Presented by

G.M. Kamrul Islam CDCS, CAMS, CECM

Assistant Vice President
SME CRM Unit
Credit Risk Management Division-2
 Product Product
Product Nature Product Nature
Term Loan W.E.
Somridhi Uthsaho Term Loan

Cash Credit W.E. Cash

Len Den Shofolota Credit

Distributor
Property
Proshar Financing
Janala Loan
(CC)
Term Loan for
Time Loan 10TK A/C
Prantik
Utshab (Bullet Holders
Payment)
 What is Credit ?

An agreement between Bank & borrower where

bank lend money with trust that the borrower will

payback/repay the bank money including principle +

interest within stipulated time frame.

Five C of Credit:

 Conditions
 Character
 Collateral
 Capacity

 Capital
What is Credit Risk Management?

Credit Risk :
Miserable uncertainty of nonpayment of landed money by the
borrower within stipulated time frame.

Credit Risk Management:

• Practice to mitigate potential losses associated with non-payment of loans.

• The goal of CRM is to maximize a banks risk adjusted rate of return within

acceptable parameter
 How to assess “Key Factors” of SME Loan File

1. Sales:
 Bank Transaction/sales reflection % (covering
accounting year)

 Lifting sheet & dealership agreement

 Purchase voucher/tied up period
 Sales Register
 Sales growth
 How to assess “Key Factors” of SME Loan File

Cash Credit Analysis:

 Account Turn over
 Limit Utilization
 Average Balance
 Stuck Up limit/No swing/Highest limit-lowest limit
 EOL
 Adjustment
 How to assess “Key Factors” of SME Loan File

• 2. Collateral Security
 Third party valuation & Legal opinion
 Land Type
 Access Road/Road Owner
 Chain of ownership
 Peaceful Possession
 Overall outlook
 How to assess “Key Factors” of SME Loan File

• 3. Repayment History:

 Previous and Current loan repayment history

(DUE, OVER DUE, UNPAID)
 CIB Report
 Loan Statement/Sanction Letter
 How to assess “Key Factors” of SME Loan File

• 4. Utilization of Fund:

 Existing Loan Utilization as per Sanction Letter

 Proposed Loan Utilization
 How to assess “Key Factors” of SME Loan File

• 5. Financials Info:
 Audited Financials
 ICRR
 WCR (Tied up period/Cash Conversion Cycle)
 DBR
 DER
 LTV
 How to assess “Key Factors” of SME Loan File
• 6. Compliance & other issues:
 PPG Compliance
 Up to date Trade License
 Site Clearance Certificate
 Environmental Clearance Certificate
 BSTI License …..
 Building Approval Plan…..
 And other related documents
• A term loan of Tk. 5.00 million was Disbursed
on 01 January 2021 for five years, EMI Size:
10,000/- As on Today: 50,000 has been paid.
• Calculate:……….
• EMI Due:……….
• EMI paid:…………..
• EMI Overdue:…………
• Remaining EMI:…………
• A term loan of Tk. 5.00 million was Disbursed on 01
January 2021 for five years, Grace Period: 03
months, EMI Size: 10,000/- As on Today: 50,000 has
been paid.
• Calculate:……….
• EMI Due:……….
• EMI paid:…………..
• EMI Overdue:…………
• Remaining EMI:…………
• A term loan of Tk. 5.00 million was Disbursed on
01 January 2021 for five years, Grace Period: 03
months, Defererment period: 02 months; EMI
Size: 10,000/- As on Today: 50,000 has been paid.
• Calculate:
• EMI Due:……….
• EMI paid:…………..
• EMI Overdue:…………
• Remaining EMI:…………
Steps of credit risk management….

1. Know your customer(KYC)

2. Asses credit worthiness
3. Understand purpose of loan
4. Understand non financial risk
5. Understand financial risk
6. Regulatory compliance
7. Structure realistic credit limit
8. Pricing the deal
9. Making clear wording of terms &
condition
10. Collateral arrangement
11. Close the deal
12. Monitor the relation ship
What Is Working Capital ?
Why Working Capital is required ?
Operational Efficiency & Working Capital

 Maintaining Working capital is everybody’s

responsibility
 Pay Suppliers on Time
 Collect Receivables on Time
 Control Expenses Carefully
 Maintain steady stock
Terms Related To Working Capital

• Cost of Goods Sold (Trading)

• Cost of Production (Manufacturing)
• A/C Receivable
• A/C Payable
• Tied up period
• Cash Conversion Cycle (CCC)

Sales = Tk.12 mln.

COGS = Tk.10 mln.
WC Calculation using Cash Conversion Cycle

Sales = Tk.12 mln.

COGS = Tk.10 mln.

• Inventory Tied up Period = (Inventory/COGS )x 300 days = 60 days

• Receivables Tied up Period = (Account Receivable/Sales) x 300 days = 30 Days
• Payable Tied up Period = (Account Payable/COGS) x 300 days = 15 days
• Cash Conversion Cycle = 60+30-15 = 75 days
• WC Requirement = (COGS x CCC ) / 300 = Tk.2.50 mln.
WC Calculation (Con….)

Cash Conversion Cycle= 60+30-15 = 75 days

WC Calculation (Manufacturing Concern)
WC Calculation (Con…)
• Current Assets:
Cash ………………………………… 20,000
Account Receivable …………. 15,000
Inventories ……………………… 45,000
----------
80,000
• Current Liabilities:
Account Payable ……………… 25,000
Short term borrowing …...… 10,000
Accrued liabilities ………...... 10,000
----------
45,000

Working Capital ………….…… 35,000

Working Capital = Current Asset – Current Liability
WC Assessment: Considerations
 Satisfactory CIB report (Repayment History)
 Age of business : Minimum 3 months
 Age of borrower: Between 21 to 65 years (For renewal max 70 years)
 Nature of business (Type, Product).
 Prospects for expansion of business
 Satisfactory Cash Flow (Actual Sales vs Sales Reflection)
 Sales Growth (not less than 10% in general)
 Profit Margin
 Supplier and Buyer information
 Successor /2nd line management.
 Different Ratios (Debt-Equity, Liquidity, Loan to Collateral)
 Quality of Collateral security
WC Assessment: Considerations
WC Assessment: Sales Assessment
Sales Reflection:
 Physical Visit & interview/conversation.
 Business startup history.
 Ownership (shadow partners).
 Business location & future prospect.
 Current industry status (market demand, profit, Regulatory compliance).
 Market position/market competitors.
 Bank Statements.
 Business Records (Lifting, purchase memo, sales register, A/C receivables
register etc.)
 Business stocks.
 Customer gathering.
 Market information(suppliers, buyers, others).
 Preparation of Financial statements in line with actual condition.
WC Assessment: Considerations

 Account Performance:
 Sales reflection
 Limit Turnover (minimum 3 times)
 Limit Utilization
 Timely interest service (CC/OD limit)
 Timely EMI service (Term Loan)
 Periodic Adjustment (at least once a year)
WC Assessment: Considerations

 Collateral Security:
 Nature of Collateral Security
 Land with Building
 Vacant land/ land with semi pucca building
 Agricultural Land
 Approach Road
 Demarcation
 Physical Possession
 Permissible LTV (1:1.50)
 Types of ownership
 First party preferred
 Close relative in case of 3rd party
 Sources of Business Information

Bank Statements & Customer Gathering

Sanction Advice

Sales/Receivable Stocks/
Registers Inventory
 OD limit is Reduced

Adjustment purpose

Condition for
adjustment
Rescheduled
Sales Register
with False Date
Defective Ownership
Common Shortfalls of Proposals
 Lack of up to date market information.
 Branch requests for Term Loan to meet Working Capital.
 WC seems irrelevant with business nature. ( House rent, Hotel/Restaurant,
Private Clinic etc.).
 Branch requests for CC limit with Term Loan without proper reason.
 Overstated information (Stocks, sales, Profit Margin, A/c receivables, A/c
Payables).
 Tied up period too high to achieve CC limit, (but it means cash flow is poor).
 Tied up period mismatch with other financial information.
 Turnover below 3 times.
 Borrower failed to adjust CC limit over the year.
 45 days adjustment clause for Rice, Paddy business.
 Measures to Take
 Visit must (Borrower, business, Collateral).
 Analyze previous loan performance (if any).
 Predict business Stage, Growth (predict loan tenor).
 Recommend the limit based on adjustment capacity (in worst situation).
 Don’t put any unnecessary loan to a same basket.
 Add sufficient security (if possible take DPS/FDR).
 Take good Guarantor (e.g. a good CC customer).
 Add shadow partner as Guarantor (if found).
 Keep in close touch with the client (business, family, market info).
 Ratio Analysis

• Profitability Ratios:
– Gross Margin
Gross Profit
Gross Margin=
Sales
– Operating Margin
Operating Income
Operating Margin=
Sales
 Ratio Analysis (Cont……)
– Net Profit Margin

Net Income
Net Profit Margin 
Total Sales
 Ratio Analysis (Cont……)
• Liquidity Ratios:
– Current Ratio
• Current Assets / Current Liabilities
– Quick Ratio
• (Cash + Short-Term Investments + A/R) /
Current Liabilities
 Ratio Analysis (Cont……)
• Working Capital Ratios
– Accounts Receivable Days
Accounts Receivable
Accounts Receivable Days 
Average Daily Sales

– Accounts Payable Days

Accounts Payable
Accounts Payable Days 
Average Daily Cost of Sales

– Inventory Days
Inventory
Inventory Days 
Average Daily Cost of Sales
 Ratio Analysis (Cont……)
• Working Capital Ratios
– Accounts Receivable Turnover
Annual Sales
Accounts Receivable Turnover 
Accounts Receivable

– Accounts Payable Turnover

Annual Cost of Sales
Accounts Payable Turnover 
Accounts Payable

– Inventory Turnover
Annual Cost of Sales
Inventory Turnover 
Inventory
 Ratio Analysis (Cont……)
• The debt to equity ratio is a common ratio used to assess a
firm’s leverage.

• Leverage Ratios

– Debt-Equity Ratio
Total Debt
Debt-Equity Ratio 
Total Equity
Thank You…