BGMEA University of Fashion & Technology (BUFT)

Internship report On

Credit Management Procedure of The South East Bank Limited

Supervised By

Dr. Md. Kamrul Hasan

Associate Professor & Head

Dept. of Business Administration

Submitted By:

Ratul Rayhan

ID:192-042-401

Batch: 192

Department of Business Administration

Date of Submission: 14 OCTOBER, 2023

 Letter of Transmittal

Date:

Dr. Md. Kamrul Hassan,

Associate Professor Head,

Department of Business Administration,

BGMEA University of Fashion and Technology.

Subject: To submit an internship report on “Credit Management Procedure of South East

Bank Limited”.

Dear Sir,

It brings me great pleasure to be able to present my internship report on the experiences I

gained during my internship at The South East Bank Limited. Your instructions have
been followed in writing this report. My experience working at The South East Bank
Limited was both inspiring and instructive. I'm expecting that this knowledge will be very
helpful for my future career goals. Despite the many difficulties experienced in writing
the report, I've tried my best, given what little I know, to make this report worthwhile.

I sincerely hope that you find my report to be accurate and that it successfully conveys
my proficiency in submitting internship reports. I would be pleased to supply any
additional information you may need.

Sincerely Yours,

……………..

Ratul Rayhan

ID: 192-042-401

Bachelor of Business Administration

 Student Declaration

I, Ratul Rayhan, Student of Department of Business Administration, BUFT, ID-

192-042-401, declare that the report of internship program entitled ‘Credit
Management Procedure of South East Bank limited' is prepared by me after the
completion of three months work at Mirpur Branch of Southeast Bank Limited.

I confirm that the report is uniquely prepared by me and It is prepared for my

academic requirement not for other purpose. I also assure that this report is not
submitted anywhere in Bangladesh before me.

…………………..

Ratul Rayhan

ID: 192-042-401

Department of Business Administration

 Official Certification

This is to certify that Ratul Rayhan, a student of BBA program, batch 192, ID: 192-
042-401, has successfully completed his “Internship program” and submitted
report entitled “ Credit Management Procedure of South East Bank Limited “
under my supervision as the partial fulfilment for the degree of Bachelor of
Business Administration.

He has done his job according to my supervision and guidance. He tried his level
best to complete the study thoroughly with efficiency. I think this study will help
him achieving greater success in his future endeavours. I wish him success and
prosperity.

…………………………

Dr. Md. Kamrul Hasan

Associate Professor & Head

Department of Business Administration

BGMEA University Of Fashion and Technology

 Acknowledgement

At the very beginning, I would like to like to express my deepest gratitude to the
Almighty Allah for giving me the strength and composure to finish the task within
the scheduled time. Internship is an essential part of BBA program as one can
gather practical knowledge through this process.

I am deeply indebted to my honorable supervisor and instructor Dr. Md Kamrul

Hasan Associate Professor & Head of Department of Business Administration. For
his whole hearted and constructive supervision and instructions. His support
throughout my university life was source of spirit for me.

I am very grateful to Mr. Khaled Muzahid, Manager of South East Bank, Mirpur
Branch for kindly accepting me for practical orientation program in his bank for
which I get this opportunity to learn about credit policy & necessary things. I
would like to express my deep gratitude to Ms. Tasnim Ara Rifat (Credit
Management Officer) and all of my senior colleagues of South East Bank, Mirpur
Branch for theur helping hand at the hour of my need. Their support gave me
opportunity to use various documents for my internship period.

I am also grateful to Mr. Md Humayun Kabir, First Assistant Vice President, for
their supporting role throughout my internship period.

Finally I thank my fellow batch mates for giving me required informations,

valuable advices and suggestions to complete the report in a comprehensive
manner.
 Executive Summary
The report is originated in result of my internship program which I have done as a requirement of
BBA Program. This report is completed based on my 3 month internship in Southeast Bank
Limited. The objective of this study is to analyze the credit policy, financial performance
regarding credit etc. To prepare this report both primary & secondary sources of data have been
used. The first section of this report consists of an introductory part which has been developed
for the proper execution of the entire report. Second part has explained the working experience
of my internship period at different division of Southeast Bank Limited. The remaining part
consisted of analysis, findings, recommendations and conclusion. Southeast Bank Limited is one
of the leading private banks in Bangladesh. To serve the nation Southeast Bank Limited
performs some activities for their clients like general banking, loan and advance, capital market
operation etc. Bank collects deposit from public & provides it to other business or individual as
loan. Bank pays interest to deposit holder and take interest from borrowers. Southeast Bank
Limited measure all risk components before sanctioning a loan. When all the formalities
completed then respective officer disburse the loan. After disburse the loan it is duty of bank to
recover the disbursed loan. This report is based on actual information & working procedure in
Southeast Bank Limited. The overall credit management of Southeast Bank Limited has
analyzed to give a clean idea about the policy of Southeast Bank Limited & implementation of
that policy by various mechanism & process. After completion of analysis, it is found that Banks
credit deposit ratio is increasing from previous year, which means bank can invest properly &
utilize more funds to maximize their profit. Credit distribution of Southeast Bank Limited was
increasing though its growth rate was fluctuating over the year. Bank should also diversify their
credit in other divisions. Bank should take necessary actions for reducing the percentage of bad
& loss loan and doubtful loan such as carefully identify the lending source which may help to
reduce the percentage of bad & loss loan.
 TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION

1.1 introduction of the study

1.2 origin of the report
1.3 Scope of the report
1.4 Objective of the study
1.5 Methodology
1.5.i. Research design
1.5.ii. Source of information
1.5.iii. Data Collection Procedure and instrument
1.5.iv. Data analysis and reporting

1.6 Limitation

CHAPTER 2: OVERVIEW OF SOUTH EAST BANK LIMITED

2.1 Historical Background of South East Bank limited

2.2 Overview of South East Bank limited

2.3 Objective of South East Bank limited

2.4 Mission Statement

2.5 Slogan

2.6 Motto

2.7 Corporate mission

2.8 Corporate vision

2.9 Core values

2.10 Departments of South East Bank limited

2.11 Product and service

2.11.i. Deposit product

2.11.ii. Islamic banking

2.11.iii. Loan and advance Product

2.11.iv. Services

2.12 Corporate Information

2.13 Organizational Structure

2.14 Performance of South East Bank

2.14.i. Foreign exchange steps

2.14.ii. Import

2.14.iii. Export

2.14.iv. Remittance

CHAPTER 3: THEORITICAL ASPECTS

3.1 Risk Management

3.2 Several type of risk

3.3 Risk factor in case of export

3.4 Principles for the assessment of banks Credit risk management

3.5 Classification of loans

3.6 Loans advance

3.7 Develop a credit application

3.8 Debt Recovery

CHAPTER 4: Credit Management of Southeast Bank Limited

4.1 Credit Risk

4.2 Credit Risk management policy of South East Bank Limited

4.3 Securities against loans and advances

4.4 overall procedure for sanctioning loan

4.5 Credit Administration

4.6 Credit Monitoring

CHAPTER 5: ANALYSIS OF CREDIT MANAGEMENT

5.1 Year wise deposit and growth rate

5.2 Year wise credit and growth rate

5.3 Year wise credit to deposit ratio

5.4 Year wise investment and growth rate

5.5 Year wise investment to deposit ratio

5.6 Sector wise distribution of loans

5.7 Geographical location wise credit distribution in 2022

5.8 Year wise classified loan

5.9 Category wise classified loan and advance

5.10 Category wise unclassified loans

CHAPTER 6: COMPARATIVE ANALYSIS

6.1 Deposit of South East Bank Limited as a percentage of national deposit

6.2 Credit of South East Bank Limited as a percentage of national credit

6.3 Comparison of Credit to deposit ratio and national credit to deposit ratio

6.4 Non performing loan as a percentage of total loans

CHAPTER 7: Findings and recommendations

7.1 Major findings

7.2 Recommendations & Conclusions

Chapter – 1

Introduction
1.1 Introduction of the study

credit management is the process of deciding which customers to extend credit to and evaluating
those customers' creditworthiness over time. It involves setting credit limits for customers,
monitoring customer payments and collections, and assessing the risks associated with extending
credit to customers.

1.2 Origin of the report

This is an internship report prepared as a requirement for the completion of the BBA program.
The primary goal of the internship was to provide an ‘on the job’ exposure the student and an
opportunity for translation of theoretical conceptions in real life situation. We, the students, were
placed in enterprises, organizations, research institutions as well as development projects.

In this connection, after the completion of the BBA program, I was assigned to the Mirpur
Branch of the Southeast Bank Limited for practical orientation. I chose the topic “Credit Risk
Management” for my internship report.

1.3 Scope of the Report

This report has been prepared on the basis of experience gathered during the period of internship.
This study is limited with function of credit operation system and credit risk management of
Southeast Bank Limited. Most of the data used in the reporting of the study are from secondary
sources. All the data related to the reporting requirements are not available due to confidential
reservation practice for the benefit of the organization.

1.4 Objective of the study

The objectives of the study are mentioned below:

a) Board Objective: The main objective of this report is to analyze the “Credit Risk
Management of Southeast Bank Limited”
b) Specific Objective: The specific objective of the study are:
To understand the lending procedure of Southeast Bank Limited.
To know the terms and condition of credit management of Southeast Bank
Limited.
To analyze classified & unclassified loans & advances over the years.
Disbursement & recovery of loans & advances
To provide suggestions for the improvement of Credit Risk Management policy
of the Bank.

1.5 Methodology

At the time of my internship period, I tried to collect both primary and secondary data that I have
gathered from different sources. For preparing this report, primarily I got some data from face to
face speech of different employees of Southeast Bank Limited and some from various annual
reports and features of this bank.

1.5.1 Research Design:

This report is a descriptive type of which briefly reveals the “Evaluation of Credit Performance
oh Southeast Bank Limited”. It has been administered by collecting secondary data. Annual
reports of Southeast Bank Limited were the major secondary data sources in this regard. This
study has been conducted by collecting data for the period of 5 year from 2012 to 2016.

1.5.2 Source of information:

In this report, two sources of information have been used widely.

The “Primary Sources “are as follows:

 Face to face conversation with the respective officers & staffs of the branch.
 Informal conversation with the employees of the bank.
 Practical work from different desk of the department of the branch.
The “Secondary Sources” are as follows:

 Annual report of Southeast Bank Limited.

 Different ‘Procedure Manual’, published by Southeast Bank Limited.
 Official files, Newspapers etc.
1.5.3 Data Collection Procedure & Instruments:

For “Evaluation of Credit Performance of Southeast Bank” Secondary data are mainly used.
Besides this, information is also collected by taking opinion from the officers and direct
observation while I was doing the internship program at the bank.

1.5.4 Data Analysis and Reporting:

In order to analyze the data I have trend analysis and software for graphical presentation:

1. Software Used:
-MS Word
-MS Excel

1.6 Limitations

Limitation of the time, 90 working days, was one of the most important factors to know all
activities of the branch and prepare the report.

1. As officers are very busy with their daily work, they could provide little time.
2. The limitation of time was one of most important factors that shortened the present study.
Due to time limitation many aspects could not be discussed in the present study.
3. Every organization has their own secrecy that is not revealed to others. Employees did
not disclose much information for the sake of the confidentiality of the organization.
4. Sufficient books, publications and figures were not available.
5. Lack of available up-to-date information.
6. As this report is carried out for the first time, so experience is one of the main constrains
of the study.
Chapter – 2

Overview of Southeast Bank

Limited

2.1 Historical Background of Southeast Bank Limited

The emergence of Southeast Bank Limited was at the juncture of liberalization of global
economic activities. The company philosophy - "A Bank with Vision" has been precisely an
essence of the legend of success in the Asian countries.
Southeast Bank Limited is a scheduled commercissssdal bank in the private sector established
under the ambit of Bank Company Act, 1991 and incorporated as a Public Limited Company
under
Companies Act, 1994 on March 12, 1995. The Bank started commercial banking operations on
May 25, 1995. During this short span of time the Bank is successful in positioning itself as a
progressive and dynamic financial institution in the country. During this short span of time the
Bank is successful in positioning itself as a progressive and dynamic financial institution in the
country. Thus within this very short period of time it has been able to create an image and earned
significant reputation in the country's banking sector as a Bank with Vision.

2.2 Southeast Bank Limited Overview

From the very inception it is the firm determination of Southeast Bank Limited to play a vital
role in the national economy. They are determined to bring back the long forgotten taste a
banking service and flavors. They want to serve each promptly and with a sense of dedication
and dignity.

Southeast Bank Limited has its prosperous past, glorious present, prospective future and under
processing projects and activities. Southeast Bank Limited is fully Bangladeshi entrepreneurs
owned private bank. The member of the board of directors is creative businessman and leading
industrialist of the country.

To keep rate of knots with time and in synchronization with national and international economic
activities and for rendering all modern service, Southeast Bank Limited, as a financial institution
automated all its branches with computer network in accordance with the competitive
commercial demand time.

Moreover, considering its forth-coming future the infrastructure of the bank is rearranging. The
expectation of all class businessman, entrepreneurs and general public is much more to Southeast
Bank Limited.

With its firm commitment to the economic development of the country, the Bank has already
made a distinct mark in the realm of Private Sector Banking through personalized service,
innovative practices, dynamic approach and efficient management. The Bank, aiming to play a
leading role in the economic activities of the country, is firmly engaged in the development of
trade, commerce and industry thorough a creative credit policy.

2.3 Objectives of Southeast Bank Limited

To provide quick and superior service by applying modern information technology.

In all aspects the Southeast Bank Limited lanced development growth of the bank to be
sustained and this technique is to be maintained.
By improving congenial relationship between the Bank and the customers, we want to
come closer to play a vital role in national development.
By investing the liquidity of our valued shareholders income generating projects and give
them maximum dividend.
In this competitive market, the bank is to provide new innovation banking service to its
valued customers and build up its own image.
To ensure the improvement of professional quality of man power by increasing the work
efficiency and technological knowledge.
To its own position by creating creative banking service in competitive market.

2.4 Mission Statement

Our vision, mission and value statements are the keys to the philosophy on which we base
ourselves on, what we do and what we want to be.

2.5 Slogan

"A Bank with Vision"

2.6 Motto

The Bank will be a confluence of the following three interests:

Of the Bank : Profit Maximization and Sustained Growth.

Of the Customer : Maximum Benefit and Satisfaction.

Of the Society : Maximization of Welfare.

2.7 Corporate mission

We deliver excellent financial service for our communities based on strong customer
relationship.
We provide long lasting solutions that combine our cutting edge technology, experience
and financial strength to our clients and stakeholders.
We create a cohesive and friendly environment where customers and our people can
excel.

2.8 Corporate Vision

The vision of the bank is stated as follows:

“To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the
national economy.”

2.9 Our Core Values

Accountability: We are accountable for our actions.

Professionalism: We passionately drive customer delight by exceeding their needs by
bringing timely solution and initiatives.
Integrity: We will show our honesty, truthfulness, accuracy, high moral principles and
professional standard.
Confidentiality: We uphold the confidentiality of customer and personal banking
information throughout its lifecycle.
Commitment :We are responsible, loyal and committed for continuous improvement
Respect for individual: We treat our customers and colleagues with respect and dignity.
Respect for nature: We care for nature and practice green banking.
2.10 Departments of Southeast Bank Limited

If the jobs are not organized considering their interrelationship and are not allocated in a
particular department it would be very difficult to control the system effectively. If the
departments are not fitted for the particular works there would be haphazard situation and the
performance of a particular department would not be measured. Southeast Bank Limited has
does this work very well. Different departments of Southeast Bank Limited are as follows:

 Human Resources Division

 Personal banking Division
 Treasury Division
 Operations Division
 Computer and Information Technology Division
 Credit Division
 Finance & Accounts Division
 Financial Institution Division
 Audit & Risk Management Division

2.11 Product and Services

Southeast bank provides a wide variety of banking product and services to different category of
customer in response to their need of banking. They have clustered the product and service into
several segments which are directed and operated by independent divisions. Each product and
services has numerous rule-regulation, term-condition, fees-charges and distinct characteristics.
For the sake of simplicity and relevance, I am skipping those particular parts which can be seen
at internet or ant brochure.

2.11.1 Deposit Product

Southeast Bank Limited is now offering different types product for mobilizing the savings of the
general people.

 Current A/C
 Savings Bank Deposit A/C
 Short Term Deposit A/C
 Term Deposit A/C
 Premium Term Deposit A/C
 Double Benefit Scheme
 Special Savings Scheme
 Special Fixed Deposit Scheme
 Pension Saving Scheme
 Money Saving Scheme
 Money Income Scheme
 Millionaire Deposit Scheme

2.11.2 Islamic Banking

The bank offers similar type of banking product on the basis of Sharia law of Finance and
Banking so that the majority people or Muslims can follow the religious instruction in every
sphere of life. The name of the brand of Islamic banking is “Tijarah” which offers interest-free
concept of banking.
 Mudaraba Saving Deposit
 AL-Wadiah Current Deposit
 Mudaraba Short Term Deposit
 Mudaraba Term Deposit Receipt
 Mudaraba Double Benefit Scheme
 Mudaraba Millionaire Deposit Scheme
 Mudaraba Hajj Sanchay Prokalpa
2.11.3 Loan and Advance Product
 The Southeast Bank is offering the following loan and advance product to the client for
financing different purpose that fulfill the requirements of the bank and have good return to
the investment as well as satisfy the client. The loan and advance products are:

 Working Capital Financing

 Commercial and Trade Financing
 Project Financing
 House building Financing
 Long Term (Capital) Financing
 Bank guarantee
 Industrial Financing
 Transportation Financing
 Retail and Consumer Financing
 SME Financing
 Agricultural Financing
 Import and Export Financing
 VISA Credit Card

2.11.4 Services

 Virtual Card
 ATM/Debit Card
 Remittance Service
 SWIFT
 E-Statement
 VISA Platinum Card
 Internet Banking
 Online Bill Payment
 SME Banking
 My Remit Card
2.12 Corporate information
The corporate head office is located at Dhaka.

Name Southeast Bank Limited

Registered Address Eunoos Trade Centre
52-53, Dilkusha C/A (Level 2,3,4,6 & 16), Dhaka-
1000, Bangladesh
Legal Status Public Limited Company
Date of Inception March 12, 1995
Name of Chairman Alamgir Kabir, FCA
Name of Managing Director M. Kamal Hossain
Number of Employee 2,616

Authorised Capital Tk. 15,000.00 Million

Paid up capital Tk. 9,169.50 Million
Total Reserve Tk. 24,886.78 Million
Asset Tk. 291,798.01 Million
Face value of per share Tk. 100 Per Share
Shareholding Pattern 100% share owned by the govt. of Bangladesh
Number of Branch 128
Number of foreign correspondents 807
Fax 955086, 9550093, 9563102
SWIFT SEBDBDDHXXX
Earnings Per Share 2.66
E – mail info@southeastbank.com.bd
Web site www.southeastbank.com.bd

2.13 Organizational Structure

2.14 Performance of Southeast Bank Limited

The business of banking consists of borrowing and lending. As in other business, operation must
base on capital, but employ comparatively little of their own capital in relation to the total
volume of their transactions. The purpose of capital and reserve accounts is primarily to provide
an ultimate cover against losses on loans and investment.

Southeast Bank Limited MITED is a private commercial bank. The Bank started commercial
banking operations effective from 18 November 1985.During this short span of time the bank
has been successful to position itself as a progressive and dynamic financial institution in the
country. The Bank widely acclaimed by the business community, from small
business/entrepreneurs to large traders and industrial conglomerates, including the top rated
corporate borrowers from forward looking business outlook and innovative financing solutions.

2.14.1 Foreign exchange Steps

Foreign exchange is the means and methods by which rights to wealth in a country’s currency
are converted into rights to wealth in another country’s currency. In banks when we talk of
foreign exchange, we refer to the general mechanism by which a bank converts currency of one
country into that of another. Foreign exchange Department (FED) is the international department
Bangladesh bank issues license to schedules banks to deal with foreign exchange. These banks
are known as Authorized Dealers. If the branch is authorized dealer in foreign exchange market,
it can remit foreign exchange from local country to foreign countries. So Southeast Bank
Limited, Principal branch is an authorized dealer.

There are 3 kinds of foreign exchange transaction:

1. Import
2. Export
3. Remittance
2.14.2 Import

To import, a person should be competent to be an importer. According to Import and Export

Control Act, 1950, the office of Chief Controller of Import and Export provides the registration
(IRC) to the importer. In an international business environment, buyers and sellers are generally
unknown to each other. So seller of goods always seeks security for the payment of his exported
goods. Bank gives export guarantee that it will pay for the goods on behalf of the buyer if the
buyer does not pay. This guarantee is called Letter of Credit. Thus the contract between importer
and exporter is given a legal shape by the banker by ‘Letter of Credit’.

2.14.3 Export

The goods and services sold by Bangladesh to foreign households, businessmen and Government
are called export. The export trade of the country is regulated by the Import and Export Control
Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after
shipment of goods. The exports from Bangladesh are subject to export trade control exercised by
the Ministry of Commerce through Chief Controller of Import and Exports (CCI & E). No
exporter is allowed to export any commodity permissible for export from Bangladesh unless he
is registered with CCI & L and holds valid Export Registration Certificate (ERC). The ERC is
required to be renewed every year. The ERC number is to be incorporated on EXP forms and
other documents connected with exports.

2.14.4 Foreign Remittance

This bank is authorized dealer to deal in foreign exchange business. As an authorized dealer, a
bank must provide some services to the clients regarding foreign exchange and this department
provides these services. The basic function of this department are outward and inward remittance
of foreign exchange from one country to another country. In the process of providing this
remittance service, it sells and buys foreign currency. The conversion of one currency into
another takes place at an agreed rate of exchange, which the banker quotes, one for buying and
another for selling. In such transactions the foreign currencies are like any other commodities
offered for sales and purchase, the cost (convention value) being paid by the buyer in home
currency, the legal tender.
Chapter – 3

Theoretical Aspects
3.1 Risk Management

Risk is the risk of loss arising from fund, unauthorized activities, errors, omission, inefficiency,
system failure from the external event. It means that when the failure may arise due to
unwillingness than the bank must be managing those risks by designed to address all those risks
and achieve the goal.

From the banks management perspective, risk result from the changes in the value of securities
due to changes in financial market condition. Such as interest rate movement, exchange rate
movements, and equity prices. As banks pursuer new service related to the trading of security,
they have become much more susceptible to risk.

3.2 Several types of risk

There are 5 types of risk we can saw, those are;

Credit Risk
Liquidity Risk
Market Risk
Operational Risk
Reputation Risk

In case of credit risk there are 5 categories of risk, those are;

Financial Risk
Business / Industry Risk
Management Risk
Security Risk
Relationship Risk
3.3 Risk factor in case of export

In case of Export there are 3 types of risk, those are;

Non Performance Risk

Non Repatriation Risk
Document Discrepancies

A. Non Performance Risk:

Manufacturers make a contract with a bank when he exports something. In that case all
responsibility of the export comes to the bank and can do the work in behalf of the exporter. It
means that all the liability of export comes in the bank and that case bank pay all the payment in
behalf of the exporter. If the exporter cannot produce the export product than the bank comes in a
travel and bank can face the financial losses because bank make the agreement on behalf the
exporter and all the liabilities of the agreement can pat the bank. So in this way banks can easily
fall in Non Performance Risk.

B. Non Repatriation Risk:

In this case exporter can make a contract and agreement with the bank that the bank can export
the exporter’s product on behalf of the exporter and on against bank can pay the exportable
product market price to the exporter. But when bank export the product if the product market
price is decrease then the bank can face the losses. In the same way when bank import the
product on behalf of the importer and in that time if the product market price are increase then
the bank also face the loss because bank make the contract with the exporter or importer to the
product present market price. What is happen in future they don’t forecast that.

C. Document Discrepancies Risk

Exporter or importer makes L/C with the bank when they export or import the product. When
they make the L/C they must be submit much more paper and so much information about their
business and their exportable or importable product. These types of risk can happen when the
exporter or importer don’t submit all the paper or don’t give all the correct information or they
don’t fulfill document correctly in that time Bangladesh Bank cannot accept the document and
don’t accepts the contract and agreement. For that time bank can also face much more travel and
losses.

3.4 Principles for the Assessment of Banks’ Credit Risk Management

A. Establishing an appropriate credit risk environment

Principle 1: The board of directors should have responsibility for approving and periodically (at
least annually) reviewing the credit risk strategy and significant credit risk policies of the bank.
The strategy should reflect the bank’s tolerance for risk and the level of profitability the bank
expects to achieve for incurring various credit risks.

Principle 2: Senior management should have responsibility for implementing the credit risk
strategy approved by the board of directors and for developing policies and procedures for
identifying, measuring, monitoring and controlling credit risk. Such policies and procedures
should address credit risk in all of the bank’s activities and at both the individual credit and
portfolio levels.

Principle 3: Banks should identify and manage credit risk inherent in all products and activities.
Banks should ensure that the risks of products and activities new to them are subject to adequate
risk management procedures and controls before being introduced or undertaken, and approved
in advance by the board of directors or its appropriate committee.

B. Operating under a sound credit granting process

Principle 4: Banks must operate within sound, well-defined credit-granting criteria. These
criteria should include a clear indication of the bank’s target market and a thorough
understanding of the borrower or counterparty, as well as the purpose and structure of the credit,
and its source of repayment.

Principle 5: Banks should establish overall credit limits at the level of individual borrowers and
counterparties, and groups of connected counterparties that aggregate in a comparable and
meaningful manner different types of exposures, both in the banking and trading book and on
and off the balance sheet.

Principle 6: Banks should have a clearly-established process in place for approving new credits
as well as the amendment, renewal and re-financing of existing credits.

Principle 7: All extensions of credit must be made on an arm’s-length basis. In particular,

credits to related companies and individuals must be authorized on an exception basis, monitored
with particular care and other appropriate steps taken to control or mitigate the risks of non-
arm’s length lending.

C. Maintaining an appropriate credit administration, measurement and monitoring

process

Principle 8: Banks should have in place a system for the ongoing administration of their various
credit risk-bearing portfolios.

Principle 9: Banks must have in place a system for monitoring the condition of individual
credits, including determining the adequacy of provisions and reserves.

Principle 10: Banks are encouraged to develop and utilize an internal risk rating system in
managing credit risk. The rating system should be consistent with the nature, size and complexity
of a bank’s activities.

Principle 11: Banks must have information systems and analytical techniques that enable
management to measure the credit risk inherent in all on- and off-balance sheet activities. The
management information system should provide adequate information on the composition of the
credit portfolio, including identification of any concentrations of risk.

Principle 12: Banks must have in place a system for monitoring the overall composition and
quality of the credit portfolio.

Principle 13: Banks should take into consideration potential future changes in economic
conditions when assessing individual credits and their credit portfolios, and should assess their
credit risk exposures under stressful conditions.
D. Ensuring adequate controls over credit risk

Principle 14: Banks must establish a system of independent, ongoing assessment of the bank’s
credit risk management processes and the results of such reviews should be communicated
directly to the board of directors and senior management.

Principle 15: Banks must ensure that the credit-granting function is being properly managed and
that credit exposures are within levels consistent with prudential standards and internal limits.
Banks should establish and enforce internal controls and other practices to ensure that exceptions
to policies, procedures and limits are reported in a timely manner to the appropriate level of
management for action.

Principle 16: Banks must have a system in place for early remedial action on deteriorating
credits, managing problem credits and similar workout situations.

E. The role of supervisors

Principle 17: Supervisors should require that banks have an effective system in place to identify,
measure, monitor and control credit risk as part of an overall approach to risk management.
Supervisors should conduct an independent evaluation of a bank’s strategies, policies,
procedures and practices related to the granting of credit and the ongoing management of the
portfolio. Supervisors should consider setting prudential limits to restrict bank exposures to
single borrowers or groups of connected counterparties.
3.5 Classification of Loan

Figure: Classification of Loan

There are mainly 2 types of loan:

1. Unclassified Loan
2. Classified Loan

These are discussed below:

1. Unclassified Loan:

These are loans that do not have greater than normal risk and do not possess the characteristics of
classified loans. The borrower has the apparent ability to satisfy his obligations in full and
therefore no loss in ultimate collection is anticipated.
 2. Classified Loan:

Any bank loan that is in danger of default is classified loan. Classified loans have unpaid interest
and principal outstanding, and it is unclear whether the bank will be able to recoup the loan
proceeds from the borrower. Banks usually categorize such loans as adversely classified assets
on their books.

Classified loans have failed to meet acceptable credit standards according to bank examiners.
The credit quality has essentially declined since initial approval was granted. This type of loan
has a high rate of borrower default, and raises the cost of borrowing money for the other
customers.

There are three types of Classified Loans. These are discussed below:

1. Sub Standard Loan:

A Sub Standard Loan is the term used for any loan that a bank examiner has deemed to be in
danger of defaulting. The borrower does not necessarily need to miss payments order for a bank
to label the account in this manner. A borrower can have what the bank calls a Sub Standard
Loan for different reasons. This is simply a precaution that financial institution takes to prepare
for a possible loss and to prevent any further risk.

2. Doubtful Loan:

Doubtful loan is a loan where full repayment is questionable and uncertain. Degree of repayment
of loans in question range from a complete loss to uncertain loss unless corrective actions are
taken. Doubtful loans are usually non-performing loans on which interest is overdue and full
collection of principal is uncertain.
 A loan classified as doubtful has all the characteristics of a substandard loan and credit weakness
making full collection questionable and improbable. Fifty per cent of loans classified as doubtful
are deducted from adjusted bank capital in computing regulatory capital adequacy.

3. Bad / Loss Debt:

A debt that is not collectible and therefore worthless to the creditor. This occurs after all attempts
are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy
or where the additional cost of pursuing the debt is more than the amount the creditor could
collect. This debt, once considered to be bad, will be written off by the company as an expense.

There is another classification of Loan based on sub-standard, doubtful & continuous Loan.

Classification of Continuous Loan

Category Details
Sub–standard If the loan is past due/overdue for 3 months or beyond but less than 6 months.
Doubtful If the loan is past due/overdue for 6 months or beyond but less than 9 months.
Bad/Loss If the loan is past due/overdue for 9 months or beyond.

Classification of Demand Loan

Category Details
Sub–standard If it remains past due/overdue for 3 months or beyond but not over 6 months
from the date of expiry or claim by the bank or from the date of creation of
forced loan.
Doubtful If it remains past due/overdue for 6 months or beyond but not over 9 months
from the date of expiry or claim by the bank or from the date of creation of
forced loan.
Bad/Loss If it remains past due/overdue for 9 months or beyond from the date of expiry
 Classification of Fixed term Loan
Category Details
Sub– If the amount of past due installment is equal to or more than the amount of
standard installment(s) due within 3 months.
Doubtful If the amount of past due installment is equal to or more than the amount of
or claim by the bankinstallment(s) due of
or from the date within 6 months.
creation of forced loan.
Bad/Loss If the amount of past due installment is equal to or more than the amount of
installment(s) due within 9 months.

3.6 Loans Advance

In times of financial difficulties, individuals/corporations find means from which they can obtain
extra funding to fulfill their personal needs, business commitments, investments, etc. There are a
few options that can be explored which are to take out a loan or an advance in order to fulfill
obligations. Whether a loan is taken out or advance is obtained will depend on the time period
for which the money is needed, the amount of money that is needed, and the
individual/corporation’s other requirements. The article that follows provides a clear explanation
of loans and advances and highlights their similarities and differences.
Loan: A loan is when one party agrees to give another party a sum of money that is to be paid
back after a certain period of time. The lender will charge the borrower an interest on the money
that has been lent and will expect the interest payments to be made on a periodic basis. At the
end of the loan term, the full repayment of the principal and interest should be made. The terms
of the loan should be set out in a loan contract which lays out the terms for repayment, interest
rates, and deadlines for payment.

Loans are taken out for a number of reasons such as to purchase vehicles, to pay college tuition,
mortgages to purchase housing, personal loans, etc. Lenders such as banks and financial
institutions usually test the borrower’s credibility before lending funds. There are a number of
criterions that should be met by the borrower; which include credit history, salary/income, assets,
etc. Lenders also require an asset to be pledged as collateral, which will be liquidated and
proceeds will be used to recover losses in the event that the borrower defaults.

Advance: An advance is a credit facility that is provided to an individual/corporation by the

financial institution, bank, employer, friend, relative etc. Advances are generally for shorter term
and will be recovered by the bank during a shorter period of time. Advances are commonly taken
on an employee’s salary. Advances usually do not carry an interest payment and, therefore, it can
be a cheaper and convenient method for obtaining some extra cash on a short term. Loans and
advances are generally used for the same purpose; to obtain some extra funding during times of
financial difficulties.

Loans Advances
A loan is when one party (called the lender, An advance is a credit facility that is
which is usually a bank or financial provided to the individual/corporation by the
institution) agrees to give another party financial institution, bank, employer, friend,
(called the borrower) a sum of money that is relative etc.
to be paid back after a certain period of time.

A loan is treated as a debt where a lender such An advance is a credit facility, which is
as a bank will formally lend funds to a usually less formal than a loan.
borrower.

A loan requires an asset to be pledged as This is not the case for advances.
collateral
 Loans are for a longer period of time, and Advances are taken for shorter time periods,
need to be repaid with interest and interest is not charged on the amount
borrowed.

3.7 Develop a Credit Application

Develop a credit application form and have the draft checked by lawyer. The credit application &
approval process could include, but is not limited to the following steps:
i. The completion of a credit application form which requests full business and personal
contact details, trading name, credit guarantors, referees, and the number of years in
business
ii. Asking for details of suppliers who can be contracted as referees and then checking the
client’s payment habits with the referees
iii. Requesting bank references
iv. Asking the client to sign a director’s guarantee which makes the directors of a company
personally liable for any debts incurred with business
v. Checking the client’s business registration

Obtaining a credit report to determine whether the client is credit worthy, A range of credit
reports can be obtained from commercial information brokers listed. Discuss the reports
available and the costs involved with individual broker firm and periodically evaluating the
credit rating of existing credit clients.

3.8 Debt Recovery

Generally, debt collection options include:

A. Personal communication & consultation with client

Contact client by phone or email the day after the invoice is due. This lets client know that keep
close track of accounts receivable. Sometimes invoices get lost or overlooked, so maintain
positive relationships with client & be polite and friendly.

Ask if the client is experiencing a short-term problem or if there’s a valid reason for not making
the payment. Decide how valuable the client is to business. May be willing to temporarily extend
their credit terms, or might cancel the client’s credit agreement if late payments become a
persistent problem.

B. A written request to settle the debt (letter of demand)

If communication and consultation with the client does not result in payment of debt, may decide
to send a letter of demand. This gives client the opportunity to pay the debt without spending the
time and money associated with legal proceedings. Keep a copy of the letter of demand send the
client as it may be required as evidence that tried to recover the debt if proceed with legal action.
When drafting a letter of demand we should not harass the debtor or design it to look like a court
document. The debt collection practices are illegal. The letter of demand should:

State details of the debt (dates, agreements, amounts due, and days overdue)
Include copies of applicable quotes or invoices
Request that payment be made by a certain date
Warn that debt recovery options will be pursued if payment is not received by the
nominated date
C. Debt recovery options
In looking at debt recovery options consider
The real chances of recovery
The time taken away from business in pursuing the debt
Debt collector agency costs
The legal and court costs
Whether costs will be recoverable from the debtor
 The need to obtain legal advice
D. A debt collection agency

A debt collector recovers payment on behalf of another person for outstanding debts that
individuals or businesses are legally obliged to pay. Demand for payment can be made in
writing, verbally over the telephone, or in person.

Chapter – 4

Credit Management of
Southeast Bank Limited
4.1 Credit Risk

Credit policy is comprised of basic principles that govern the extension, administration,
monitoring and recovery of credit in line with the prudential of Bangladesh Bank and other
regulatory authorities of the Government.

4.2 Southeast Bank Limited’s Credit risk Management Policy

1. Prudential Authority: Banks credit policy will be in line with the policy and guideline
of Bangladesh Bank and other regulatory authorities of the Government.
2. General Lending Policy:
i) Short term finance to trade, industry and service sector.
ii) Selective long time finance.
3. Product and Services: Design and re-engineer products to meet customer demand.
4. Loan - Deposit Ratio: Maximum 90%
5. Name Lending: Lending based solely on general standing and reputation of borrow is
not permitted. In all cases, Credit requirement, Viability, Cash Flow, Risk level,
Mitigation and security etc. are to be analyzed.
6. Single Customer exposer limit:
 i) Export oriented: Maximum 50% of Banks Capital Where funded will be
Maximum 15%.
ii) Non - export oriented: Maximum 35% where funded 15%.
7. Large Loan: The loan equivalent to 105 of Banks Capital. The Bank can extend large
loan upto56% of its portfolio.
8. Diversification and Sector Allocation: Credit is diversified to different sector and
industries annual Budget is made and reviewed.
9. Maximum Tenor: The tenor of loan generally shall be based on repayment capacity,
projected cash flow, and payback period. Product wise maximum tenor has been defined
in the credit manual.
10. Security / Collateral: Bank will try to have as much collateral security as possible based
on force sale value.
11. Support Security: Bank will try to have additional comfort by way of having support
security like personal Guarantee, post-dated cheque, creation of charges at RSJC &
Corporate guarantee etc.
12. Pricing: Pricing will be based on Risk & market condition within guideline of
Bangladesh Bank. ALCO Committee of Head Office will revise pricing through Board of
Directors. Managing Director has authority to increase or decrease interest rate by 1.40%
when mid-rate prevails.
13. CIB: Up-to-date CIB be collected before approval of credit.
14. Handling of Different Credits at Head Office:
i) Corporate Credit.
ii) SME Credit.
iii) Retail Credit.
iv) Consumer Credit.
v) Staff Loan
15. Segregation of Authority: Credit Function will be segregated from each other.
i) Credit Marketing: Be done by separate relationship officer at Branch and Head
Office corporate Banking Division and other specialized Division.
ii) Credit Approval: Credits be approved by different authorities after due assessment
and appraisal by different term.
 (1) Board of Directors: Full Authority.
(2) EC of Board: As delegated by Board
(3) MD: As delegated by Board
(4) Other Executive at Head Officer and Branch Manager: As delegated by MD
iii) Credit Administration: Will handle Documentation, Disbursement and control
procedure.
iv) Credit Monitoring: Be primarily done by marketing and relationship team at Branch
and at Head Office. They will also ensure Early Alert reporting.
v) Credit Recovery: Be done by different term at Branch and Head Office division.
16. Credit Risk Grading: All credits are to be graded into 8 categories. Analysis of credit
risk grading is made before any approval. Periodical review of Grading also be made by
marketing term and approved by Credit Risk Managing Division.
17. Corporate set-up at branch level: In here, Head is the Head Branch manager
(Relationship Manager) and then in his under, there are 4 departments, those are:
(1) Relationship Officer
(2) Credit Risk Review Unit
(3) Credit Administration Unit
(4) Recovery Unit
18. Credit Committee: There will be credit committee at Branch and Head Office for
processing approval of Credit.
19. Legal Vetting: All charge documents and mortgage document be vetted by legal counsel.
20. Document Maintenance: Credit file and Loan Document are to be minted and recorded
properly by responsible officer with written authority.
21. Management of Problem Account: Specific team of Executive will work at Branch and
at Head Office to manage and recover of problematic Account.
22. Renewal of Credit: Renewal of report proposal is sent to Head Office 2 months ahead of
expiry.
23. Rescheduling: Rescheduling of Credit will have to be done as per BRPD Circular no.

4.3 Securities against loans and advances

Types of credit Securities

House building loan Primary securities: mortgage of the land or
any property
Transport loan Primary securities: joint registration and
comprehensive insurance policy. Two
valuable guarantors. Collateral securities:
mortgage of land or any property. Any type
financial obligation.
Auto loan Primary securities: joint registration and
comprehensive insurance policy. Two
valuable guarantors and postdated cheques.
Any purpose loan Primary securities: Two valuable guarantors
and postdated cheques.
Payments against documents(PAD) Pledge or Hypothecation of stock-in trade,
goods, produce and merchandise,
machineries, loan or building on which
machineries are installed.
Loan against imported merchandise Pledge of imported merchandise.
Loan against trust receipt Trust receipt in lieu of import document.
Local bills purchased Bill itself
Foreign bill purchased Shipping documents for exports
Overdraft Primary securities: Hypothecation of book
depth. Collateral securities: mortgage of
landed property and IPA.
Secured overdraft Primary securities: Lien on any types of
financial obligation.
Cash credit Primary securities: Hypothecation of stock of
goods in trade duly insured produce
merchandise. Collateral securities: mortgage
of land and building, any financial
obligation.
4.4 Overall procedure for sanctioning loan

The following procedure need to be followed for giving advances to the customer. These are:

A. Party’s application
B. Filling form-A
C. Collecting CIB report from Bangladesh Bank
D. Processing loan proposal
E. Project appraisal
F. Head office approval
G. Sanction letter
H. Documentation
I. Disbursement

A. Party’s application

At first borrower had to submit an application to the respective branch for loan, where he/she has
to clearly specify the reason for loan. After receiving the application from the borrower, bank
officer verifies all the information carefully. He also checks the account maintains by the
borrower with the bank. If the official becomes satisfied then he gives form-A to the prospective
borrower.

B. Filling form-A

After satisfying with party’s application the applicant need to fill Form-A. It is the prescribed
form provides by the respective branch that contains information of the borrower. It contains
name with its factory location, official address and telephone number, details of past and present
business, its achievement and failures, type of loan needed etc.

C. Collecting CIB report from Bangladesh Bank

After receiving the application for advance, Southeast Bank sends a letter to Bangladesh Bank
for obtaining a report from there. This report is called CIB (Credit Information Bureau) report.
Southeast Bank generally seeks this report from the head office for all kinds of investment. The
purpose of this report is to being informed that whether the borrower has taken loan from any
other Bank; if ‘yes’ then whether the party has any overdue amount or not.

D. Processing loan proposal

After receiving CIB report from Bangladesh Bank, then respective branch prepare an Investment
proposal, which contains terms and conditions of Investment for approval of Head Office.
Documents those are necessary for sending Investment Proposal is:

Necessary Documents:

While advancing money, banks create a lot of document, which are required to be signed by the
borrowers before the disbursement of the loan. Of them some are technically called charge
documents. Necessary steps and documents:

1. Loan application form duly signed by the customer.

2. Acceptance of the term and conditions of sanction advice.
3. Trade license.
4. In case of partnership firm, copy of registered partnership deed duly certified as true
copy or a partnership deed on non-judicial stamp of taka-150 denomination duly
notarized.
5. In case of Limited Company

a. Copy of memorandum and articles of association of the company including

certificate of incorporation duly certified by Registered Joint Stock Companied
(RJSC) & attested by the managing director and accompanied by an up-to-date
list of directors.
 b. Copy of board resolution of the company for availing credit facilities &
authorizing managing director/chairman/director for execution of documents and
operation of the accounts.
c. An undertaking not to change the management of the company & the
memorandum & article of the company without prior permission.
d. Copy of last audited financial statement up to last 3 years.
e. Personal guarantee of the directors including the chairman & managing director.
f. Certificate of registration of charges over the fixed and floating assets of the
company duly issued by RJSC.
g. Certificate of registration of amendment of charges over the fixed and floating
assets of the company duly issued by RJSC in case of repeat loan amount and
securities etc.

6. Demand promissory notes.

7. Letter of hypothecation of stocks and goods.
8. Letter of hypothecation of books debts and receivable.
9. Letter of hypothecation of plant and machinery.
10. Personal letter of guarantee.

E. Project Appraisal

It is the pre-investment analysis. Project appraisal in the Banking sector is important for the
following reasons:

 To achieve organizational goals

 To recommend if the project is not designed properly
 To justify the soundness of an investment
 To ensure repayment of Bank finance

Techniques of project appraisal

An appraisal is a systematic exercise to establish that the proposed project is a viable preposition.
Appraising officer checks the various information submitted by the promoter in first information
sheet, application for Investment & Investment proposal.

The Head Office (HO) mainly checks the technical, commercial & financial viability of the
project. For others, HO is dependent on branch’s information. But when the investment size is
big, then the HO verifies the authenticity of information physically.

F. Head Office Approval

When Head office receive appraisal from the branch then, Head Office again appraises the
project. If it seems to be a viable one, the HO sends it to the Board of Directors for the approval
of the Investment. The Board of Directors (BOD) considers the proposal & takes decision
whether to approve the Investment or not. If the BOD approves the investment, the HO sends the
approval to the concerned branch. The respective officer of Head Officer appraises the project by
preparing a summary named “Top Sheet” or “Executive Summary” & then he sends it to the
Head Office Credit Division for the approval of the Loan. The Head Office Credit Division
considers the proposal and takes decision whether to approve the Investment or not. If the
committee approves the investment; the HO sends the approval to the concerned branch.

G. Sanction Letter

After getting the approval of the HO the branch issues sanction letter to the borrower. A sanction
letter contains:

Name of borrower,
Facility allowed,
Purpose,
Rate of interest,
Period of the Investment and mode of adjustment
Security and Other terms and condition.

H. Documentation
If the borrower accepts the sanction letter, the Documentation starts. Documentation is a written
statement of fact evidencing certain transactions covering the legal aspects duly signed by the
authorized persons having the legal status. The most common documents used by the Southeast
Bank for sanctioning different kinds of Investment are:

Joint Promissory Note,

Letter of Arrangement,
Letter of Disbursement,
Letter of Installment,
Letter of Continuity,
Trust Receipt,
Counter Guarantee,
Stock Report,
Letter of Lien,
Status Report,
Letter of Hypothecation
Letter of Guarantee
Documents Relating to Mortgage.

I. Disbursement

After sanction and completion of all formalities the respective officer disburses the loan. The
officer writes cheques and provides it to the borrower. For this borrower has to open an account
through which he/she van withdraw the money.

Strategy for Recovery: Recovery of loan can be made in following 3 methods:

i. Persuasive Recovery: The first step in recovery procedure is private communication that
creates a mental pressure on borrower to repay the loan. In this situation bank can provide
some advice to the borrower for repaying the loan.
ii. Voluntarily: In this method, some steps are followed for recovering loan. These are::

a. Building Task Force

 b. Arranging Seminar
c. Loan Rescheduling Policy
d. Waiver of Interest Rate

iii. Legal Recovery: When all steps fail to keep an account regular and the borrower does
not pay the installments and interests then the bank take necessary legal steps against the
borrower for realization of its dues. In this case “ArthaRinAdalat Law 2003” plays an
important role for collecting the loan.

4.5 Credit Administration

The administration function is critical in ensuring that proper documentation & approvals are in
place prior to the disbursement of loan facilities. For this reason it is essential that the function
credit administration be strictly segregated from relationship management/marketing in order the
possibility of controls being compromised of issues not being highlighted at the appropriate
level.

4.6 Credit monitoring

To minimize credit losses, monitoring procedures and systems shall be in place that provides an
early indication of the deteriorating financial health of a borrower. At a minimum system shall be
in place to report the following exceptions to relevant executives in CRM & RM team:

Past due 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 regular
basis, and any covenant braches or exceptions are referred to CRG and the RM team for
timely follow-up.
Timely corrective action is taken to address finding of internal, external or regulator
inspection/audit.
All borrower relationship/loan facilities are reviewed and approved through the
submission of a credit proposal at least annually.
Chapter – 5
 Analysis of
Total Deposit
Year 2012 2013 2014 2015 2016
Tk. In millions 152,901 177,519 189,742 210,431 229,973
Growth rate 20.26% 16.10% 16.72% 11.06% 9.29%

Credit Management

5.1 Year wise Deposit & Growth rate:

Table (5.1.a): Trend of deposits & Growth Rate

Geographical Presentation
 Total Deposit ( tk. In millions)
250000 229973
210431
177519 189742
200000
152901
150000
100000
50000
0
2012 2013 2014 2015 2016
Figur
e (5.1.a): Total Deposit (in millions)

Growth Rate
Growth Rate
30.00%
20.26%
16.10% 16.72%
20.00% 11.06% 9.29%
10.00%
0.00%
2012 2013 2014 2015 2016
Figure
(5.1.b): Growth rate of Total Deposits
Interpretation: The above graph shows downward trend in total deposit mobilization of
Southeast Bank Limited. In 2012 the deposit was tk. 152901 million but in 2016 it was TK.
229973 million. Due to attractive interest rate deposit was increased but the growth rate was
fluctuating over the years.

5.2 Year wise Credit and Growth rate:

Total Credit (Tk. In millions)

Year 2012 2013 2014 2015 2016
Tk. In millions 126,968 134,863 147,070 168,878 191,865
Growth rate 18.34% 6.05% 9.05% 14.43% 13.61%

Table (5.2.a): Trend of Credit and Growth Rate

Graphical Presentation:
 Total Credit (tk. in millions)
250000
200000
150000 191865
168878
100000 134863 147070
126968
50000
0
2012 2013 2014 2015 2016
Figure
(5.2.a): Total credit (tk. in millions)

18.34% Growth rate

20.00% 14.43% 13.61%
15.00% 9.05%
10.00% 6.05%
5.00%
0.00%
2012 2013 2014 2015 2016

Figure (5.2.b): Growth rate of Total Credit

Interpretation:
The above graph shows year wise Credit was increasing of Southeast Bank Limited. In 2012 the
advance was tk. 126968 million but in 2016 it was Tk. 191865 million. The second graph shows
that growth rate of year wise advance was fluctuating over the years.

5.3 Year wise Credit to Deposit Ratio:

Credit to Deposit Ratio measures the portion of Deposit is in the form of loan and advances.

Credit to Deposit Ratio = (Total Credit/ Total Deposit)*100

Table (5.3.a): Trend of Credit to Deposit Ratio

Credit to Deposit Ratio%

Year 2012 2013 2014 2015 2016

Percentage 83.04% 75.97% 77.62% 80.25% 83.43%

 Graphical Presentation:

Credit to Deposit Ratio%

86.00%
83% 83%
84.00%
82.00% 80%
80.00%
78%
78.00%
76%
76.00%
74.00%
72.00%
2012 2013 2014 2015 2016

Figure (5.3.a): Credit to deposite ratio

Interpretation:

The graph shows that the Credit to Deposit Ratio is increasing year by year except 2013. It was
decreased from 2012 to 2013 but in 2014 to 2016 it was increase from 78% to 83%.

5.4 Year wise Investment and Growth rate:

Total Investment (Tk. In millions)

Year 2012 2013 2014 2015 2016
Tk. In millions 39,011 57,589 56,378 58,829 61,731
Growth rate 30.71% 47.62% (2.10)% 4.35% 4.93%

Table (5.4.a): Trend of Investment and Growth Rate

Graphical Presentation:
 Total Investment (tk. in millions)
80000
60000
57589 56378 58829 61731
40000
36011
20000
0
2012 2013 2014 2015 2016
Figure
(5.4.a): Total Investment (tk. in millions)

Growth rate
60.00% 47.62%
40.00% 30.71%
20.00% -2.10% 4.35% 4.93%
0.00%
-20.00% 2012 2013 2014 2015 2016

Figure (5.4.b): Growth rate of Total Investment

Interpretation:
The first graph shows that the total investment has increased over the years except in the year
2014. The second graph shows that growth rate of year wise investment was fluctuating over the
years.

5.5 Year wise Investment to Deposit Ratio:

Investment to Deposit Ratio measures the portion of Deposit is in the form of Investment.

Investment to Deposit Ratio = (Total Investment / Total Deposit)*100

Table (5.5.a): Trend of Investment to Deposit Ratio

Investment to Deposit Ratio%

Year 2012 2013 2014 2015 2016

Percentage 25.51% 32.44% 29.76% 27.95% 26.84%

 Graphical Presentation:

Investment to Deposit Ratio%

35.00%
30.00% 32%
25.00% 30%
28% 27%
26%
20.00%
15.00%
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016

Figure (5.5.a): Investment to deposite ratio

Interpretation:

The graph shows that the investment to Deposit Ratio is decreasing year by year except 2013. It
was increased from 2012 to 2013 but in 2014 to 2016 it was increase from 30% to 27%.
5.6 Sector wise distribution of loan:

Sector wise loan portfolio in 2016

0%
Agriculture
Large Industry
18%
22% Small Industry

1% Export credit
Commercial credit
0% 3%
Retail Banking
3%
Real estate
1%
Transport & communica-
tion
16%
Credit card
Others

36%

Figure (5.6.a): Sector wise distribution of loan (in SEBL Annual Report 2016)

Interpretation: Southeast Bank Limited provides 22% of total credit in large industry, 18% in
retail banking and 36% of in commercial credit. Southeast Bank Limited basically distributes
their credit on Industry & Business sector because it is more profitable than other sectors.
5.7 Geographical location wise credit distribution in 2016:

Table (5.7.a): Geographical location wise credit distribution

Division Taka in Millions Percentage (%)

Dhaka 138,473.58 73.13%

Chittagong 37,770.74 19.95%

Khulna 2,264.04 1.20%

Rajshahi 4,397.76 2.32%

Sylhet 4,874.44 2.56%

Rangpur 901.46 0.48%

Barisal 158.02 0.08%

Mymensingh 524.91 0.28%

Total 189,364.96 100%

Geographical location wise credit distribution in 2016:

Geographical location wise credit distribu-

tion in 2016:

2.56% 0.48% 0.08% 0.28%

1.20% 2.32% Dhaka
Chittagong
Khulna
Rajshahi
19.95%
Sylhet
Rangpur
Barisal
Mymensingh
73.13%

Figure (5.7.a): Geographical location wise credit distribution (in percentage)

Interpretation:

The graph shows that, Southeast Bank Limited distributes a large portion of credit in Dhaka
division. In Dhaka division the bank distributes 73.13%, where in Chittagong division is 19.95%.
It has been viewed that Southeast Bank Limited distributes only 1.20% in Khulna, 2.32% in
Rajshahi, 0.48% in Rangpur, 2.56% in Sylhet, 0.08% in Barisal and 0.28% in Mymensingh
division. Most of the business & industry are centralized on this two division. For this reason
credit distribution in these two divisions is very attractive.
5.8 Year wise classified loan (as a percentage of total loan):

Year 2012 2013 2014 2015 2016

Classified loan 5,687 5,350 5,387 7,193 9,257
(Taka in millions)

Total loan 126,968 134,863 147,070 168,878 191,865

(Taka in millions)

% of classified loan 4.47% 3.94% 3.64% 4.25% 4.82%

as total loan

Table (5.8.a): Classified loan as a percentage of total loan

6.00% % of classified loan

5.00%
4.00% 4.82%
4.47% 4.25%
3.00% 3.94% 3.64%
2.00%
1.00%
0.00%
2012 2013 2014 2015 2016

Figure (5.8.a): Classified loan as a percentage of total loan

Interpretation:

The graph shows that, percentage of classified loan decreased from 2012-2014 .Again the rate
was increasing year by year in 2015-2016 the rate was 4.25% to 4.82%.
5.9 Category wise Classified Loan and Advances:

Any classified loan will be categorized as-

 ‘Sub-standard’ if it is past due/overdue for 6 month or beyond but less than 9 month.
 ‘Doubtful’ if it is past due/overdue for 9 month or beyond but less than 12 month.
 ‘Bad-loss’ if it is past due/overdue for 12 month or beyond.

Table (5.9.a): Classified loan Composition

Classified loan 2015 2016

Classified loan Classified loan Classified loan Classified loan

as a % of total (TK. in as a % of total
(TK. in
millions)
millions) Loan Loan
Loan

Sub-standard 1,518 21.1% 1,567 16.93%

Doubtful 1,240 17.24% 587 6.34%

Bad/Loss 4,435 61.66% 7,103 76.73%

Amount of non- 7,193 100% 9,257 100%

performing loans &
advances
 Classified Loan Com- Classified Loan Com-
position 2015 position 2016

16.9
Sub-standard 3% Sub-standard
Doubtful 6.34 Doubtful
21.10% Bad/Loss % Bad/Loss

61.66% 17.24% 76.73%

Figure (5.9.a): Classified loan Composition

Interpretation:

The pie chart shows that, major portion of classified loan was bad & loss category. In 2015 their
sub-standard loan was 21.10%, in 2016 it was decreased to 16.93%. Doubtful loan was decreased
from 17.24% to 6.34% in 2016. Bad/loss loan was increased from 61.66% to 76.73% in 2016.
5.10 Year wise unclassified loan (as a percentage of total loan):

Year 2012 2013 2014 2015 2016

Unclassified loan 121,579 130,339 142,568 162,185 180,107
(Taka in millions)

Total loan 126,968 134,863 147,070 168,878 191,865

(Taka in millions)

% of unclassified 95.76% 96.65% 96.94% 96.04% 93.87%

loan
as total loan
Table (5.10.a): Unclassified loan as a percentage of total loan

98.00% % of unclassified loan

97.00%
96.65% 96.94%
96.00%
95.76% 96.04%
95.00%
94.00%
93.00% 93.87%

92.00%
2012 2013 2014 2015 2016

Figure (5.10.a): Unclassified loan as a percentage of total loan

Interpretation:

The graph shows that, percentage of unclassified loan increased from 2012-2014. The rate was
increasing by year in 2014 the rate was 96.94%. Again it falls in 2015 and 2016 which was
respectively 96.04% and 93.87%.
Chapter – 6

Comparative Analysis
6.1 Deposit of Southeast Bank Limited as a percentage of National Deposit:

Table (6.1.a): Deposit of Southeast Bank Limited as % of total National Deposit

Year 2012 2013 2014 2015

National deposit 5,396 6,273 6,965 8,033

(TK. In billions)

Deposit of Southeast 152,901 177,519 189,742 210,431

Bank Limited
(TK. in millions)
Deposit Southeast Bank 2.83% 2.84% 2.72% 2.62%
Limited as % of total
National Deposit
Figure (6.1.a): Deposit Southeast Bank Limited as % of total National Deposit

Deposit Southeast Bank Limited as % of total

2.90%
National Deposit
2.85%
2.80% 2.83% 2.84%
2.75%
2.70%
2.72%
2.65%
2.60%
2.62%
2.55%
2.50%
2012 2013 2014 2015

Interpretation:
The graph shows the deposit of Southeast Bank Limited as percentage of National deposit has
fluctuated over the years. However, the deposit as percentage of total national deposit has
decreased over the year from 2.84% in 2013 to 2.62% in 2015. This indicates that comparative
deposit performance of Southeast Bank Limited has decreased over the years.

6.2Credit of Southeast Bank Limited as a percentage of National Credit:

 Table (6.2.a): Credit of Southeast Bank Limited as % of total National Credit
Year 2012 2013 2014 2015

National Credit 4,318 4,638 5,147 5,952

(TK. In billions)

Southeast Bank Limited 126,968 134,863 168,878 191,865

(TK. in millions)

Credit of Southeast Bank 2.94% 2.91% 3.28% 3.22%

Limited as % total
National Credit

Figure (6.2.a): Credit of Southeast Bank Limited as % of total National Credit

Interpretation: The graph shows the credit of Southeast Bank Limited as percentage of National

Credit of Southeast Bank Limited as a % of

National Credit
3.40%
3.22%
3.20%
3.28%
3.00%
2.80% 2.94% 2.91%
2.60%
2012 2013 2014 2015
credit has fluctuated over the years. However, the credit as percentage of total national credit has
decreased over the years from 3.28% in 2014 to 3.22% in 2015. This indicates that comparative
credit performance of Southeast Bank Limited has decreased over the years.

6.3 Comparison of Credit to Deposit ratio & National Credit to Deposit ratio:
 Year 2012 2013 2014 2015

National Credit to Deposit 80% 73.9% 73.9% 70.98%

ratio (%)

Southeast Bank Limited 83.04% 75.97% 77.62% 80.25%

(%)

Table (6.3.a): Comparison of Credit to Deposit ratio Southeast Bank Limited and National
Credit to Deposit ratio.

Figure (6.3.a): Comparison of Credit to Deposit ratio of Southeast Bank Limited & National

Comparison of Credit to Deposit ratio & Na-

tional Credit to Deposit ratio
85.00% 83%
80% SEBL
80.00% 76% 78%
80.00% Industry Average
75.00%
70.00% 73.90% 73.90%
70.98%
65.00%
60.00%
2012 2013 2014 2015
Credit to Deposit ratio.

Interpretation: The graph shows that credit to deposit ratio of Southeast Bank Limited is higher
than industry average over each year of analysis. This graph indicates that Southeast Bank
Limited uses more of deposit in credit in comparison with industry average. In the year 2012,s
credit to deposit ratio of Southeast Bank Limited is nearly to industry average each year. But in
2015 Southeast Bank Limited’s National Credit to Deposit ratio is 80% and National Credit to
Deposit ratio 70.98%.

6.4 Non-performing loan as a percentage of total loan:

 Table (6.4.a): Non-performing loan as a % of total loan

Figure (6.4.a): Non-performing loan as a % of total loan

Year 2012 2013 2014 2015

Industry Average 10% 8.9% 9.7% 8.8%

NPL Southeast Bank 4.47% 3.94% 3.64% 4.25%

Limited

Interpretation: The graph shows that NPL ratio of Southeast Bank Limited is lower than the

Non-performing loan as a % of total loan

12.00% 10.00% 9.70%
10.00% 8.90% 8.80%
8.00%
6.00%
NPL of SEBL
4.00%
4.47% 3.94% 4.25% Industry Average
2.00% 3.64%
0.00%
2012 2013 2014 2015

industry average over the each year of analysis. This indicates that recovery performance of
Southeast Bank Limited is better than that of the most of the banks in the banking industry.
However, Non-performing loan of Southeast Bank Limited has increased over years.
Chapter – 7

Findings &
Recommendation

7.1 Major findings:

 There are several steps in the lending procedure & lots of terms and condition of credit
management of Southeast Bank Limited.
There was an upward trend of total deposit mobilization of Southeast Bank Limited
from 2012 to 2016 but the growth rate of deposit was fluctuated over the years.
Year wise Credit distribution of Southeast Bank Limited was increasing though its
growth rate was fluctuating over the year.
Year wise total investment of Southeast Bank Limited was increasing though its growth
rate was fluctuating over the year.
Southeast Bank Limited provides 36.32% of total credit in commercial credit, 21.62%
in large industry, 16.24% in retail banking, 0.07% in agriculture sector and 17.69% in
other sectors.
Southeast Bank Limited provides a large portion of credit in Dhaka & Chittagong
division which was 73.13% and 19.95%.
In the classified loan the amount of “Bad & loss” was 61.66% in 2015, which was
increased 76.73% in the year 2016. Doubtful loan decreased from 17.24% in 2015 to
6.34% in 2016. Sub-standard loan decreased 21.40% to 16.93% in 2015 to 2016.
There was an upward trend that the amount of classified loan of Southeast Bank
Limited.
There was downward trend that the amount of unclassified loan of Southeast Bank
Limited.

7.2 Recommendations:
The analysis of credit management of Southeast Bank Limited requires the following
recommendation that may help the bank to improve its credit management process:

 The deposit mobilization of Southeast Bank Limited increased but the growth rate was
fluctuated over the years. The bank should increase deposit mobilization by creating new
deposit scheme so that growth has been positively increased.
 Total Investment and growth of Southeast Bank Limited has increased in the preceding
five years. So, the bank should try to keep and improve this performance.
 Southeast Bank Limited provides little bit loans in agriculture sector; it was only 0.07%
of total investment in this sector. So bank should give more concentration in this sector
for developing our country.
 Southeast Bank Limited provides more credit facilities in Dhaka division and Chittagong
division. So, Bank should diversify their credit in other divisions.
 Proper and effective monitoring should be developed in order to decrease the trend of
classified loan.
 Non-performing loan have increasing in the last three years. So Southeast Bank Limited
should give concentration to control the classified loan by continuous communication
with the client and should properly check the document of the applied clients before the
disbursement of the funds.
7.3 Conclusions:

Southeast Bank Limited setting new standards in the banking area in the time of turbulent
economic conditions. Southeast Bank Limited, one of the states owned commercial banks in
Bangladesh and is catering the need of the mass business people. Southeast Bank Ltd helps to
mobilize the resources to stay strong in the key areas of operation. The bank is to actively
participate in the socio-economic development of the nation by operating a commercially sound
banking organization, providing credit to viable borrowers, efficiently delivered and
competitively priced, simultaneously protecting depositor’s funds and providing a satisfactory
return on equity to the owners.

The bank is currently doing average. By analyzing its performance, it is observed that a potential
growth might be accelerated through effective implications of competitive strategies. It has an
advantage compared to newly established bank in the form of wide range of activities. However,
strategy implication needs to be as fast as possible to grab the early mover advantage. It can
hedge poor performance of one sector by some other sector for its wide range of offering.
Capital market operation has become a great potential for the bank to increase its profitability.

The bank has been able to create a multi component loan portfolio. However, default is
increasing for lack of monitoring. The bank is trying to increase its loan quality by accelerating
its recovery policy. The bank can concentrate on the loan sector where default risk is low and its
investment is profitable. The loan procedure has been made more calculative, logical to keep the
credit sound.
References

Annual Report

Southeast Bank Limited, Annual Report 2012

Southeast Bank Limited, Annual Report 2013
Southeast Bank Limited, Annual Report 2014
Southeast Bank Limited, Annual Report 2015
Southeast Bank Limited, Annual Report 2016
Bangladesh Bank Annual Report 2016

Websites

www.Southeast Bank Limitedank.com.bd

www.Bangladesh –bank.org.bd
Google
Wikipedia