Chapter-1

Introduction

1
 1.1 Origin of the Report
Our economy is changing daily, and with it, the talents, skills, and experience needed to be a
part of that growth cycle are too. The job market is a competitive one, and often that is a tough
learning curve for recent graduates. This is a big reason behind the growth of applied learning
and internship opportunities becoming a key of the college experience for all students. An
internship is as any official or formal program to provide practical experience for beginners in
an occupation or profession. The most important element of internship is that they integrate
classroom knowledge and theory with practical application and skills developed in professional
or community settings. They also bring a wealth of benefits to students, both while completing
a degree and when seeking a career path post-graduation. The process of credit risk
management starts from the very beginning of appraisal of a proposal and it continues until
final recovery. In between the process there remain several factors and indicators. Lending is a
regular function of the banks. The risk of non-recovery is always with a credit facility. In this
respect Credit Risk Management is one of the most important matters of consideration to the
bankers.
Internship program is a pre-requisite for acquiring BBA Degree. Before completion of the
degree, a student must undergo the Internship program. As the classroom discussion alone
cannot make a student perfect in handling the real business situation, therefore, it is an
opportunity for the students to know about real life situation through this internship program. A
report is required to be prepared to summarize the intern’s analysis, findings and achieved
knowledge from this program. This report is a basic academic requirement for the completion
of BBA under the Department of Business Administration, Dhaka City College. I was
approved by Dhaka City College to Bangladesh Commerce Bank Limited at Mirpur Branch to
take real life experience of the activity of the organization. The report titled “Credit Risk
Management of Bangladesh Commerce Bank Limited” is based on the study done in the
internship period in Bangladesh Commerce Bank Limited (BCBL). It contains a concrete idea
about the overall activities of General Banking System of Bangladesh Commerce Bank
Limited.

2
 1.2 Objectives of the Report
The main objective of this report is to describe the credit risk management process of
Bangladesh Commerce Bank Limited. Besides this, there are some other objectives
which are mentioned below:

● Evolution of credit risk management tools for effective measurement of customer

satisfaction.
● Identify problems & challenges of Bangladesh Commerce Bank
● To gather knowledge about credit risk and its management procedures and link that
with the practices that are exercised in Bangladesh Commerce Bank Limited regarding
CRM
● To have overview of the operations of the CRM department of BCBL
● To have an idea about their standard of performances relating to lending operations
● To have an idea about their performance relating to lending operations
● To find out the bottleneck both for the bank and customers that deploys the credit
performance of the Bank
● To find out some recommendations that may help in solving those problems

1.3 Methodology of the Report

A well systemized data collection is prudent for making a report that reflect the actual
circumstances since finalizing the report topic to the presentation of complete report
there was best effort to maintain a systematic process.

Primary Data

● Practical desk work

● Conversation with officers
● Conversation with customers
● Files that was provided by related officials

3
 Secondary Data

● Annual report and periodic publications of Bangladesh Commerce Bank Limited

● CRM manual of Bangladesh Bank
● Policies and CRM manual of Bangladesh Commerce Bank Limited
● Office circulars of Bangladesh Commerce Bank limited
● Books, newspapers and journals that are concerned with the topic of the report
● Website of the Bangladesh Commerce Bank Limited In this report I tried

to portray my experience and knowledge

1.4 Scope of the Report

The report commences with the outline of the organizing in focus, presenting the
mission and vision, individual department job responsibilities, Credit Risk Management
related issues are discussed in detail along with their results and possibilities. In this
report is all the aspects of credit risk management will be discussed detailed by those
the management can take decisions regarding modifying their plans for granting loan
and can strengthen the relation with the business environment as well as with the
stakeholders and clients.

1.5 Limitations of the Report

To prepare a report on the topic like this in a short duration is not easy task. In
preparing this report some problems and limitations have encountered which are as
follows:

● The main constraint of the study was insufficiency of information, which was required
for the study. But the employees do not provide due to security and other corporate
obligations.
● Lack of opportunity to access to internal data.
● Due to time limitation, many of the aspects could not be discussed in the present report.
● Since the bank personnel were very busy, they could not give enough time.
● Based on secondary data in most cases for preparing this report.

4
 Chapter–2

Overview of Bangladesh Commerce

Bank Limited

5
2.1 Historical Background

BCBL is a public limited company incorporated in Bangladesh on June 01, 1998 under
the Companies Act 1994, the Bank Company Act 1991 and Act 12 of 1997. Bangladesh
Commerce Bank Limited is known as a commerce bank. Like all commerce banks
BCBL’s core business is obtaining deposit and providing loans. It is a financial
institution providing services for businesses, organizations and individuals. Service
includes offering different types of deposit account such as current deposit accounts,
saving deposit accounts and other scheme accounts as well as giving out loans to
businesses and individuals. BCBL make its profit by taking small, short-term, relatively
liquid deposits and transforming these into small, medium, larger loans for short,
medium and longer maturity loans. These processes of asset transformation generate net
income for BCBL. BCBL also does investment banking though it is not considered its
main business area.

However, BCBL is primarily engaged in deposit and lending activities to private and
corporate clients in wholesale and retail banking. Other services typically include credit
cards, mobile banking, custodial service and guarantees, cash management and
settlement as well as trade finance. It’s started banking operations on 16 September
1999 with an authorized and paid up capital of Tk 2,000 million and Tk 920 million
respectively. The share of the government of Bangladesh in the bank’s paid up capital
is Tk 300 million while depositors of the former Bangladesh Commerce and Investment
Limited (BCIL) contributed Tk 520 million. The balance of Tk 100 million is to be
subscribed by banks and financial institutions under guidance and supervision by
Bangladesh bank.

2.2 Branches of BCBL

There are total 62 branches of Bangladesh Commerce Bank Limited situated in 18

districts in Bangladesh. You may browse the branches by districts or pick your nearby
branch directly from the list below. Following table of all Bangladesh Commerce Bank
branches will help you to have any particular branch address with location, telephone
number, routing number, SWIFT code and other related information. Clicking any
6
 district names will provide you another list of branches in that particular district and so
on any branchames will show you total branch information directly. We have arranged
the list firstly by district names and secondly by branch names alphabetically.

Branches by District:

● Barisal 07
● Bogra 01
● Chittagong 06
● Comilla 01
● Dhaka 19
● Dinajpur 05
● Feni 05
● Gazipur 05
● Jessore 02
● Khulna 02
● Lakshmipur 01
● Madaripur 02
● Moulvibazar 01
● Narayanganj 02
● Sylhet 01
● Tangail 02

Source: www.bcblbd.com
Head Office:
Bangladesh Commerce Bank Ltd. Eunoos Trade Centre (Level-22) 52-53 Dilkusha C/A
Motijheel Dhaka-1000. Phone: 9571581, 9559831-2, 9563757
Fax: +880-2-9568218,
Email: info@bcbl.com.bd Swift: BCBLBDDH

7
2.3 Vision
To become a Bank of first choice by the customers with meaningful contributions to the
society.

2.4 Mission
Bangladesh Commerce Bank Ltd. is committed to fulfill its customer needs and become
their first choice in banking so that a sustainable growth, reasonable return and
contribution to the development of the country can be ensured with a motivated and
professional work force.

2.5 Strategic Priorities

● To maintain a healthy growth of business in all core activities with desired image
● To acquire state-of–the art technologies and adopt innovative ideas for financial
inclusion
● To strengthen the risk management technique and compliance culture
● To expand the customer base and maintain an incremental deposit & reduce the non-
performing assets
● To develop appropriate corporate governance system and culture with best practice
● To establish relationship banking & continuously improve service quality
● To extend banking services to all classes of people
● To ensure environment friendly investment in line with the “Green Banking Guideline”
issued by Bangladesh Bank
● To take effective measures to increase capital base and provision shortfall.
● To enrich management capacity & human resources quality and develop a pro- active
work force with a suitable compensation package
● To be a trend-setter in the socio-economic development of the country

8
 2.6 Offerings

BCBL offers affordable financing at reasonable rates. BCBL offers credit limit to
finance current assets and working finance and long term loan to finance fixed assets,
capital machinery etc. Bank also finances Real Estate, Work order, Foreign Trade

2.6.1 Cash Credit Hypothecation

Cash credit hypothecation is a kind of running account that offers a credit limit.
Borrower can withdraw up to that credit limit. Cash credit hypothecation use by the
business person to meet the day to day business expenses. It requires inventory to be
kept as security.

2.6.2 Overdraft

BCBL offers overdraft against lien of different financial instruments. Financial

instrument could be of following types:

● Fixed Deposit in the name of borrower

● Fixed Deposit in the name of 3rd party
● Against Savings Schemes

2.6.3 Bill Purchase / Discounting

Business organizations may sale or discount their bill of exchange in BCBL which
arises from the domestic and international trade.

2.6.4 Term Loan

Bank provide long term loan to business organization to finance fixed assets or capital
machineries. This loan is payable by equal monthly installments.

2.6.5 House Building Loan

House building loan provided to individual and business organization for construction
of building or completion of finishing works to be used for commercial and residential
purpose.

9
2.7 Products/Services of BCBL
Products & services of BCBL are stated below:

10
2.8 Corporate Profile of BCBL

Name of the Company : Bangladesh Commerce Bank Ltd.

Chairman : Dr. Engr. Rashid Ahmed Chowdhury

CEO & : Md. Abdul Khaleque Khan

Managing Director

Legal Status : Public Limited Company

Code 030

Genesis : A public limited company incorporated in

Bangladesh on June 01, 1998 under the
Companies Act 1994, the Bank Company
Act 1991 and Act 12 of 1997.
Date of Incorporation : 1 June 1998

Registered Office : Eunoos Trade Center (Level-22), 52-53

Dilkusha, C/A. Dhaka – 1000, PABX:
9559831
Authorized Capital : BDT 10,000 Million

Paid-up Capital : BDT 1,989 Million

Face Value Per Share : BDT 100 per share

Company : C-35510(2286)/98
Registration No
Bangladesh Bank : BRPD(P)744(KHA)/99-2842
License Number
Phone-PABX : +880 2 9571581, 9559831-2, 9563757

FAX : +880 2 9568218

SWIFT : BCBLBDDH

Website : www.bcblbd.com
E-mail : info@bcblbd.com

Table 1: Corporate Profile of BCBL

11
 Source: www.bcblbd.com

2.9 Board of Directors

Name Designation

1. Dr. Engr. Rashid Ahmed Chowdhury Chairman &

Director
2.Md. Wahiduzzaman Khandaker Director
3.Mr. Md. Farhad Uddin Director
4.Dr. Md. Jafar Uddin Director
5.Mr. Md. Moshiur Ali Director
6.Mr. Mohammed Arshed Director
7.Mr. Mohammad Hanif Chowdhury Director
8.Mr. Md. Shafiqul Islam Director
9.Mr. A A M Zakaria Director
10.Mr. Humayun Bokhteyar FCA Director
11.Mr. Ruhul Quddus Muhammad Forkan MD & CEO

2.10 Analysis
Deposit and Loan of BCBL (2018-2022)
year FY 2018 FY2019 FY2020 FY2021 FY2022
loans 5010.43 5785.98 6256.2 8266.02 11334.44
deposits 5682.93 6786.86 7604.97 12187.61 13876.88
Source: Financial Statement and Annual Report of BCBL

12
 Graph no-1; Title: Total Deposit and Loan of BCBL (2018-2022)

Chart Title

15000

10000

5000

FY 2018 FY2019 FY2020 FY2021 FY2022

loans deposits

Source: Financial Statement and Annual Report of BCBL.

Interpretation: The amount of total deposits and loans and advances has increased
constantly over the year. In the year 2022 it reached its highest point.

Growth
50.00%
42.74%
40.00%

30.00% 32.46%
25.49%
20.00% 20.19% 18.75% Growth

10.00%

0.00%
FY 2018 FY2019 FY2020 FY2021 FY2022

Graph no-2; Title: Growth of Loan and Advances of BCBL (2018-2022)

Interpretation: In the first three year the growth rate of the loans and advances
remains increasing. The rate was highest in 2020 of 42.74% more from the previous
year. But in the next year this rate fall dramatically to 18.75%. By taking quick step the
management has become successful in increasing the growth rate.

13
 Graph no-3; Title: Total Loan and Advances of BCBL (2018-2022)

FY201 6153
4 9

FY201 4873
3 6

FY201 4418
2 8

FY201 3112
1 9

FY 2329
2010 3

10000 20000 30000 40000 50000 60000 70000

Source: Annual report of BCBL

Interpretation: Like the total loans and advances net loans and advances has been
increasing over the years. In 2022 the amount was about tk. 61539 million.

Graph no 4; Title: Recovery rate of Loans and Advances of BCBL (2015-2019)

Recovery rate
97.97
97.28
96.31 96.47
95.74
Recovery rate

Interpretation: From the above graph it is seen that the recovery rate of loans and
advances of
BCBL is gradually increasing and in 2018 it was about 97% which indicates a strong
recovery strategy of the bank.

Graph no:-5; Title: Total non -performing Loan and Advances of BCBL (2015-2019)

14
 NON PERFORMING LOAN & ADVANCES

2000

1500

1000

500

Year FY 2018 FY2019 FY2020 FY2021 FY2022

Source: Financial Statement and Annual Report of BCBL

Interpretation: Non-performing loans and advances were increasing previously. As the

bank took necessary steps the amount declined to tk. 1420 million in 2020 from tk.
1902 million in 2019. But it increased slightly in the last year.

Table no-6;Title: Total unclassified Loan of BCBL (2018-2022)

Year Year Year Year Year
2018 2019 2020 2021 2022
4202.3 4769.3 7197.6 7685.5 8034.7
7 8 6 8
Source: Financial Statement and Annual Report of BCBL

Graph no-6;Title: Total unclassified Loan of BCBL (2015- 2019)

Amount of Unclassified loans

7197.68 7685.56 8034.78

4202.37 4769.3

Source: Financial Statement and Annual Report of BCBL

Interpretation: Constant increasing of unclassified loans and advances indicates that the
bank is very much sincere about proper management of loans and advances.
15
 Table no-3;Title: Total Amount of Classified Loans and advances of BCBL (2018- 2022)

Year 2018 Year 2019 Year 2020 Year 2021 Year 2022

1579.48 1485.06 1068.04 987.66 899.33

Source: Financial Statement and Annual Report of BCBL

Graph no-7; Title: Total Classified Advances of BCBL (2018- 2020)

Classified Advances
2000

1000

Source: Financial Statement and Annual Report of BCBL

Interpretation: Classified loans include three other types which are substandard, doubtful and
bad/loss loans. The lower the amount of classified loans the better. Though this amount was
increasing gradually in the 2018-2019, the amount was falling in 2021 and 2022.
Graph no:8; Title: Total Loan and Advances disbursement geographically of BCBL (2018-2020)

16
 Geographically Disbursed Loan
Loans Disbursement
2015
Geographically 2016
7000
35000
30961
5732.77
30000
5000 25000
3479.2 20000
3000 15000 13062

2000 10000
1000 356.67 458.23 188.79 5000 1086 427 794

Loans Disbursement 45000 41703

Gepgraphically 2017 40000
35000
30000
33031 25000
30000 20000 17107
25000
15000
20000 10000
14369 Series1
15000
5000 1754 9881676
10000
5000 1406 765 814

17
 Geographycally Loan Disbursement
2019
3% 2% 1%

27% dhaka
chittagong
rajshahi
67%
khulna
sylhet

Source: Financial Statement and Annual Report of BCBL

Interpretation: From the above five graphs it is seen that BCBL disburses its most of the
loans and advances to Dhaka division as it is the most populated and centre of all commercial
and business activities. Chittagong, Rajshahi , Khulna and Sylhet are in the serial accordingly.

Graph no:9;Title: Net interest income of BCBL (2018-2022)

2
NET
0 INTEREST INCOME
0
0
1
0
0
0
0
Y F F F F F
e Y Y Y Y Y
a 2 2 2 2
r 2 0 0 0 0
0 1 2 2 2
1 9 0 1 2
8

Source: Financial Statement and Annual Report of BCBL

Interpretation: Amount of interest income is increasing as the total amount of loans and
advances is increasing. From tk. 2934 million in 2010 it becomes tk. 6904 million in
2014.

18
 NPL to total loan ratio

Graph no: 10;Title: NPL to Loan of BCBL

Chart Title
0.06

0.05 4.91%
4.14%
0.04 4.11%

0.03 2.82%
Series1
2.25%
0.02

0.01

Year FY 2018 FY2019 FY2020 FY2021 FY2022

Interpretation: Because of good management the ratio of NPL to total loans has been
decreasing over the years and it was the lowest in the 2022 is 2.25% only.

19
 Chapter-3
Credit Risk Management of BCBL

20
3.1 Overview of Credit Risk Management

Credit risk, emerged as a significant risk management issue during the 1990s, cover all
risks related to a borrower not fulfilling his obligations on time. It is the risk due to a
borrower’s inability to meet its financial obligations to the lender. It is generally made up
of transaction risk or default risk and portfolio risk. Credit risk is most simply defined as
the potential that a bank borrower or counterparty will fail to meet its obligations in
accordance with agreed terms (BIS, 2013).

Credit risk management is the practice of dropping those losses by considering the
adequacy of both a bank’s capital and loan loss reserves at a certain time – a method that
has long been a test for financial institutions.

Credit risk is structured through segmental exposure limits to various industries and
sectors, prudential exposure and substantial exposure ceiling and risk mitigation by
obtaining collateral and guarantees. The bank has put in place a well-structured Credit
Risk Management Policy accordingly approved by the Board. The excellence of internal
control system is also scrutinized and in-house proficiency has been built up to confront
all the aspects of credit risk.

Credit risk management contains

● Identification,
● Measurement,
● Aggregation,
● Planning and management,
● As well as monitoring of the risks arising in a bank's overall business

3.2 Types of Credit Risk of BCBL

Different types credit risk of BCBL are following:

● Financial Risk
● Business/Industry Risk
● Management Risk Security Risk
● Relationship Risk
21
● Financial Risk

Risk that counterparties will fail to meet obligation due to financial distress. This
typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability &
interest coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor
liquidity, low profitability & insufficient cash flow.

● Business/Industry Risk

Risk that adverse industry situation or unfavorable business condition will impact
borrowers’ capacity to meet obligation. The evaluation of this category of risk looks at
parameters such as business outlook, size of business, industry growth, market
competition
& barriers to entry/exit. To conclude, this capitalizes on the risk of failure due to low
market share & poor industry growth.

● Management Risk

Risk that counterparties may default as a result of poor managerial ability including
experience of the management, its succession plan and team work.

● Security Risk

Risk that the bank might be exposed due to poor quality or strength of the security in case
of default. This may entail strength of security & collateral, location of collateral and
support.

● Relationship Risk

These risk areas cover evaluation of limits utilization, account performance,

conditions/covenants compliance by the borrower and deposit relationship.
Objectives of Credit Risk Management

There are some objectives behind a written credit risk management of Janata Bank that
are as follows:

22
● To provide a guideline for giving loan.
● Quick response to the customer need.
● Shorten the procedure of giving loan.
● Reduce the volume of work from top level management.
● Handing over of authority of work from top level of management.
● To check and balance the operational activities.

3.3 Instruments and Tools used in Credit Risk Management

The instruments and tools through which MTB manages credit risk are as follows:
● Exposure Ceilings
● Review/Renewal
● Risk Rating Model
● Risk Based Scientific Pricing
● Portfolio Management
● Credit Audit/Loan Review Mechanism

3.4 Major Functions of CRM

● To update Bank’s Credit Policy/Lending Guideline, procedures and control mechanisms
related with all credit risks arising from corporate/commercial banking and retail banking
etc.

● To approve/decline credit proposal received from Corporate Division (presently from

Branches) within delegated authority and to recommend to the higher authority if it is
beyond delegation.

● To provide advice/assistance regarding all credit matters to Corporate

Division/Branches.Periodical review of different types of credits, maintain effective
follow-up and supervision and take all possible measures in time to save from
classification.

23
3.5.1 unctions of Credit Administration dept.of BCBL:

24
3.5 Duties and Responsibilities of CRM
● Examine/review credit proposals (new/renewal) sent by corporate

division/branches to:

● Process for approval

● Placing credit proposals in the Head Office Credit Committee.

● Decline credit proposals if they do not meet criteria.

● Recommendation of credit proposal to the Managing Director/EC/ Board for their

approval

● Prepare facility sanction letter and send copies to:

● Corporate division/Branches

● Credit Administration Division

● Review on a periodical basis in the light of:

● Structuring
● Adequacy of security
● Pricing and profitability
● Financial analysis
● Form and content
● Performance
● Turnover
● Repayment

25
● Revise and ratify borrower’s risk grade developed by Corporate Division/branches.

3.6 Review delegated credit approval authorities on an annual basis

● The Bank shall provide suitable credit services and products for the market in which it
operates. Product innovation shall be a continuous process.

● Loans and advances shall normally be financed from customers deposit and not out of
temporary fund or borrowing from money market.

● Credit facilities shall be allowed in a manner so that credit expansion goes on ensuring
quality i.e. no compromise with the Bank’s standard of excellence. Credit is extended to
customers who will complement such standards.

● All credit extension must comply with the requirements of Bank’s Memorandum and
Articles of Association, Bank companies Act as amended from time to time, Bangladesh
Bank’s instructions Circulars, Guidelines and other applicable laws, rules and regulations.

● The conduct of the loan portfolio should contribute, within defined risk limitation, to
the achievement of profitable growth and superior return on the Bank’s capital.

● Credit advancement shall focus on the development and enhancement of customer’s

relationship and shall be measured on the basis of the total yield for each relationship
with a customer (on the global basis), though individual transactions should also be
profitable.

● Credit facilities will be extended to those companies/persons, which can make best use of
the facility thus helping maximize our profit as well as economic growth of the country.
To ensure achievement of this objective lending decision shall be based mainly on the
borrower’s ability to repay.

● Diversification: The portfolio shall be well diversified sector wise, Industry wise,
geographical area wise, maturity wise, size wise, mode wise, purpose-wise. Concentration
of credit shall be carefully avoided to minimize risk.

● Remunerative: If Credit facilities are granted on a transaction/one-off basis, the yield

from the facility should be commensurate with the risk.
26
 3.7 Deviation from the Credit Policy
Any deviation from the approved policy in case of any credit proposal in any respect shall
be clearly identified and mentioned in the credit proposal with proper justification for
approval of the approving authority.
Any Credit proposal that does not comply with the Credit policy/ Lending Guidelines in
any respect regardless of the amount should be referred to Head office for consideration.

3.9 Credit risk management of Bangladesh Commerce Bank Limited (BCBL

3.10 Types of Credit Activities of BCBL

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

● Loan (General)

Short term, Medium term & Long term loans allowed to individual/firm/industries for a
27
 specific purpose but for a definite period and generally repayable by installments fall
under this head. This type of lending are mainly allowed to accommodate financing under
the categories (I) Large & Medium Scale Industry and (ii) Small & Cottage Industry.
Very often term financing for (I) Agriculture & (ii) Others are also included here.

● Loan (General): House Building Loan (General)

Loans allowed to individual/enterprises for construction of house (residential or

commercial) fall under this type of advance. The amount is repayable by monthly
installment within a specified period. Such advances are known as Loan (HBL-GEN).

● House Building Loan (Staff)

Loans allowed to our Bank employees for purchase/construction of house shall be known
as Staff Loan (HBL-STAFF).

● Cash Credit (Pledge)

Financial accommodations to individual/firms for trading as well as for whole-sale or to

industries as working capital against pledge of goods as primary security fall under this
head of advance. It is also a continuous credit and like the above allowed under the
categories (i) "Commercial Lending" and (ii) Working Capital".

● Hire Purchase

Hire-Purchase is a type of installment credit under which the Hire-Purchaser agrees to

take the goods on hire at a stated rental, which is inclusive of the repayment of Principal
as well as interest for adjustment of the loan within a specified period.

● Lease Financing

Lease Financing is one of the most convenient sources of acquiring capital machinery and
equipment whereby a client is given the opportunity to have an exclusive right to use an
asset usually for an agreed period of time against payment of rent. It is a term financing
repayable by installment.

28
● Time Loan

This is one time financial accommodation for short period maximum 12 months to meet
some specific purpose. The loan is adjustable within the validity and not renewable and
no transaction is allowed.

● Consumers Credit Scheme

It is a special credit scheme of the Bank to finance purchase of consumers' durable to the
fixed income group to raise their standard of living. The loans are allowed on soft terms
against personal guarantee and deposit of specified percentage of equity by the customers.
The loan is repayable by monthly installment within a fixed period.

● SOD (General)

Advances allowed to individual/firms against financial obligation (i.e. lien on FDR/PSP/

BSP/Insurance Policy/Share etc). This may or may not be a continuous Credit.
SOD (Others)

Advances allowed against assignment of work order for execution of contractual works
falls under this head. This advance is generally allowed for a definite period and specific
purpose i.e. it is not a continuous credit. It falls under the category "Others".

● Export Cash Credit (ECC)

Financial accommodation allowed to a customer for exports of goods falls under this head
and is categorized as "Export Credit". The advances must be liquidated out of export
proceeds within 180 days.

● Packing Credit (P.C.)

Advance allowed to a customer against specific L/C/firm contract for processing/packing

of goods to be exported falls under this head and is categorized as "Packing Credit". The
advances must be adjusted from proceeds of the relevant exports within 180 days. It falls
under the category "Export Credit".

29
 3.11 Credit Risk Assessment
Risk assessment or analysis is all about understanding and evaluating the risk associated
with lending the money. In BCBL, a thorough credit risk assessment is conducted
preceding the sanction of any credit facilities. While assessing a credit proposal, total
importance is given on repayment potential of loans out of funds generated from
borrower’s business (cash flow) rather than realization potential of underlying securities.
Thereafter, it will be done annually for all types of credit facilities i.e. Demand Loan,
Continuous/Revolving Loan and Term Loan.
Two types of approaches are followed to assess credit risk:

● Qualitative approach;
● Quantitative approach.

3.11.1 Qualitative Approach

In this approach, five C’s are used to assess the prospective borrower’s risk:
● Character: It indicates the willingness of the prospective borrower to meet bank’s
obligation upon maturity. In that case the bank assesses the following quality of the
borrower.

● Moral & mental qualities of integrity,

● Fairness,
● Responsibility,
● Trustworthiness,

● Capacity: In this regard, the bank assesses the potential borrower’s ability to repay the
debt when it falls due. The bank also assesses the competence of that borrower to utilize
the loan effectively and profitably.

● Capital: It is the indicative of borrower’s financial resources. In this regard the bank
examines the borrower’s net worth that governs the amount of credit that would be made
to the borrower.

● Collateral: It represents the asset that is backed by the loan. In this regard the Bank
30
 examines the sufficiency and adequacy of the sale proceeds of the collateral to satisfy the
full loan obligation.

In this approach financial data are used in assessing client’s risk.

In that concern, the Bank follows the following steps in order to analyze and assess the
prospective client’s risk:

● Collecting loan information of the applicant

● Collecting business information for which loan is sought
● Collecting the primary risk related information
● Assembling all credit information together
● Analyzing sensitive risky credit information
● Analyzing refined and very essential risk information
● Making decision on the basis of loan analysis
● Design the appropriate loan structure according to the positive decision

3.12 Credit Risk Grading

One of the strategies employed in managing credit risk is Credit Grading of borrower
accounts. Credit Risk Grading is a vibrant process for measuring credit risk to help the
sanctioning authority in taking decisions. This framework is essential to avoid the
limitations associated with a simplistic and broad classification of loans into “good” or a
“bad” category. It also helps a bank to understand various dimensions of underlying risk
involved in different credit transactions.

3.12.1 Functions of Credit Risk Grading

Well-managed credit risk grading systems promote bank safety and soundness by
facilitating informed decision-making. Grading systems measure credit risk and
differentiate individual credits and groups of credits by the risk they pose. This allows
bank management and examiners to monitor changes and trends in risk levels. The
process also allows bank management to manage risk to optimize returns.

3.12.2 Use of Credit Risk Grading

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● The Credit Risk Grading matrix allows application of uniform standards to credits to
ensure a common standardized approach to assess the quality of individual obligor, credit
portfolio of a unit, line of business, the branch or the Bank as a whole.

● As evident, the CRG outputs would be relevant for individual credit selection, wherein
either a borrower or a particular exposure/facility is rated. The other decisions would be
related to pricing (credit-spread) and specific features of the credit facility. These would
largely constitute obligor level analysis.
● Risk grading would also be relevant for surveillance and monitoring, internal MIS and
assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level
analysis.

All credit proposals whether new or renewal must be supported by Credit Risk Grading. It
will encompass the following things:

● Risk Grading Scorecard and

● Risk Grading Sheet.

Grading Short Name Number

Superior SUP 1
Good GD 2
Acceptable ACCPT 3
Marginal/W MG/WL 4
atchlist
Special SM 5
Mention
Sub standard SS 6
Doubtful DF 7
Bad & Loss BL 8

Table-4: Risk Grading Sheet

Source: www.Assignmentpoint.com

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3.13 Credit Risk Grading Definition
A clear definition of the different categories of Credit Risk Grading is given as follows:

● Superior - (SUP) - 1

● Credit facilities, which are fully secured i.e. fully cash covered.
● Credit facilities fully covered by government guarantee.
● Credit facilities fully covered by the guarantee of a top tier international Bank.

● Good (GD)-2

● The borrower has excellent liquidity and low leverage.

● The company demonstrates consistently strong earnings and cash flow.
● Borrower has well established, strong market share.
● Very good management skill & expertise.
● All security documentation should be in place.
● Credit facilities fully covered by the guarantee of a top tier local Bank.
● Aggregate Score of 85 or greater based on the Risk Grade Score Sheet

● Acceptable - (ACCPT) - 3

● These borrowers are not as strong as GOOD Grade borrowers, but still
demonstrate consistent earnings, cash flow and have a good track record.
● Borrowers have adequate liquidity, cash flow and earnings.
● Credit in this grade would normally be secured by acceptable collateral (1st charge over
inventory / receivables / equipment / property).
● Acceptable management
● Acceptable parent/sister company guarantee
● Aggregate Score of 75-84 based on the Risk Grade Score Sheet

● Loan repayments routinely fall past due

● Account conduct is poor, or other untoward factors are present.
● Credit requires attention

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 ● Aggregate Score of 65-74 based on the Risk Grade Score Sheet

● Special Mention - (SM) – 5

● This grade has potential weaknesses that deserve management’s close attention. If left
uncorrected, these weaknesses may result in a deterioration of the repayment prospects of
the borrower.
● Severe management problems exist.
● Facilities should be downgraded to this grade if sustained deterioration in financial
condition is noted (consecutive losses, negative net worth, excessive leverage),
● An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.

● Prospect of recovery is poor and legal options have been pursued.

● Proceeds expected from the liquidation or realization of security may be awaited. The
continuance of the loan as a bankable asset is not warranted, and the anticipated loss
should have been provided for.
● This classification reflects that it is not practical or desirable to defer writing off this
basically valueless asset even though partial recovery may be affected in the future.
Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. Legal
procedures/suit initiated.
● Bangladesh Bank criteria for bad & loss credit shall apply.
● An Aggregate Score of less than 35 based on the Risk Grade Score Sheet

3.14 Credit Facilities Parameter

3.14.1. Maximum Size

● Directives of Bangladesh Bank shall be meticulously complied in respect of maximum

size single customer/group exposure as revised from time to time. Presently Bangladesh
Bank vide BRPD Circular No. 05 dated 09.04.2005 decided that total outstanding
financing facilities to any single person or enterprise or organization of a group shall not
at any point of time exceed 35% of Bank’s total capital subject to the condition that the
maximum outstanding against fund based financing facilities (Funded facilities) do not

34
 exceed 15% of the total capital.
● Non-funded credit facilities e.g. letter of credit guarantee etc. can be provided to a single
large borrower. But under no circumstances the total amount of the funded and non-
funded credit facilities shall exceed 35% of Bank’s total capital.
● However, in case of export sector single borrower exposure limit shall be 50% of the
Bank’s total capital. But funded facility in case of export credit also shall not exceed 15%
of total Capital Fund of the Bank.
● Loan sanctioned to any individual enterprise or any organization of a group amounting
to 10% or more of Bank’s total capital shall be considered as Large Loan.Credit limit in
each case shall be fixed after assessment of actual business need maintaining required
Debt Equity Ratio, considering Debt Service Coverage Ratio, Pay Back Period, Security
Coverage etc.

3.14.2 Maximum Tenor

● Short-term Loan:

Maximum period 12(twelve) months. Actual loan period shall be fixed on a case to case
basis considering cycle of business and requirement.

● Medium Term Loan

Loan period shall be for more than 12 months and up to 36 months considering
repayment capacity and projected cash flow.

3.14.3 Securities

All attempts should be made to cover loans by tangible securities as far as possible.
Security shall be stipulated on a case to case basis.

As per BRPD Circular No. 05 dated 27.04.2005 following securities have been identified
as eligible security for determining base for provisioning for classified loans:

● Lien on Bank deposit - 100%

● Market value of gold / gold ornaments pledged to the Bank – 100%.
● Lie on Government Bond / Sanchayapatra – 100%
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 ● Guarantee given by Government of Bangladesh– 50%
● Market value of easily marketable security/Saleable goods pledged to the Bank 50%
Market value of Registered Mortgaged Land and Building along with Registered Power
of Attorney favoring the Bank to sell the property.
● 50% of face value or 50% of average market value of last 6(six) months of shares /
securities traded in the stock exchange.

Besides the above following securities are also obtained on a case to case basis:

● Hypothecation of Stock and machinery.

● First charge/ charge on the fixed and floating asset of limited company with the Register
of Joint Stock Company.
● Corporate Guarantee of another company backed by Board Resolution.
● Personal Guarantee under cover of forwarding letter.
● Bank Guarantee
● Assignment of bill/receivables duly accepted by the employer to issue cheques in favour
of Bank.

3.15 Early Alert System

An early warning system can be implemented as a chain of information communication

systems and comprises sensors, event detection and decision subsystems. They work
together to forecast and signal disturbances that adversely affect the stability of the
physical world, providing time for the response system to prepare for the adverse event
and to minimize its impact (Waidyanatha, Nuwan,2010). 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 likely prospect of being downgraded
to CG 5 or worse (Impaired status), within the next twelve months.
Early identification, prompt reporting and proactive management of Early Alert Accounts
are prime credit responsibilities of all Relationship Managers and must be undertaken on
a continuous basis. An Early Alert report is be completed by the RM and sent to the
approving authority in CRM for any account that is showing signs of deterioration within
seven days from the identification of weaknesses. The Risk Grade should be updated as
soon as possible and no delay should be taken in referring problem accounts to the CRM

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 department for assistance in recovery.

Relationship Manager shall ensure that call/ inspection are regularly made on the Clients
and documented the outcome of the visit in the form of call/visit report.
Call reports shall be analyzed to ensure that the affairs of the business of the borrower is
being run on expected line and there is no material change in the status of the borrower.
Relationship Manager regularly monitor performance of the customer’s business as well
as reputation, status and prepares a status and prepares a status report.
Relationship Manager prepares Early Alert Report within 07(Seven) days after
identification of weakness and sign of deterioration.

3.16 Process of Credit Risk Management

Credit risk management process cover the entire credit cycle starting from the origination
of the credit in a financial institution’s books to the point the credit is extinguished from
the books. The CRM process of BCBL is stated below:

1. Credit processing/appraisal
2. Credit approval/sanction
3. Credit documentation
4. Credit administration
5. Disbursement
6. Monitoring and control of individual credits
7. Monitoring the overall credit portfolio (stress testing)
8. Credit Classification and
9. Managing problem credits/recovery

3.16.1 Credit Processing/Appraisal

Credit processing is the stage where all required information on credit is gathered and
applications are screened. Credit application forms are sufficiently detailed to permit
gathering of all information needed for credit assessment at the outset.

37
BCBL has a checklist to ensure that all required information is, in fact, collected. They
did set out pre-qualification screening criteria, which act as a guide for their officers to
determine the types of credit that are acceptable. For instance, documented and recorded.
Prudent credit practice requires that persons empowered with the credit approval
authority does not take the customer relationship responsibility.
BCBL has a corps of credit risk specialists who have high level expertise and experience
and demonstrated judgment in assessing, approving and managing credit risk. An
accountability regime was established for the decision-making process, accompanied by a
clear audit trail of decisions taken, with proper identification of individuals/committees
involved. The Credit appraisal process is shown below:

Branch Credit
Committee

Proposal

Corporate large loan/ Fine Tuned Proposal

Mid Enterprise Credit
Risk Management

Risk Assessment

Risk Mitigation

Satisfactory

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 Figure-1: Appraisal & Processing
Source: Credit Policy Guide-Guidelines for Credit Risk Management of BCBLCredit
Documentation
Documentation is an essential part of the credit process and is required for each phase
of the credit cycle, including credit application, credit analysis, credit approval, credit
monitoring, and collateral valuation, and impairment recognition, foreclosure of
impaired loan and realization of security. The format of credit files must be
standardized and files neatly maintained with an appropriate system of cross-indexing
to facilitate review and follow up.
The Bangladesh Bank does pay particular attention to the quality of files and the
systems in place for their maintenance. Documentation establishes the relationship
between the financial institution and the borrower and forms the basis for any legal
action in a court of law. Institutions must ensure that contractual agreements with their
borrowers are vetted by their legal advisers

● The Branch completes documentation as per checklist and submits a checklist duly
filled in to the Credit Administration Unit, Head Office, duly signed by the Head of
the Branch (RM) and countersigned by the officer of the Credit Administration posted
at the Branch seeking Disbursement Authority. The Credit Administration Officer
countersign the checklist after verifying the proper execution of
documents/security/collaterals. The Credit Administration Officer posted at the
Branch is under administrative and working control of Credit Administration Unit,
Head office.

● For incomplete documentation temporary waiver are obtained from the CRM, Head
Office.

● Corporate Division and Branches maintain credit files of the customers. Credit
Division maintain customer-wise approval file.

● Search are conducted periodically about collaterals both with RJSC and Sub-
Registrar Office about encumbrance of the properties.

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 ● Bank's Legal Counsel certifies the legal documentation, borrower's legal standing and
enforcement of Bank's interest.

3.16.2 Credit Administration

BCBL ensures that their credit portfolio is properly administered, that is, loan
agreements are duly prepared, renewal notices are sent systematically and credit files
are regularly updated. BCBL allocates its credit administration function to a separate
department or to designated individuals in credit operations, depending on the size and
complexity of its credit portfolio (Credit Risk Management: Industry Best
Practices2005,Bangladesh Bank). Moreover BCBL ensures that: Credit files are
neatly organized, cross-indexed, and their removal from the premises is not
permitted;

● The borrower has registered the required insurance policy in favor of the bank and is
regularly paying the premiums;

● Credit facilities are disbursed only after all the contractual terms and conditions have
been met and all the required documents have been received;

3.17 Credit Department of BCBL

Bangladesh Commerce Bank, being one of the largest private commercial bank of the
country, has some prejudice to finance directly on priority basis to agriculture,
commerce and industry sector for strengthening the economy base of the country.
Hence, it is very clear that, BCBL plays an important role to move the economic
wheel of the country. And the department of loans and advances are responsible for
performing this important task.
Routine approval of loans or credit is handled in the following manner:
Figure: 3; Loan approval process
The process is described below:
Application forwarded to zonal office/head office for review by the ZCRO/HCRO.
ZCRO/HCRO advises the review to recommending branches.

40
 ZCRO/HCRO supports and forwarded to Head of Business Units within delegated
authority and to Head of Credit Risk for onward recommendation.
HOCR advises the review to ZCRO.
HOCR & HOBU supports and forwarded to credit committee.

Credit committee advises the decision as per delegated authority to HOCR &
HOBU.

Credit committee forwards the proposal to EC/ Board for their approval within their
respective authority.
EC/Board advises the decision to HOCR & HOBU.

Creditapplication recommendedbyRM/
marketing

2
1

Zonal/HOcreditriskofficer
4

HeadofCreditRiskandHeadofBusinessUnit

Creditcommittee

Executivecommittee/Board

3.18 Disbursement
Once the credit is approved, they advise the terms and conditions of the credit to the
customer by way of a letter of offer. The duplicate of this letter is duly signed and

41
 returned to the institution by the customer. The facility disbursement process starts
only upon receipt of this letter and involve, inter alia, the completion of formalities
regarding documentation, the registration of collateral, insurance cover in the
institution’s favor and the vetting of documents by a legal expert. Under no
circumstances funds are released prior to compliance with pre-disbursement
conditions and approval by the relevant authorities in the financial institution.
● One of the officer of the branch is placed under administrative / working control of
Credit Administration Division, Head Office for verifying documentation and control
disbursement of loans.

● Custodial Duty: To ensure safekeeping of all security documents. Presently, the

document files are preserved by the branches under joint custody. Credit
Administration, HO supervise, control and monitor the custodial matter.

● correct format in a timely manner. To ensure that all Bangladesh Bank

circulars/regulations are maintained centrally, and advised to all relevant departments
to ensure compliance.

● Enlistment: To enlist and manage all third party service providers (Surveyors/valuers,
lawyers, insurers, CPAs etc.) and review their performance on an annual basis.

● Others: To prepare all monthly statements as required by the Management.

3.18.1 Credit Recovery
The Recovery Department directly manage accounts with sustained deterioration (a
Risk Rating of Sub Standard (6) or worse). Banks may wish to transfer EXIT accounts
graded 4-5 to the RU for efficient exit based on recommendation of CRM and
Corporate Banking. Whenever an account is handed over from Relationship
Management to RU, a Handover/Downgrade Checklist are completed.
Down grading process is done immediately and are not postponed until the annual
review process.

3.17 Functions of Recovery Unit

● Determine Account Action Plan/Recovery Strategy
● Pursue all options to maximize recovery, including placing customers into

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 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 a dynamic process, and the associated
strategy together with the adequacy of provisions are regularly reviewed. A process
was established to share the lessons learned from the experience of credit losses in
order to update the lending guidelines.

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 Chapter-4
Findings, Recommendations

44
 4.1 Finding:
During the work there were a lot of aspects which I found significant to our
understanding. While working at BCBL Mirpur Branch, I have attained a newer kind
of experience. After collecting and analyzing the data as well as based on observation
and interpretation I found some positive and negative side of BCBL. The findings of
this study are summarized below:

● The credit risk management process of Bangladesh Commerce Bank Ltd. is quite
commendable. Systematic and timely monitoring and appropriate documentation are
tried to be maintained.
● Sometimes it is difficult to collect formal documents and financial statements from the
client, means the non-availability of client’s detailed information.
● Governments orders like account opening for 10 taka, etc. increases cost. SME loans
for farmers without collateral not only increases credit risk but also costly for banks
But return on these services are low.
● Processing cost is higher compared to the other large-scale loan services provided by
the bank because close monitoring and supervision of the credit operation becomes
necessary.
● There is Shortage of manpower and Lack of proper training for the employees in
credit section of the branch.
● BCBL is mainly Focusing on industrial credit beside of other credit
● Filing procedure is not maintained in a definite and clear manner. It is difficult to
locate the documents in a chronological and sequential manner. A definite practice,
though mentioned in the credit policy is not always maintained by the credit officials.
● The credit sanction and disbursement procedure is quite lengthy.
All branches are not online and Networking system in Bangladesh Commerce Bank
Ltd. has to be improved.

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4.2 Recommendations:
The failure of commendable banks occurs mainly due to bad loans, which occurs due to
inefficient management of the loans and advances portfolio. Therefore any banks must be
extremely cautious about its lending portfolio and credit policy. In the light of the above
findings, following recommendations are proposed:

● The credit sanction procedure should be made quicker since competition is very hard
in today's business world. People do not want to wait for three to four weeks on an
average to get a loan which is even protected by security.
● Adequate training on loan and basic accounting should be provided to the clients to
make the clients knowledgeable and to create awareness about credit loans.
● The bank should emphasize on reducing the classified and non-performing credits by
concerted efforts.
● In the credit department, strict supervision is necessary to avoid loan defaulters. Bank
official should do regular visit to the projects.
● Central monitoring system should be more active to maintain classified loan to a
minimum level.
● Filing is a very important component of proper documentation. It has to be dealt with
importance.
● All the loan documentations have to done honestly. The bank should concentrate more
on proper documentation of all types of loans to make the department trust worthy &
healthy.
● To attract more clients should sought new marketing strategy.
● The bank has to establish a strong “credit Manual”, so that the clients easily can
understand about the credit rules of the bank.
● Politically influenced Lending or project finance should be checked.
● The Branch can organize more training program and workshop to make the employees
more efficient in their sector.

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Chapter-5
Conclusion

47
Conclusion
Bangladesh Commerce Bank Ltd. is a growing and profitable bank in Bangladesh. I have
been working in the Bank and it was an immense pleasure for me to carry out the case study
of the Bank in connection with Management of Credit Risks. Loans and advances comprise
the most important asset as well as the primary source of earning for the bank. But it is also
the major source of risk for the bank management. Quick loan recovering process can enable
the law and order system to prevail, which is always a good environment for business. In this
sector, Bangladesh Commerce Bank Ltd. is standing on a satisfactory position. Scheduled
privates banks are perhaps the main players in eliminating the loan default culture of
Bangladesh. As a concise citizen I hope any other bank like Bangladesh Commerce Bank Ltd.
can touch their goal and enjoy the full fruit of their achievement. Finally I believe that with
proper guidance and help of the Bangladesh Bank perhaps our country will enjoy the overall
sound and strong Financial System
Bibliography:
● Basel Committee on Banking Supervision. BIS. September 2000. Retrieved 13
December 2013
● Waidyanatha, Nuwan (2010). "Towards a typology of integrated functional early
warning systems". Chowdury, L.P; “A Textbook on Banker’s Advances”; 2nd
Edition; Paradise Printer; 2002.
● Annual Reports of BCBL.
● Credit Risk Grading Manual, published by Bangladesh Bank
● Banking Credit Risk Management Manual
● Consumers Financing Policy of BCBL
● Credit Policy Guide-Guidelines for Credit Risk Management of BCBL
● Credit Risk Management: Industry Best Practices2005,Bangladesh Bank

Web References:

● www.Assignmentpoint.com
● www.slideshare.net
● https://en.wikipedia.org/wiki/Bangladesh_Commerce_Bank_Limited
● http://ibtesham.blogspot.com/
● https://www.academia.edu

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