure of salaried person, self employed or business person in the form of Amount 120 100 u so 1. House Building Loan (Residential) for 5-20 {years term to construct residential building, ‘semi pucca tin shed 2. Home Loan for 7-18 years term to purchase flat/ apartment/ residence building 3. Home Decor Loan for §-20 years term for | Favky 30% 30% 30% 30% aint, renovation, er emergency cepair of existent residence, pay off informal loans, thor nne ki ef - pore ure, incor renstrotion enmenses et | saint depos of tite deeds Token. | Primary 10.00 oc may be operoved by MD ogoinst | Security | 140% | 240% | 140% | 240% oo os mortgage or deposit of title deed. ” Business Vehicle Finance to procure vehicle for srk vam mm a a busines ofa use inthe frmet a 1. He Purchase for 35 years term having | Ea | ‘ownership in the name of the borrower mines | 30 ai am ame ‘2. Lease Finance for 3-5 years term having Rental | ownesipinthename of tebank Catateat] ; - Coverage | Penal vehicle Finance to proawe bard new] Amount] =| ap as) ‘or reconditioned (maximum 5 years old) vehicle i cr ep, mcobus for own use of solaried person, self employed or business person in the Equity/ = =m _ saad | form of ‘Advance 1. Hire Purchase for 3-5 years term having. _— cwnersbin te name ofthe borrower a : 2. Lease Finance for 3-5 years term having Celatarst ownership in the name of the bank are will Agri Community Finance te finance farmers | Amount 2 2 = = group to undertake large or medium scole | individual culivation/ fishing/ dairy) positry/ forestry or | pomower any other egri initiative jointly. Faiity to be | extended inthe form of: ‘amountin | 1200 | 100 = E | Term Loan-Agri Community for 5 years term to | gagregate for procure machinery or equipment, corgo van | the group {outo or manvol), fish fy, cow, chick bird, tractor, deep tube well, submersible pump, | Meuotmm. | 300 | 300 = = harvesting equipment and others, bud | BOLLOWers in irrigation canal and house, dam, cow or poultry | the aroup shed, storage house cold storage, silo et), agri ‘market or hat, eer shop, dig pond or canal, do | Eaulty ox | am = plantation or social forestry eteNRB COMMERCIAL BANK LIMITED HEAD, OFFICE DELEGATION OF BUSINESS POWER OF EC AND MANAGEMENT ‘mount indicated below seed exposure expressed in ac Tk = Deserption of Finance Paricaars Delegated Amount, Margin & Securit | woacco | amo MD. ‘Overdrafi-Agri Community or one year validity | primary | 44x | a0 with renewal option in favour of the co-| sq | ‘operative to meet working capital requirement. PG of board members of the co-operative and a | Sexeraat ‘cheque of the co-operative to be obtained os sont ra a = _ lote: para) Foch member of the group will borrow | oiv] | Syndication Finance wil include arranging, agent function, escrow bank, participation, opening YC ‘on behalf of al lenders ete. Finance willbe made In the form of UC, BG, Term Loan, HP, LF, MBL €C, 00, LTR, Time Loan ete Note: Amount Proposals under Consortium Finance Uoint | gaainstioan |. ‘Appraisal by the prospective lenders under Lead | particivation ~ . Bank) or Club Finance Independent Oue| andiye | E8800 Diligence by the lenders against approach of the | opening | borrower) will be considered by EC under Syndication Finance category. EC may approve any amount of Syndication functions like, arranging, agent function, voy) | Treasury Finance to manage bank fund for the | Amount As urpose of requlatory ond business requirement | ogainst Sl. requitedNRB COMMERCIAL BANK LIMITED. HEAD OFFICE DELEGATION OF BUSINESS POWER OF EC AND MANAGEMENT Amount indicated below is eredit exposure expressed in ac Ta = Deseipion af nance Paataars Delegeted Amount, Margin 8 Security | ee__| moecto | awo | ow 4. Fund Placement i 88/ Treesury Bil/ Bond, | Amount FeY, shares in secondary market, Fined/| quainse ss | 1800 = = Term Deposit, Cll Deposit ete 2. Fund Procurement through Liquidity | _ aroun isco | 100 L s ‘Support, Repo/ Reverse Repo, lien of | 2aainst Sl. Instruments/ ECY, Call Borrowing, Flxed/ | Amount Term Deposit ete. agoinstss | 32 = = 5 43. Investment in private bond, debenture, BOL re-PO, Bridge Finance, Preference Share (convertile/ non convertible) 4. Investment in Corporate Commerciol Note | to finance receivables on | tocmaximum 270 days | 5. twestment in SME Commercial Note to 20dovs, 6 investment in_Agri Commercial Note to | finance Mls forget credit program for | eaximum 270 davs amount | 559 Pt : hier acinstsL.6 ‘Mo will opprove Bank's fund manogement by signing the blotter/ investment statement of even working doy. | 'Mo wil approve selina of any instrument jo fll ‘x part on or before the maturity depending on | regulotory requirement, profitability, market condition ee. Y- Market volue of security tobe considered while coleulating oe oterat cov Y i ‘or quasi cash ¥ EDE fociities to be ollowed by 1D/ CAD within the requitNote: NRB COMMERCIAL BANK LIMITED HI E DELEGATION OF BUSINESS POWER OF HOB Delegation of Business Power is the maximum amount of credit exposure against per customer to be approved by delegated official. Customer means individual/ professional/ firm/ company/ group/ NBFI/ MFi/ education entity under board of trustee/ any eligible organization. Publicly listed companies where public share is 50% or more to be considered separate customer from the group. Exposure means Sanctioned Credit Limit - Margin (Cash/FOR with NRBCB) - Cash Security (Balance in SB /STD/ FCY/ FDR/Scheme Deposits with NRBCB). Delegated official/ Committee will abide by credit restrictions and regulatory norms issued from time to time by Bangladesh Bank. Delegation of Power does not allow sanctioning official to relax or waive any credit restriction/ stipulation in force from time to time. No HOB will exercise the delegation until receipt of authority letter from HRD, Head Office as issued by Managing Director of the Bank. Managing Director of the Bank may time to time stop/ suspend reduce delegation of any HOB/ authorized official of head office Prudence and judgment will be applied at the time of exercising delegated business power. Proposals beyond delegated power will be vested on the next level of sanctioning authority Proposals beyond the above mentioned business to be placed before the Management/ Executive Committee of the Board of Directors/ Board of Directors. Managing Director will place delegation before the Board of Directors from time to time considering business opportunity. There will be credit committee to conduct due diligence of business proposal. Committee will be comprised of AMD, DMD, HOCRMD and HOCBD in head office and HOB, MOP and Credit In- charge in branches. Committee members will sign the proposal/ office note/ memorandum in lieu of preparing meeting minutes separately. HOBs will not have any delegation to sanction composite credit facilities. However, opening of L/C with eventual facility like LTR/ Time Loan/ Hire Purchase/ Lease Finance/ HBL will be considered as single credit facility. There willbe efforts to follow Green Banking concept in every process to reduce use of paper and expedite process time. Hence, following activities will be focused to maximize use of computer/ automation instead of paper: i. generation and preservation of loan statement at head office and branches in soft copy will be followed instead of paper printing for monitoring purpose, sanction advice will be prepared in one copy to forward required number of scan copies to concerned branch and divisions instead of printing multiple hard copies, credit committee members will sign business proposal/ note/ memorandum instead of preparing and printing meeting minutes separately, iv. CIB reports as down loaded to be preserved in head office server and make it available for use of authorized officials instead of get it printed, v. delegated officials and credit officers will visit NRBCB archive and Bangladesh Bank website on regular basis to read credit circulars and guidelines and keep them update at all times to avoid reproduction and printing of circularsNNRB COMMERCIAL BANK LIMITED HEAD.OFFICE DELEGATION OF BUSINESS POWER OF HOB Amount indicated below is eredit exposure expressed in lac Tk 3 Description of Finance Particulars Delegated Amount, Margin & Security Principal | ADUrban | NonAD | — Rural Branch Urban 1) | Stock Finance to accommodate working capital in the form | amount oe 2 15 5 of Cash Credit (Hypo) to maintain stock, finance overhead | Margin 30% 30% 30% 50% ‘expenses for one year validity on revolving basis 2 Overdraft to procure stock, finance receivables and ‘overhead expenses for one year validity on revohing basis 3. Time Loan to procure seasonal/ festival stock, spare parts, pay emergency utility bill or connection charge for | collateral ‘one year validity on revolving basis but maximum 270| Coverage | 200% | 200% | 200% | 200% days tenor for each time loan 4. Bank Guarantee to procure stock on credit for one year vality 5. Dealer Loan to lft stock from principal for one year validity on revolving basis ii) | Machinery Finance 10 procure capital machinery or ‘equipment through import, from local source made in | Amount 0 15 10 = Bangladesh or 2 party imported brand new/ reconditioned | machinery, finance installation, commission, repair, | Equity/ | refurbishment of machinery inthe form of Advance | 30% 30% 30% a 1. He Purchase for 3-7 years term having ownership in| Rental the name of the borrower 2. Lease Finance for 3-7 years term having ownership in | the name of the bank 3. Term Loan for 3-8 years term having ownership in the | Collateral | a 7% Z name of the borrower covering installation and | Coverage commission cost, emergency cost for repair) refurbishment «| Construction Finance to accommodate capital expenditure beietooied: Amount | 20 as | ow 8 1. House Bulling Loan (Commercial for 512 years term [Ey So 7 7 = to construct factory/ commercial/ apartment building, purchase commercial space/ building eimiany 2 Term Loan for 3-7 years term for renovaton or | i | Finance of Composite Credit will be combination of more than one fciity. However, Opening of LC with eventual | ag z i i faclty lke LTR/ Time Loan/ Hire Purchase lease Finance/ HAL wil be considered a single rect fcity vo) | Finance Review wil include renewal, enhancement and reduction of existing facities within the delegated power as | Amount | 500 400 100 30 mentioned tem wise under sto xvi