Credit Appraisal and Non Performing Loan of Dhaka Bank LTD

Credit Appraisal and Non-performing Loan
of
Dhaka Bank Limited
Submitted by
WWW.ASSIN!"N#$%IN#.C%!
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CHAPTER ONE: INTRODUCTION
1.1 ORIGIN OF THE REPORT
This is an internship report prepared as a requirement for the completion of the BBA
Program of Department of Finance, University of Dhaka. The primary goal of internship is
to provide an onthe!o" e#posure to the student and an opportunity to kno$ ho$ to
implement theoretical concepts in real life situations. %tudents are placed in enterprises,
organi&ations, research institutions and as $ell as in development pro!ects.
The Dhaka Bank placed me to their 'redit ( )eengineering Division under the
supervision of *r. .
Through out my internship period + have got the privilege to gather kno$ledge a"out '+B
inquiry procedure and credit appraisals of the Bank from the concerned o,cials of the
Dhaka Bank -imited. *y supervisor at Dhaka Bank and also of the department
encouraged me thus $ork on the topic entitled .An /#ploratory %tudy on 'redit Appraisal
and 0onperforming -oan of Dhaka Bank -td.1.
1.2 BACGROUND OF THE !TUD"
The main product of "ank is -oans and Advances. The price of a loan is determined "y
the cost to make the loan plus a pro2t or risk premium on it. -ending is the primary
"usiness of a "ank and pro2t is a measure of its success. %o the main o"!ective of lending
is to earn pro2t on loans for the on going via"ility of a "ank.
*ost of the "anks use o"!ective and su"!ective data interpretation to evaluate a
"orro$er3s 2nancial condition from their 2nancial statements. 4"!ective analysis involves
traditional methods of num"er and data analysis. %uch as, revie$ of unusual accounting
methods used "y the client, unusual information in the notes in the 2nancial statement.
)evie$ of '+B 5'redit +nformation Bureau6 )eport of client including 2nancial ratios, trend
analysis and 2nancial pro2ta"ility analysis of his "usiness has "een done "efore
dis"ursement of a loan. Financial pro2ta"ility, leverage liquidity and e,ciency analysis of
the client and its "usiness considered as key denominator of considering a prospective
client. %u"!ective analysis involves the overall evaluation of ho$ a "orro$er is doing
2nancially and $hether e#tending the "orro$er3s credit $ould pose any accepta"le or
unaccepta"le risk. +n particular "oth o"!ective and su"!ective analysis is the key to
interrelate and correlate the 2nancial strengths and $eaknesses of the client under
revie$.
To e#tend credit 5or to continue the credit facilities6 facilities to an applicant, "ank can
make a decision only after an o"!ective analysis and su"!ective evaluation. This analysis
com"ined $ith information a"out applicant3s payment history, trends in the client3s
industry, changes in the overall economy, and changes in demand for the client3s
products and services are used to develop an intuitive understanding of the opportunities
and challenges the client faces.
+n many developed and developing countries, various analytical tools are used to assess
credit risk. As a developing country, Bangladesh follo$s analytical tools recommended "y
B)DP 5Banking )ules and Development Policy6 of Bangladesh Bank. Bank mainly have to
depend on !udgment and their con2dence $hether "orro$er $ill pay or not. Dhaka Bank
-imited sanctions loan 2rst "y seeing the client3s reputation in the market. %econdly, past
information helps to analy&e the "usiness pattern and industry trend. Thirdly, uses the
')7 5'redit )isk 7rading6 scorecard to evaluate the credit risk. From the '+B report "ank
can identify $hether the client is classi2ed or not.
1.# !TATE$ENT OF THE PROB%E$
The pro2t of commercial "anks depends on utili&ation of their funds and making of loans
and advances pro2ta"le to the "ank. As the "ank mo"ili&es savings of general pu"lic in
the form of deposit, the most important task of "ank is to dis"urse the said deposits as
loans or advances to the mass people for the development of commercial, industrial, $ho
are in need of funds or investments. A "ulk of pro"lem loans has "rought a gloomy
situation in the cost of fund. -oan default culture has started in Bangladesh mainly after
the nationali&ation of "anks. 8o$ever, it $as enhanced "y the availa"ility of huge
amount of credits in the name of developing private and industrial sector. +ndustry setup
$as sho$n as sick industry to get additional loan and relieve from interest.
%everal studies have "een conducted on the tools used to evaluate credit risk in
commercial "anks. 8o$ever, in Bangladesh very fe$ studies are done a"out the tools
availa"le to evaluate credit risk.
-ending is the primary "usiness of a "ank and pro2t is a measure of its success.
Therefore, the main o"!ective of lending is to earn pro2t on loans for the ongoing via"ility
of the "ank. 'lients apply for loan for various purposes. The num"er of "orro$ing is
increasing so is the default rate. %o credit risk analysis is important for "ank to reduce
nonperforming loan and to prosper in the "anking sector.
Therefore, the researcher intends to e#plore the risk assessment methods in Dhaka Bank
-imited. The overall performance of Dhaka Bank -imited is e#amined in terms of tools
used to identify nonperforming loans, loans dis"ursement and recovery.
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1.& OB'ECTI(E! OF THE !TUD"
/very day "anks are trying to innovate ne$ process to attract clients. 0o$, since clients
have more options to s$itch "anks and to go for $hat they need, "ank may loose clients
due to this situation. 0onperforming loans and advances create pro"lems for "oth "ank
and "orro$er particularly $hen "ank3s pro2ta"ility is reduced due to classi2ed loans.
'ustomer retention is very important for any company or "ank.
1.&.1 $ain O)*ecti+e
The main o"!ective of the study is to develop an insight of tools availa"le to identify
e,cient methods and used to mitigate overall credit risks and to reduce loan default
rate. )ecent study sho$s that "anks are una"le to ma#imi&e their pro2t $ithout lo$ering
the classi2ed loans. To e#plore the practical strengths and $eaknesses of some credit risk
analysis those are used "y "ank to manage risk. +n "oth decisionmaking and evaluation
process credit control analysis plays "oth a ma!or part and also some great risks.
1.&.2 !,eci-c O)*ecti+es
9. To identify the main factors of the credit risk and computation of credit risk
grading of Dhaka Bank -imited.
:. To identify the trend of total ( sector $ise dis"ursement of -oans ( Advances of
Dhaka Bank -imited.
;. To identify and compare the trend of classi2ed, unclassi2ed and recovery of loans
and advances of Dhaka Bank -imited.
<. To identify the o"stacles encountered $hen a loan is "eing default "y Dhaka Bank
-imited and the $ays to overcome the pro"lems.
=. To e#amine the recent strategy and initiatives taken "y Dhaka Bank -imited for
further development or reducing loan classi2cation.
>. To identify ho$ and $hy a loan defaults.
1.. $ETHODO%OG"
The report is "ased on primary and secondary data.
For data collection follo$ing methods are follo$ed?
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+nformation collected from face to face communication. Therefore, error depends
on the response of the respondents only.
@ournals.
Prior research reports.
Bangladesh Bank )eports and several $e" sites are used.
Ae"site of Dhaka Bank -imited 5$$$.dhaka"ankltd.com6.
The Annual )eports and diBerent pu"lications of Dhaka Bank -imited.
Personal intervie$s $ith the employees and customers.
The conclusion dra$n in this study is not de2nite and it depends on the responses
collected that is very much theoretical and varies from person to person situation and as
$ell country to country. This study is mainly focused on Dhaka Bank -imited to perceive
$hat tools Dhaka Bank -imited uses to evaluate its "orro$er.
1./ !OURCE! OF DATA
Both primary and the secondary data $ere used to prepare the report. The details of
these sources are as "elo$?
1./.1 P0ima01 !o20ces
Primary data for this report had "een collected through the conversation ( discussion of
diBerent o,cers. 4n the !o" o"servation of the o,cers has helped a lot to kno$
information of "anking.
1./.2 !econ3a01 !o20ces
The secondary sources of data are?
Annual )eport of Dhaka Bank -imited
+nternal Pu"lications of Dhaka Bank -imited
The $e"site of Dhaka Bank -imited 5$$$.dhaka"ankltd.com6
The $e"site of Bangladesh Bank 5$$$."angladesh"ank.org6
1.4 %I$ITATION!
Banking contains a huge volume of operation and it is quite impossi"le to gain
kno$ledge a"out all the activities during a research period. The ma!or limitation of the
study is accessi"ility of certain data. As per "anking rules and regulations certain
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information is not disclosed to outsiders for safety purpose of the "ank. Therefore,
though the researcher is a permanent employee of the institution, is "ound to
undisclosed speci2c matters. As the research is e#ploratory the strengths and
$eaknesses found in the credit risk analysis tools is "ased on intervie$ $ith e#perts and
the researcher3s personal o"servations. The "asic limitations faced in preparing this
report on disclosure procedure of Dhaka Bank -imited are?
9. Being private limited company, the private commercial "anks like Dhaka Bank
-imited keep some information restricted like the actual amount of classi2ed
loans.
:. Financial %tatements only portray the 2guresCnum"ers and their "reak do$n "ut
do not clarify the !usti2cation in most of the time.
;. +ntervie$ing the o,cials on speci2c disclosure items sometimes $as not fruitful
"ecause of generali&ed ans$ers.
<. +n the literature revie$, researcher has mentioned several methods and tools that
can "e used for credit risk analysis. As in our country a very fe$ methods are
"eing practiced "y "ank to do analysis the credit risk. Therefore, the advantages
or disadvantages of those tools application $ere una"le to revie$ in full e#tent.
=. +ndepth intervie$ $ith the classi2ed clients $ere not possi"le.
>. +n this research only a fe$ methods are "eing discussed. There are several other
methods that cannot "e incorporated in this study, $hich might have help to
understand and evaluate credit risk more e,ciently.
D. For credit risk analysis "ank mainly focus on personal !udgment a"out the
"orro$er so only the !udgmental factors and 'redit )isk 7rading 5')76 *anuals is
follo$ed in risk analysis.
E. The kno$ledge constraint of the researcher.
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CHAPTER T5O: THE ORGANI6ATION
2.1 BANING HI!TOR" OF BANG%ADE!H
Bangladesh is a developing country. Banking sector plays a pivotal role in the economic
development of the country. Banking system of a country can $ell "e said as a "arometer
of its economic prosperity. Aelldeveloped "anking system is indispensa"le for modern
trade and commerce. 0o$adays, "anks not only act as custodian of pu"lic money "ut
also are indispensa"le as vital agent for maintenance of sound 2nancial position of a
country.
0ationali&ed 'ommercial Banks 50'Bs6 $ere esta"lished in Bangladesh in 9FD: through
amalgamation of t$elve commercial "anks that $ere operating in preindependent
Bangladesh allo$ing the poor access to fund, reducing capital Gight to foreign countries,
and increasing domestic investment $ere some of the "asic o"!ective of this
nationali&ation. That means a society $ith $ealth distri"uted as equita"ly as possi"le.
But $ith time diBerence those "anks have changed their policies and strategies, $hich
$ere not ful2lling the class "anking policies of the government. 4n an evaluation of the
activities of commercial "anks, it has "een o"served that the progresses made "y the
"anking industry since nationali&ation $as not impressive. The nationali&ed "anks could
not play the due role in the implementation of government programs and policies. 8ence,
a trend of denationali&ation of "anks started from mid EH3s.
+n the meantime, the policy of the government to$ards "anking industry regarding
economic management has changed since 9FD>. That year private sector had "een
entrusted to play a "igger role in the economy than "efore. Accordingly, in order to
provide more credit to local investors the private sector "anking had "een introduced.
7overnment decided to allo$ setting up of local Private 'ommercial Banks 5P'B6 in
addition to 0ationali&ed 'ommercial Banks 50'B6 operating in the country.
Bangladesh Bank acts as a central "ank for our country and it controls, supervises, and
looks after the scheduled "anks in the private commercial "anks as $ell as the
nationali&ed commercial "anks formed "y amalgamating the "usiness of the t$elve
"anks doing "usiness in Bangladesh "efore li"eration as per schedule given "elo$?
E7isting Ban8 New Ban8 A2t9o0i:e3
Ca,ita;
<%ac T8.=
Pai3 UP
Ca,ita;
<%ac T8.=
The 0ational Bank of Pakistan, The Bank
of Beha$alpur -td.
%onali Bank =HH :HH
The Premier Bank -td., The 8a"i" Bank
-td., The 'ommerce Bank -td.
Agrani
Bank
=HH 9HH
The United Bank -td., The Union Bank
-td.
@anata Bank =HH 9HH
The *uslim 'ommercial Bank -td., The
%tandard Bank -td.
)upali Bank =HH 9HH
The Austrasia Bank -td., The /astern
*ercantile Bank -td.
Pu"ali Bank =HH 9HH
The /astern Banking 'orporation -td. Uttara Bank =HH 9HH
After the li"eration of Bangladesh the t$elve Banking companies $ho $ere doing
"usiness in Bangladesh, $ere nationali&ed "y the 7overnment of the PeopleIs )epu"lic of
Bangladesh under presidentIs order no.:> of 9FD: entitled T9e Bang;a3es9 Ban8
<Nationa;i:ations= O03e0> 1?42@ on *arch :>, 9FD:.
During 9FE; Bangladesh 7overnment allo$ed the private sector to operate "anking
"usiness. 0o$ Banks are formed and are operated under T9e Ban8 Com,an1 Act>
1??1. At present there are a"out =H "anks operating their "usiness in Bangladesh.
2.2 HI!TOR" OF DHAA BAN %I$ITED:
Dhaka Bank -imited $as incorporated as a pu"lic limited company under the 'ompanies
Act 9FF<. The Bank started its commercial operation on @uly H=, 9FF= $ith an Authori&ed
'apital of Tk.9,HHH.HH million and Paid Up 'apital of Tk.9HH.HH million. The present Paid
Up 'apital of the Bank is Tk.9,F;<,:=:,ED=.HH as on @une ;H, :HHE. The total equity
5capital and reserves6 of the Bank as on @une ;H, :HHE stood at Tk.;,<:<,>HF,H9>.HH. The
Bank has << "ranches and : 4Bshore Banking Units across the country and a $ide
net$ork of correspondents all over the $orld. The Bank has a plan to open more
"ranches in the current 2scal year to e#pand the net$ork. Dhaka Bank -imited oBers the
full range of "anking and investment services for personal and corporate customers,
"acked "y the latest technology and a team of highly motivated o,cers and staBs. +n the
eBort to provide e#cellence in "anking services, the Bank has launched online "anking
service, !oined a country$ideshared AT* net$ork and has introduced a co"randed
credit card. A process is also under$ay to provide e"usiness facility to the "ankIs
clientele through online and home "anking solutions. Dhaka Bank -imited is the preferred
choice in "anking for friendly and personali&ed services, cutting edge technology,
tailored solutions for "usiness needs, glo"al reach in trade and commerce and high yield
on investments.
2.2 !%OGAN:
AEBCE%%ENCE IN BANING@
2.# $I!!ION:
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To "e the premier 2nancial institution in the country providing high quality products and
services "acked "y latest technology and a team of highly motivated personnel to deliver
/#cellence in Banking.
2.& (I!ION:
At Dhaka Bank, $e dra$ our inspiration from the distant stars. 4ur team is committed to
assure a standard that makes every "anking transaction a pleasura"le e#perience. 4ur
endeavour is to oBer you ra&or sharp sparkle through accuracy, relia"ility, timely
delivery, cutting edge technology, and tailored solution for "usiness needs, glo"al reach
in trade and commerce and high yield on your investments.
4ur people, products and processes are aligned to meet the demand of our discerning
customers. 4ur goal is to achieve a distinct foresight. 4ur prime o"!ective is to deliver a
true reGection of our vision /#cellence in Banking.
2.. (A%UE!:
'ustomer Focus
+ntegrity
Team$ork
)espect to the +ndividual
Juality
)esponsi"le 'iti&enship
2./ CREDIT RATING!:
Dhaka Bank -imited $as rated "y 'redit )ating Agency of Bangladesh 5')AB6 -imited on
the "asis of audited Financial %tatements as on Decem"er ;9, :HHD. The summary of the
rating is as follo$s?
')AB has a$arded A9 5Pronounced as %ingle A 4ne6 rating in the long term and %T:
rating in the short term to Dhaka Bank -imited. +n :HH>, ')AB a$arded the same rating
to Dhaka Bank -imited in the long term and short term.
'ommercial Banks rated in this longterm category are ad!udged to "e strong "anks,
characteri&ed "y good 2nancials, healthy and sustaina"le franchises, and a 2rst rate
operating environment. This level of rating indicates strong capacity for timely payment
of 2nancial commitments, $ith lo$ likeliness to "e adversely aBected "y foreseea"le
events.
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'ommercial Banks rated in this shortterm category are characteri&ed $ith commenda"le
position in terms of internal fund generation, access to alternative sources of funds and
moderate level of liquidity. The rating is valid for one year.
2.4 BRIEF PROFI%E OF DHAA BAN %I$ITED
Name oD com,an1 : D9a8a Ban8 %imite3
-egal form ? A pu"lic limited company incorporated in Bangladesh on
>
th
April 9FF= under companies Act 9FF< and listed $ith
Dhaka %tock /#change -imited and 'hittagong %tock
/#change -imited.
Date of commencement ? @uly =, 9FF=
)egistered o,ce ? Biman Bha"an 59
st
Goor6, 9HH *oti!heel 'CA, Dhaka 9HHH,
Bangladesh
Telephone ? KEEH : F==<=9<, F=D9HH>9H
Telefa# ? KEEH : F==>=E<, F=D9H9;
%$ift code ? D8B-BDD8
/mail ? infoLdhaka"ank.com."d
Auditors ? A'0AB+0
'hartered Accountants
Ta# 'onsultant ? 8o$ladar, Munus ( co.
'hartered Accountants
*anaging Director 5''6 ?
'ompany %ecretary ? Arham *asudul 8uq
2.C ORGANI6ATIONA% HIERARCH":
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BOARD OF
DIRECTOR!
$ANAGING
DIRECTOR
DEPUT" $ANAGING
DIRECTOR RI!
$ANAGE$ENT
DEPUT" $ANAGING
DIRECTOR BU!INE!!
BANING
DEPUT" $ANAGING
DIRECTOR OPERATION!
2.? OB'ECTI(E! OF DHAA BAN %I$ITED
The main o"!ectives of the Dhaka Bank -imited are as follo$s?
a6 To esta"lish, maintain, carry on, transact, undertake and conduct all types of
"anking, 2nancial, investment and trust "usiness of in Bangladesh and a"road.
"6 To form, esta"lish and organi&e any "ank, company, institutions or organi&ation
either singly andCor in !oint colla"oration of partnership $ith any individual
company, 2nancial institution, "ank, organi&ation or any government and or
government agency for the purpose of carrying on "anking, 2nancial investment
and trust "usiness andCor any other "usiness as provided hereafter.
!ENIOR (ICE PRE!IDENT
!ENIOR EBECUTI(E (ICE
PRE!IDENT
EBECUTI(E (ICE PRE!IDENT
(ICE PRE!IDENT
!ENIOR A!!I!TANT (ICE
PRE!IDENT
FIR!T A!!I!TANT (ICE
PRE!IDENT
A!!I!TANT (ICE PRE!IDENT
!INIOR PRINCIPA% OFFICER
PRINCIPA% OFFICER
!ENIOR OFFICER
OFFICER
PROBATIONER"
OFFICER
'UNIOR OFFICER
A!!I!TANT OFFICER
c6 To carry on any "usiness relating to Aage /arner %cheme as may "e allo$ed "y
Bangladesh Bank from time to time including maintaining of foreign currency
accounts and any other matter related there to.
d6 To contract or negotiate all kinds of loan andCor assistance, private or pu"lic from
any source, local or foreign, and to take all such steps as may "e required to "e
complete such deals.
e6 To form, organi&e assets, participate or aid in forming, promoting or organi&ing
any company, "ank, syndicate, consortium institute or any holding and su"sidiary
company in Bangladesh or a"road for the purpose of undertaking any "anking
2nancial investment and trust "usiness.
f6 To take part in the formation, management, supervision or control of "usiness or
operations of any company or undertaking and for that purpose to render
technical managerial and administrative services and act as administrator,
manager and secretary.
g6 To purpose, or other$ise acquire, undertake, the $hole or any part of or any
interest in the "usiness, good$ill, property, contract, agreement, right, private
assets and lia"ilities of any other company "ank corporation, partnership, "ody
person or persons carrying on, or having ceased to carry on, any "usiness $hich
the company is authori&ed to carry on such terms and may "e deemed e#pedient.
h6 To encourage sponsor and facilitate participation of private capital in 2nancial
industrial or commercial investment, share and securities and in particular "y
providing 2nance in the form of long, medium or short term loans or share
participation "y $ay of su"scription to the promoter shares, or under$riting
supports or "ridge 2nance loans andCor "y any manner.
i6 To amalgamate or reconstruct or recogni&e $ith any commercial "ank, or "ody
corporate or association in cooperation $ith any person, commercial "ank or
association.
!6 To esta"lish and open o,ces and "ranches to carry on all or any of the a"ove
"usiness a"road and $ithin the country provided prior permission is o"tained from
the Bangladesh Bank.
k6 To esta"lish provident fund, gratuity, pension, and other fund for the $elfare and
"ene2t of the employees and staBs, former or present and any matter related
thereon.
l6 To act as o,cial liquidator and receiver.
m6 To receive, "orro$ or raise money on deposit, loan or other$ise upon such terms
as the Dhaka Bank may approve and to give guarantee and indemnity in respect
of any de"t or contract.
n6 To appoint o,cials, staB, e#perts, advisers, consultants, auditors, -egal advisers
and provide for their suita"le remunerations.
o6 To advance, deposit or lend money to or $ith such persons or "odies, corporate,
unincorporated, statutory, govt. andCor its agencies on such terms as the Dhaka
Bank may approve.
2.1E Ca,ita; an3 Rese0+es
Dhaka Bank -imited has "een consistently maintaining the I'apital Adequacy )atioI, as
prescri"ed "y Bangladesh Bank. This has "een made possi"le "y a policy of "uilding up
"oth capital and reserves. +t started $ith an Authori&ed and Paidup 'apital of
Tk.9,HHH.HH million and Tk.:D>.HH million respectively in 9FF=. Authori&ed and Paid up
'apital increased to Tk.>,HHH.HH million and Tk.9,F;<.:= million respectively in :HHE. +n
addition to Paid up 'apital, the Bank has "uilt up a strong reserve "ase over the years.
2.11 !t0engt9 an3 Pe0Do0mance
Aith the active support and guidance from Bangladesh Bank, clients and patrons, the
Bank has "een maintaining sound 2nancial strength and sho$ing a steady and
impressive "usiness performance. Dhaka Bank -imited is one of the fe$ mentiona"le
"anks, $hich maintains 'apital Adequacy ratio and has more than required provision as
per Bangladesh Bank criteria.
%tarting $ith a modest deposit of only Tk.9H,D<F.HH million in 9FF>, the Bank had closed
its "usiness $ith a deposit of Tk.<E,D;9 million as of Decem"er ;9, :HHD. The total
deposits stood at Tk.=>,FE> million as of Decem"er ;9, :HHE. Total credit stood at
Tk.<F,>FE million as on Decem"er ;9, :HHE against Tk.;F,FD: million last year. Bank has
posted a pro2t "efore ta# and provision of Tk.:,=;; million during the year ended
Decem"er ;9, :HHE against :,H9H million last year $ith a gro$th of :>N. /arning per
share 5/P%6 is Tk.<;.HH as on Decem"er ;9, :HHE against Tk.;>.HH as on Decem"er ;9,
:HHD. Dhaka Bank has received +'AB 0ational A$ard :HHD in the 2nancial sector for their
pu"lished Accounts and )eports.
2.12 C0e3it Po;ic1 an3 Po0tDo;io
'redit policy of the Bank $orks $ithin the frame$ork of three main o"!ectives, namely,
maintenance and improvement of quality of assets, recovery on time and "uildingup of
an e,cient customer oriented credit delivery system.
The portfolio includes $orking capital 2nancing, pro!ect 2nancing, importe#port
2nancing and domestic trade 2nancing etc. The Bank continued to e#tend $orking
capital facilities to customers to ensure smooth and uninterrupted operation of their
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"usiness. At the same time, it e#panded pro!ect2nancing portfolio to meet the gro$ing
demands of the economy for longterm 2nance in a depressed capital market.
Due emphasis $as given to 2nancing e#port oriented and e#port linked industries
$ithout loosing sight of the need for long term loans "y other domestic market "ased
industries and ventures. %o far the Bank has 2nanced E<; pro!ects in :HHD. Among them
9:F pro!ects $ere 2nanced during :HHD amounting to Tk.;<,H<F million. +n long term
portfolio, the "ank has "een diversifying from Te#tile and )*7 industries to Agricultural
+ndustries, Pharmaceutical +ndustries, 'hemical +ndustries, Food ( Allied +ndustries,
Transport ( 'ommunication, /lectronics ( Automo"ile +ndustries, 8ousing ( 'onstruction
+ndustries, /ngineering ( 'onstruction +ndustries including %hip Breaking, /nergy (
Po$er +ndustries and %ervice +ndustries etc. *oreover, the Bank has also e#tended credit
facilities to '07 2lling stations, %hipping, Po$er %ector, *icro 'redit and health services
etc. For improved customer services, the Bank no$ e#tends 4ne %top services to
corporate clients $ho require term loan, $orking capital and importe#port 2nancing etc.
The Bank also participates in %yndicate Financing and so far has sanctioned Tk.9.=H
"illion in H; syndications. At Dhaka Bank -imited, the %yndications and %tructured
Finance unit $as setup on 4cto"er ;H, :HH<. This unit successfully closed nine
syndicated deals till :HHE. +n :HHE 5up to *arch6 Dhaka Bank -imited has arranged ;
syndication deals for a total amount of Tk.9.=H "illion. The %yndications and %tructured
Finance team as a "usiness unit soon follo$ed up "y closing another deal totaling Tk.9.<H
"illion for a large local corporate. +n the year :HHE the unit has given priority to the
Po$er, Telecommunication, Te#tile and any other lucrative industry.
2.1# F2nctions oD t9e D9a8a Ban8 %imite3
Dhaka Bank -imited performs all types of functions of a modern commercial "ank, $hich
generally includes?
96 *o"ili&ation of savings of the people and safe keeping of all types of deposit account.
:6 *aking advances especially for productive activities and for the other commercial and
socioeconomic needs.
;6 Providing "anking services to common people through the "ranches.
<6 8andling of e#port and import trade and foreign remittances and $ith special support
to e#port activities.
=6 +ntroduce modern Banking services in the country.
>6 Discounting and purchasing "ills.
D6 Providing various information, guidance and suggestions for promotion of trade and
industry keeping in vie$ of the overall economic development of the country.
E6 +ndustrial 2nance for "oth capital machinery and $orking capital.
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F6 Finance relating to constructions of "oth commercial and residential.
9H6 Finance under small "usiness of self employed clients.
996 Finance of farming and nonfarming activities to rural people including purchase of
agricultural equipments.
9:6 /nsuing proper utili&ation of credit dis"ursed.
9;6 Developing ne$ products.
9<6 *arket surveys "efore making any 2nance.
9=6 Finance for small transport.
9>6 *onitoring and forecasting.
9D6 Developing marketing campaigns.
9E6 Finance for household dura"les.
9F6 Aork simpli2cation studies.
:H6 *onitoring diversi2cation of portfolio among diBerent sectors.
:96 Pricing and minimum si&e of transaction ship.
2.1& C2stome0 !e0+ices in D9a8a Ban8 %imite3:
-ike some other Banks Dhaka Bank -imited 5DB-6 has also some %ervices that it provides
its Potential 'ustomers. The %ervices of the Bank for its 'ustomers are?
Co0,o0ate Ban8ing !e0+ices:
o Floating of Pu"lic +ssues
o -oan %yndication
Pe0sona; Ban8ing !e0+ices:
o Deposit Accounts
F 'urrent Account
F %avings Account
F %hort Term Deposit Account
F Fi#ed Deposit Account
F /#cel Account
o Foreign /#change Transactions
o 'onsumer 'redit %cheme
o /'ash :< 8our Banking
o Phone Banking
o Branch Banking
o Dhaka Bank 'redit 'ard
o %ecured 4verdraft
o Personal -oan
o 'ar -oan
o %afe Deposit -ockers
o Private Foreign 'urrency Accounts
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o Utility Bill Payments
+nternational Trade ( Foreign /#change
-ease Financing
'apital *arket %ervices
2.1. E7tensi+e !c9emes oD D9a8a Ban8 %imite3
CAR %OAN: As part of esta"lishing a personal "anking franchise of Dhaka Bank -imited,
the "ank has successfully launched 'ar -oan %cheme. The product is term 2nancing
facilities to individuals to aid them in their pursuit of have a car of their dream. The
facility "ecomes aBorda"le to the clients as the repayment is done through 2#ed
installment s commonly kno$n as /*+ 5/quated *onthly +nstallment6 across the facility
period. Depending on the si&e and purpose of the loan, the num"er of installments varies
from 9: to >H months. +n case of "rand ne$ cars the loan tenure $ill "e ma#imum D:
months. 4ne can "ought his car $ith the money provided "y Dhaka Bank -imited through
its 'ar -oan %cheme.
PER!ONA% %OAN: As part of esta"lishing a personal "anking franchise of Dhaka Bank
-imited, the "ank has successfully launched Personal -oan. The product is a term
2nancing facility to individuals to aid them in their purchases of consumer dura"les or
services. The facility "ecomes aBorda"le to the clients as the repayment is done through
2#ed installments commonly kno$n as /*+ 5/quated *onthly +nstallment6 across the
facility period. Depending on the si&e and purpose of the loan, the num"er of
installments varies from 9: to >H months. The highest amount of loans dis"ursed through
the scheme is Tk.=,HH,HHH.HH. Personal -oan scheme of Dhaka Bank -imited is a very
popular scheme for individuals especially for the serviceoriented people of limited
income.
(acation %oan: Dhaka Bank -imited has successfully launched Oacation -oan. The
product is a term 2nancing facility to individuals to aid them in their pursuit of spending a
vacation in the country or a"road. The facility "ecomes aBorda"le to the clients as the
repayment is done through 2#ed installments commonly kno$n as /*+ 5/quated *onthly
+nstallment6 across the facility period. Depending on the si&e and purpose of the loan, the
num"er of installments varies from 9: to <E months.
De,osit Pension !c9eme <DP!=: Dhaka Bank -imited is $ell poised to "e the leading
Personal Banking "usiness amongst the local private commercial "anks. BankIs conscious
eBorts in "rand "uilding, introducing and supporting ne$ packaged products, developing
Personal Banking organi&ation along $ith nontraditional delivery channels have resulted
in good "rand a$areness amongst its chosen target markets.
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+nstallment "ased savings schemes are a ma!or category of saving instruments amongst
mid to upper middleincome ur"an population. DP% is an installment "ased savings
scheme 5Deposit Pension %cheme6 of Dhaka Bank -imited for individual clients.
AT$: Through e#tensive AT* net$ork supported "y state of the art technology Dhaka
Bank -imited provides AT* service :< hours a day D days a $eek. +n the $ord of the
Bank, .Ae never sleep to serve you.1
%oc8e0s: 4ne can use the locker facility of Dhaka Bank -imited and thus have the option
of covering hisCher valua"les against any unfortunate incident. The Bank oBers security
to its locker service as aBorded to the BankIs o$n property at a very competitive price.
The Bank $ould "e at peoples service from %aturday through Thursday from F?HH am to
<?HH pm. -ockers are availa"le at 7ulshan, Banani, Dhanmondi, Uttara, 'DA Avenue (
'o#Is Ba&ar Branch. The Bank provides locker facilities at the "ranch to keep valua"les
safe and secure. Aith high standard lockers installed for security, the Bank "ecomes to
avail this facility in a secure and homely atmosphere.
!,ecia; De,osit !c9eme: The Bank has launched %pecial Deposit %cheme for it
customers through Personal Banking $ing. Through this scheme one can earn monthly
interest depositing Tk.9,HH,HHH.HH or its multiples for ; years.
$o+ing t9e 59ee;s oD P0og0ess: *any $heels revive together to run a total system
and so does the "anking activities of Dhaka Bank -imited. The Bank has "een
consistently moving the service $heels like corporate "anking, syndication of funds,
capital market services and personal "anking to support national economy.
DiGe0ent B2siness DiGe0ent Nee3s: Business needs diBer, so do the solution of
Dhaka Bank -imited. The Bank provides Pro!ect Finance, +mport and /#port Finance,
'orporate Finance and -oan %yndication, Aorking 'apital Finance, -ease Finance, %*/
Finance, Treasury %ervices, )emittance, )etail Banking, 4pening of -'s, +ssuance of
7uarantees.
On;ine Is;amic Ban8ing on a;; B0anc9es: Dhaka Bank -imited is oBering +slamic
%hariah "anking service through online no$. AlAadia 'urrent Account, *udara"a
%avings and Fi#ed Deposit Account and also investment $ithin shariah are included in
this service. 4ne can easily get the +slamic "anking services through any "ranches of
Dhaka Bank -imited.
2.1/ F2nctiona; De,a0tmenta;i:ation at Hea3 OHce
The *anaging Director, e#o,cio Director of the Board, is the 'hief /#ecutive 4,cer
5'/46 of the Bank. 0e#t in the organi&ational hierarchy is the Deputy *anaging Director.
There are three Deputy *anaging Directors in Dhaka Bank -imited. Deputy *anaging
Director 5)*6 is engaged $ith risk management. 8e monitors credit activities, $hich
includes sanctioning of credit facilities and monitoring after 2nancing. Deputy *anaging
Director 5BB6 is engaged $ith "usiness "anking $orks, $hich includes selection of ne$
prospective "orro$ers for the "ank. Another Deputy *anaging Director 54perations6 is
engaged $ith operational activities, such as selection of premises for ne$ "ranches,
shifting of "ranches to ne$ potential places as and $hen required etc. 7roupsCDivisions
at 8ead 4,ce report either directly to the *anaging Director or through the Deputy
*anaging Directors.
C0e3it Di+ision
'redit Division scrutini&es credit proposals of all the "ranches and then getting
recommendation of *anagement 'redit 'ommittee 5*''6 su"mits it to the /#ecutive
'ommittee 5/'6 of the Board of Directors meeting for approval. They also monitor the
loans and advances $hether they are regular or stuck up.
'redit Department e#ists in all the "ranches. This department receives request for credit
facilities from the clients. Then they take some necessary actions to !ustify the request,
such as they collect reports from 'redit +nformation Bureau 5'+B6 of Bangladesh Bank,
collect T+0 and OAT certi2cate of the client, Trade -icense, mem"ership certi2cate of
related association etc. Then they estimate 'redit )isk 7rading 5')76 Analysis to !udge
the credit$orthiness of the client analy&ing at least three years audited Financial
%tatements of the client. After having all related information and discussing $ith the
"ranch manager the 'redit Department analy&es $hether the proposed facility falls in
the delegation of the "ranch manager. 4ther$ise the 'redit Department then for$ards
the credit proposals to the 8ead 4,ce 'redit Division for further analysis.
After receiving the request for credit facilities from the "ranches the 8ead 4,ce 'redit
Division then scrutini&e the proposals and match $ith the cost of fund provided "y the
Finance and Accounts Division. Then they rearrange the rates, if necessary, and su"mit it
"efore the *anagement 'redit 'ommittee. The *anagement 'redit 'ommittee 5*''6 is
represented "y the *anaging Director, Deputy *anaging Directors and 8ead of 'redit
)isks ( 'redit 4perations. +f the proposed facility falls under the delegation of
*anagement 'redit 'ommittee then %anction -etter is issued "y the respective units of
'redit )isk after getting approval of the *anagement 'redit 'ommittee. 4ther$ise the
*anagement 'redit 'ommittee recommends the proposal for su"mission "efore the
/#ecutive 'ommittee for 2nal approval. /#ecutive 'ommittee comprises of > 5si#6
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mem"ers of the Board of Directors, the *anaging Director, the Deputy *anaging
Directors and the 'ompany %ecretary. The meeting held once a $eek. The 'ommittee
discusses the proposals of all the "ranches and decides $hether to approve the proposed
facilities or not. +f yes then the 'redit )isk issues %anction -etter to the "ranches $ith
necessary corrections in rates, if any stipulating terms and conditions regarding the
credit facilities.
The "ranches then make an oBer letter $ith the rates 2#ed "y the 8ead 4,ce, 'redit
)isk. The customer accepts the oBer, putting signature on the oBer letter. After
customers acceptances the credit facilities are dis"ursed.
Financia; Instit2tion Di+ision <FID=
This division deals $ith international trade that is import, e#port and foreign remittance.
To deal $ith foreign currency Bank has to take prior permission from Bangladesh Bank.
+nternational trade is an important constituent of the "usiness portfolio of the Bank.
Dhaka Bank -imited oBers a full array trade 2nance services, namely, issuing, advising
and con2rmation of documentary credit, arranging for$ard e#change cover, pre
shipment and postshipment 2nance, negotiation and purchase of e#port "ills,
discounting of "ills of e#change, collection of "ills etc.
Finance an3 Acco2nts Di+ision
Finance ( Accounts Division is concerned $ith 2nding and using funds to carry out the
marketing plan. They are responsi"le for all sorts of payments. They prepare the all sorts
of report for management including cost of fund, Pro2t and -oss account, Balance %heet,
'ash Flo$ statement, Budget and other relevant reports.
O,e0ations
4perations Division is responsi"le for all kinds of procurement and logistics support. They
purchase all sorts of product that are needed "y various divisions and "ranches. Firstly
the divisions requisitioned the necessary products in a prescri"ed format in every month.
Ahen the Divisional 8ead of the 4perations approves it, they purchased the product as
per requirement. The division is also responsi"le for choosing the suita"le site for
opening ne$ "ranches.
H2man Reso20ces Di+ision
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This Division deals $ith human resources management that is recruitment of ne$
employees, placement of them, promotion, transfer and all other "ene2ts that are
entitled "y the employees.
Dhaka Bank -imited is e#panding its operation day "y day, so it is in need of e,cient
human resources to smoothly run its operation. This e,cient force is recruited "y 8uman
)esources Division through diBerent types of tests and intervie$s.
7rading is another task that is accomplished "y this Division, $ith the help of Branch
*anagers and Divisional 8eads. All the Branch *anagers and the Divisional 8eads along
$ith the concerned employee prepare the Appraisal Forms as prescri"ed "y the 8uman
)esources Division and send it "ack to the 8uman )esources Division $ith a
recommended grading. This grading system motivates employees to "e more e,cient
and sincere in their respective !o".
Co0,o0ate Finance an3 !1n3ication
This unit $as set up in @une :HH; $ith a mandate to arrange 2nancing for medium to
large scale pro!ects through syndications, consortium 2nancing and Pclu" deals3. The unit
not only $as a"le to "reak ground in this segment "ut it also successfully completed the
2rst ever aircraft 2nancing deal that $as arranged through local 2nancial institutions. The
demand for this service is e#pected to rise further due to gro$ing and large demand for
industrial 2nancing in line $ith the overall economic development. The 'orporate Finance
and %yndication Unit is no$ $ell equipped to meet the challenges of highly competitive
industry "y creating a market niche through acquisition of indepth 2nancial
management techniques and development of human resources.
Ca,ita; $a08et !e0+ices
-ease Finance, 8ire Purchase ( 'apital market operation "esides investment in treasury
"ills ( Pri&e Bonds constitute the investment "asket of Dhaka Bank -imited. Dhaka
Bank -imited is a mem"er of the Dhaka %tock /#change -td. and 'hittagong %tock
/#change -td. The investment portfolio made up of 7overnment %ecurities ( %hares
and De"entures of diBerent listed companies stood at TQ.:H<>.9 million this year
inde#ing a <.F9N increase over TQ.9F=H.:E million in the previous year. 0o$ the 'apital
*arket %ervices Division has opened another four $ings at Uttara, Dhanmondi,
*oti!heel and 'hittagong for giving trading facilities to its clients.
Pe0sona; Ban8ing Di+ision
Personal Banking Division 5PB6 $ith the aim to address modern "anking needs of the
"ank launched Dhaka Bank credit card, personal loan, car loan ( vacation loan etc. +n the
meantime, the "ank takes the honor to have client "ase of appro#imately >,HHH.
*oreover restructuring the e#isting products ( services ( introducing ne$ products,
particularly electronic "anking products like Dhaka Bank AT* 'ard ( the automated Tele
Banking service from selected "ranches $as highly appreciated "y the "ank customers.
Mear :HHD $as particularly a year of gro$th ( challenge for retail "usiness of the "ank.
The Bank diversi2ed its portfolio ( concentrate on oBering tailor made products e.g.
personal credit, Oacation -oan ( 'ar -oan. The "ank customer reach had "een e#tended
through esta"lishing a large 2eld sales ( service channel for e#panded customer reach.
Aith all these eBorts, Dhaka Bank -imited $as a"le to create a strong "rand in !ust a
year in the market, $hich is portrayed in the amount of loan dis"ursement ( quality of
asset. Met, as anotheraddition to the "ank commitment /#cellence in Banking, the
division $ent on "uilding strategic tie ups $ith diBerent organi&ations ( conducted
diBerent promotional programs. These programs $ere highly appreciated in the market.
The division focusing to develop ( introduce ne$ products ( services through e#tensive
market research to meet every facet of modern "anking needs.
2.14 Financia; Pe0Do0mance
The highlights of the 2nancial performance of Dhaka Bank -imited are given "elo$?
<Fig in mi;;ion T8.=
!;
.
Pa0tic2;a0s 2EE# 2EE& 2EE. 2EE/ 2EE4 2EEC
G0owt9
I
9 Authori&ed 'apital 9,HHH 9,HHH :,>=H :,>=H >,HHH >,HHH
: Paid up 'apital =;9 >>< 9,::E 9,:EF 9,=<D 9,F;< :=
;
Deposits 5Base (
Bank6
9>,E=
9
::,:D
H
:E,<;
F
<9,==
<
<E,D;
9
=>,FE> 9D
< -oans ( Advances
9:,EE
D
9>,=;
F
:;,;D
:
;<,H<
F
;F,FD
:
<F,>FE :<
= +mport Business
9F,HD
F
:E,H<
E
;H,:9
;
<>,:D
D
<F,<F
>
>=,D;D ;;
> /#port Business >,FH9 E,EE9
9;,=H
=
:;,:>
E
;9,HE
9
;F,H;E :>
D 7uarantee Business 9,=9> ;,>>; >,HFF >,<D; >,=:; D,EED :9
E
+n$ard Foreign
)emittance
EDE 9,99H ;,;DD
9>,D>
<
9H,>H
F
9,E;< 9:
F 4perating Pro2t =9H D<D EF; 9,9E; :,H9H :,=;; :>
9H Oolume of 0P- <:H :D9 ;=9 ==< 9,:=E 9,FHE =:
99
0P- N of total
Advances
;N :N :N :N ;N ;.E<N ::
9: 0o. of Branches :H :; :F ;D <9 <= 9H
9; 0o. of /mployees =>E >9; >EE DE> E<: EFE D
9<
0o. of Foreign 'orr.
CBanks
<H> <H> <H> ;=H ;=H ;=H
9=
/arning per %hare
5Tk.6
=; >9 << <= ;> <; 9F
9> 0o. of share outs. =.;9 >.>< 9:.:E 9:.EF 9=.<D 9F.;< :=
9D 'ost of Deposit 5N6 D.:< >.D= E.9; F.9= E.FD F.<H =
9E
'reditCDeposit ratio
5N6
D>.<D D<.:> E:.9F F9.E< E:.H; ED.:9 >
%ource? Annual )eport, Dhaka Bank -td. and $e"site $$$.dhaka"ankltd.com
A3+ance an3 De,osits Com,a0ison
<Fig in c0o0e T8.=
1??C 1??? 2EEE 2EE1 2EE2 2EE# 2EE& 2EE. 2EE/ 2EE4
Deposit
s
=:F.F9 D=H.;; 9HD<.F
<
9DDH.> 9>E=.< 9E;>.> :=;F.= :FH9.F <9==.< <ED;.9
Advanc
es
:>F.:; ;E<.;< =<9.<F 9H:<.> 99:9.9 9:EE.D 9>=;.F :;;D.: ;<H<.F ;FFD.:
AdvCDep =H.E9 =9.:: =H.;D =D.ED >>.=: DH.9D >=.9; EH.=< E9.F< E:.H;
The advance and deposit ratio has "een increased over the years. At the "eginning of the
"ank the ratio $as as lo$ as :HN, $hich has reached at EHN in :HHD. %o the "ank is
getting more aggressive as it is getting old.
Ret20n on EJ2it1 <ROE=:
:E.H:
N
:D.FE
N
;E.DD
N
<;.F:
N
:>.9D
N
::.:;
N
:<.H;
N
:H.EF
N
::.D<
N
::.=;
N
Ret20n on Assets <ROA=:
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
0.69% 0.99% 1.49% 1.52% 1.23% 1.29% 1.27% 1.40% 1.22% 1.23%

0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
R
O
E
Return on Equity

0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
Return on Assets
Although the )4/ has gone do$n after as rapid gro$th in the early years, the )4A is
sho$ing a steady gro$th after some rapid gro$th.
P0o-t T0en3
<Fig in c0o0e T8.=
1??
C
1??
?
2EE
E
2EE
1
2EE
2
2EE
#
2EE
&
2EE
.
2EE
/
2EE4
4perating
Pro2t
99.H
<
:;.H
9
;;.H
D
=>.: >:.E =9.H D<.D EF.;
99E.
;
:H9.
H
Pro2t after
Ta#
<.D: F.<>
9D.;
:
:F :;.< :>.F ;=.E <>.; =E.H DH.<
The nominal value of pro2t is increasing each year. From Tk.>;.;H 'rore in the year :HH;,
the 2gure has gro$n to Tk. :H9.HH 'rore in the year :HHD. But the gro$th rate has
reduced to a great e#tent. After some a$esome gro$th in the early years, the rate has
no$ settling for a sta"le position.
Income E7,en3it20e Com,a0ison
<Fig in c0o0e T8.=
1??
C
1??? 2EEE 2EE1 2EE
2
2EE
#
2EE
&
2EE. 2EE/ 2EE4
Total +ncome ><.H
=
9H=.9
9
9=<.;
F
9F:.= :;E.
=
::E.
<
:>=.
F
;>;.> =<=.: D:9.E
Total
/#penditure
=; E:.9 9:9.;
:
9<H 9DE.
9
9DD.
<
9F9.
:
:D<.; <:>.F =:H.E
/#p As N of
+ncome
E;N DEN DFN D;N D=N DEN D:N D=N DEN D:N
The percent of e#pense to the income has reduced steadily over the years. This could "e
resulted from the e#perience curve of operation.
T0en3 oD Ea0ning Pe0 !9a0e
/arning per
%hare 5/P%6
;=.E
:
;<.;
>:.D
D
9H> DH =; >9 << <= <>
As e#pected the /P% has reduced after rapid gro$th in the early years $ith the decrease
in the gro$th rate of Pro2t.
G0owt9 oD B0anc9
0o. of
Branch
99 9: 9< 9D 9E :H :; :F ;D <9
Non,e0Do0ming %oan
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Non
Performing
o!n
2.02% 2.88% 1.72% 1.19% 2.48% 3.26% 1.65% 1.51% 2.00% 3.00%
CHAPTER THREE: %ITERATURE RE(IE5
#.1 NonF,e0Do0ming %oans
+*F de2nes .A loan is nonperforming $hen payments of interest and principal are past
due "y FH days or more, or at least FH days of interest payments have "een capitali&ed,
re2nanced or delayed "y agreement, or payments are less than FH days overdue, "ut
there are other good reasons to dou"t that payments $ill "e made in full1. By Bank
regulatory de2nition nonperforming loans consist of a6 other real estate o$ned $hich is
that taken "y foreclosure or a deed in lieu of foreclosure, "6 loans that are FH days or
more past due and still accruing interest, and c6 loans $hich have "een placed on
nonaccrual 5i.e., loans for $hich interest is no longer accrued and posted to the income
statement6.+n Bangladesh, loans "ecomes nonperforming $hen it is classi2ed as "ad and
loss for $hich Bangladesh Bank requires 9HHN provisioning "y the scheduled commercial
"anks 5as per B)PD circular6.Under Basel++, loans past due for more than FH days are
nonperforming.
#.2 NonF,e0Do0ming %oans in Bang;a3es9
According to the information availa"le in Bangladesh Bank $e"site in Bangladesh %tate
o$ned 'ommercial Banks 5%'Bs6 and %peciali&ed Banks 5%Bs6 has signi2cant amount of
0onperforming loans 50P-s6 mainly resulting from political intervention in the past. 4ne
of the reasons for having high 0P- is a high lending rate. 8igh 0P- reGects serious
ine,ciency of "ank management. 'ommercial "anks should e#plore possi"ilities to
reduce 0P-s so that they can lo$er the lending rate to a reasona"le level. Banks $ith
high 0P- suBer form capital inadequacy pro"lem. For e#ample the name of 4riental Bank
-imited can "e mentioned "ecause of 0P-s the "ank has suBered and "een sold to
another company. 0P- rate $as a"out ;HN in 4riental Bank -imited.
According to 8ua Du, 'ountry director of Bangladesh )esident *ission 5:HH>6 0on
performing loans 50P-s6 are a reGection of pro"lems in the "anking and corporate
sectors. 0P-s create a negative impact on the income statement "ecause of provisioning
for loan losses. +n an e#treme case, a high level of 0P-s in "anking system causes
systemic risk, inviting a panic run on deposits and sharply limiting 2nancial
intermediation, and su"sequently investment and gro$th. +n addition, it $ill further
deteriorate $hen some e#ternals shocks such as an unfavora"le phase of the
macroeconomic cycle or inadequate political or legal support.
#.# C0e3it Ris8
7eorge /. Peterson 59FFE6 de2nes credit risk, as .'redit risk is the risk that a "orro$er
$ill not make full and timely payment of de"t service. 4nce a "orro$er falls "ehind in
de"t servicing, credit risk also involves the relative si&e and pro"a"le duration of
default.1 +t is one of the signi2cant risks a "ank is e#posed to. /ach of the risk areas
requires to "e evaluated and aggregated to arrive at an overall risk grading measure.
a6 /valuation of 2nancial risk? Financial analysis of leverage, liquidity, pro2ta"ility
and interest coverage ratios $ill help to analy&e the risk that "orro$er might fail
to meet o"ligation due to 2nancial distress.
"6 /valuation of BusinessC+ndustry )isk? Analy&ing the "usiness outlook, si&e of
"usiness, industry gro$th, market completion and "arriers to entry or e#it to
understand the industry situation or unfavora"le "usiness condition that might
have an impact on "orro$er3s capacity to meet o"ligation. This capitali&es on the
risk of failure due to lo$ market share and poor industry gro$th.
c6 /valuation of *anagement )isk? Due to poor management skill, e#perience of the
management, its succession plan and team$ork might cause the "orro$er to
default.
d6 /valuation of %ecurity )isk? )isk that the "ank might "e e#posed due to poor
quality or strength of the security in case of default. This may involve the strength
of security and collateral, location of collateral and support.
e6 /valuation of )elationship )isk? These risk areas cover evaluation of limits
utili&ation, account performance, conditions C covenants compliance "y the
"orro$er and deposit relationship.
#.& How is C0e3it Ris8 meas20e3K
'redit risk is usually measured on a comparative scale. As per B)PD 5Banking
)egulation and Policy Department6, ')7 5credit )isk 7rading6 score sheet, a scale, is
used to summari&e risk assessments. %ince there is no accurate $ay to com"ine the
diBerent risk factors, credit professionals either e#amine and $eigh the underlying risks
directly, or con2rm the track record over time of a credit rating system to discriminate
eBectively "et$een high and lo$risk lending in a particular "ank.
#.. C0e3it Ris8 Ana;1sis
The term credit analysis is used to descri"e any process for assessing the credit quality
of a company or individual. 'redit analysis include credit scoring, it is more commonly
used to refer to process that entail human !udgment. 'redit professionals in "anks
revie$ the client3s "alance sheet, income statement, recent trends in its industry, the
current economic environment, etc. from this they can also assess the e#act nature of
an o"ligation. Based on this analysis, the credit manager assigns the client a credit
rating, $hich can "e used for making credit decision.
*any "anks, investment managers and insurance companies hire their o$n credit
analysts $ho prepare credit ratings for internal use. +n Bangladesh there are t$o rating
agencies one is ')AB 5'redit )ating Agency of Bangladesh6 and another is 'risal. These
t$o does the rating of all organi&ations.
Fig20e: C0e3it Ris8 Com,onents.
%ource? Bangladesh +nstitute of Bank *anagement, *irpur, Dhaka
#./ C0e3it Ris8FG0a3ing !co0e
For loans to individuals or "usinesses credit quality is typically assessed through a
process of credit scoring. The criteria for 'redit )isk 7rading 5')76 are?
9. Financial risk
:. BusinessCindustry risk
;. *anagement risk
<. %ecurity risk
5. )elationship risk.
#.4 Catego0ies oD %oans
According to B)PD 5Banking )egulation and Policy Department6 of Bangladesh "ank
loans and advances are grouped into four categories for the purpose of classi2cation
5nonperforming6 $hich are as follo$s?
a6 'ontinuous -oan? The loan accounts in $hich transactions may "e made $ithin
certain limit and have an e#piry date for full ad!ustment that $ill "e treated as
continuous loan. /#amples are 'ash 'redit and 4verdraft.
"6 Demand -oan? This type of loans is repaya"le on demand "y the "ank and is
treated as Demand -oans. +f any contingent or any other lia"ilities are turned to
forced loans 5i.e. $ithout any prior approval as regular loan6 these too $ill "e
treated as Demand -oans. %uch as? Forced -+* 5-oan against +mported
*erchandise6, PAD 5Payment Against Document6, FBP 5Foreign Bill Purchase6, and
+BP 5+nland Bill Purchase6 etc. +BP is under FBP and is used for e#port purposes for
e.g. client of Dhaka Bank $ill keep +BP as a guarantee $hich is kept in another
"ank.
c6 Fi#ed Term -oan? -oans $hich are repaya"le $ithin a speci2c time period under a
speci2c repayment schedule that $ill "e treated as Fi#ed Term -oans. These loans
are given for either ; or = years.
d6 %hortterm Agricultural ( *icro 'redit? The annual credit programs issued "y the
Agricultural 'redit and %pecial Programs Department 5A'%PD6 of Bangladesh
Bank include short term Agricultural 'redits to the agricultural sector $here the
loans are need to "e repaya"le $ithin t$elve months. %hortterm micro credit
include credits not e#ceeding t$enty2ve thousands and need to repay $ithin
t$elve months a fe$ e#amples of microcredit are 0onagricultural credit, %elf
reliant 'redit, AeaverIs 'redit or BankIs individual pro!ect credit. Ahen a loan is
not paid $ithin the valid time period it is called .+rregular loan1.
!$A 5%pecial *ention
account6
Past dueCover due for > months or "eyond "ut less than F
months.
!! 5%u" %tandard6?
0onrepayment of > months installments or after > months of
e#piry.
DF 5Dou"tful6
0onrepayment of loan $ithin ; months of the 2rst
installment payment 5i.e. after ; months of !!6 or if the loan
is not paid $ithin F months of the due date then that loan
$ill "ecome DF.
C% 5'lassi2ed loan6 Unpaid C due for ; monthsL after "ecoming DF.
B% 5Bad ( -oss6 After >H months or = years of the due date.
RNote: not # insta;;ments )2t # mont9s
Ta);e: Catego0ies oD NonF,e0Do0ming ;oans
%ource? Bangladesh +nstitute of Bank *anagement, *irpur, Dhaka, *ay :HH>
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Provision for loans and advances C investments is made "ased on yearend revie$ "y the
management follo$ing instructions contained in 5B'D6 Bangladesh Bank 'ircular no. ;<
dated 9> 0ovem"er 9FEF, B'D 'ircular no. :H dated :D Decem"er 9FF<, B'D 'ircular
no. 9: dated < %eptem"er 9FF=, B)PD 'ircular no. 9> dated > Decem"er 9FFE, B)PD
'ircular no. F dated 9< *ay :HH9, B)PD 'ircular no.H: of Fe"ruary :HH=, B)PD 'ircular
no. HF of August :HH= and B)PD 'ircular no. 9D dated H> Decem"er :HH=. The
classi2cation rates are given "elo$?
7eneral provision on unclassi2ed general loans and
advancesCinvestments
9N
7eneral provision on unclassi2ed small enterprise 2nancing :N
7eneral provision on unclassi2ed loansCinvestments for housing
2nance and on loans for professionals
:N
7eneral provision on unclassi2ed consumer 2nancing other than
housing 2nance and loans for professionals
=N
7eneral provision on small enterprise 2nancing =N
%peci2c provision on %% loans and advancesCinvestments :HN
%peci2c provision on DF loans and advancesCinvestments =HN
%peci2c provision on B- loans and advancesCinvestments 9HHN
Ta);e: Gene0a; Rese0+e Do0 ;oan
Ahen loan "ecomes B- "ank 2les case against the "orro$er to recover "orro$ed
amount. Bank sell the land or any other property that has "een kept as a mortgage
$hen client is una"le to make payment then the fore sale value of that property is
sho$n as ;HN less then the market value.
#.C G2i3e;ines on C0e3it Ris8 $anagement
'redit risk is the primary 2nancial risk in the "anking system. +dentifying and assessing
credit risk is essentially a 2rst step in managing it eBectively. +n 9FF;, Bangladesh Bank
as suggested "y Financial %ector )eform Pro!ect 5F%)P6 2rst introduced and directed to
use 'redit )isk 7rading system in the Banking %ector of Bangladesh under the caption
.-ending )isk Analysis 5-)A61. The Banking sector since then has changed a lot as credit
culture has "een shifting to$ards a more professional and standardi&ed 'redit )isk
*anagement approach.
'redit )isk 7rading system is a dynamic process and various models are follo$ed in
diBerent countries ( diBerent organi&ations for measuring credit risk. The risk grading
system changes in line $ith "usiness comple#ities. A more eBective credit risk grading
process needs to "e introduced in the Banking %ector of Bangladesh to make the credit
risk grading mechanism easier to implement.
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Qeeping the a"ove o"!ective in mind, the -ending )isk Analysis *anual 5under F%)P6 of
Bangladesh Bank has "een amended, developed and reproduced in the name of .'redit
)isk 7rading *anual1.
The 'redit )isk 7rading *anual has taken into consideration the necessary changes
required in order to correctly assess the credit risk environment in the Banking industry.
This manual has also "een a"le to address the limitations prevailed in the -ending )isk
Analysis *anual.
CREDIT RI! GRADING <CRG=:
'redit risk grading is an important tool for credit risk management as it helps the Banks
( 2nancial institutions to understand various dimensions of risk involved in diBerent
credit transactions. The aggregation of such grading across the "orro$ers, activities and
the lines of "usiness can provide "etter assessment of the quality of credit portfolio of a
"ank or a "ranch. The credit risk grading system is vital to take decisions "oth at the pre
sanction stage as $ell as postsanction stage.
At the presanction stage, credit grading helps the sanctioning authority to decide
$hether to lend or not to lend, $hat should "e the loan price, $hat should "e the e#tent
of e#posure, $hat should "e the appropriate credit facility, $hat are the various facilities,
$hat are the various risk mitigation tools to put a cap on the risk level.
At the postsanction stage, the "ank can decide a"out the depth of the revie$ or
rene$al, frequency of revie$, periodicity of the grading, and other precautions to "e
taken.
8aving considered the signi2cance of credit risk grading, it "ecomes imperative for the
"anking system to carefully develop a credit riskgrading model that meets the o"!ective
outlined a"ove
De-nition oD C0e3it Ris8 G0a3ing:
The 'redit )isk 7rading 5')76 is a collective de2nition "ased on the prespeci2ed
scale and reGects the underlying creditrisk for a given e#posure.
A 'redit )isk 7rading deploys a num"erC alpha"etC sym"ol as a primary summary
indicator of risks associated $ith a credit e#posure.
'redit )isk 7rading is the "asic module for developing a 'redit )isk *anagement system.
F2nctions oD C0e3it Ris8 G0a3ing:
Aellmanaged credit risk grading systems promote "ank safety and soundness "y
facilitating informed decisionmaking. 7rading systems measure credit risk and
diBerentiate individual credits and groups of credits "y the risk they pose. This allo$s
"ank management and e#aminers to monitor changes and trends in risk levels. The
process also allo$s "ank management to manage risk to optimi&e returns.
Use oD C0e3it Ris8 G0a3ing:
The 'redit )isk 7rading matri# allo$s application of uniform standards to credits
to ensure a common standardi&ed approach to assess the quality of individual
o"ligor, credit portfolio of a unit, line of "usiness, the "ranch or the Bank as a
$hole.
As evident, the ')7 outputs $ould "e relevant for individual credit selection,
$herein either a "orro$er or a particular e#posureCfacility is rated. The other
decisions $ould "e related to pricing 5creditspread6 and speci2c features of the
credit facility. These $ould largely constitute o"ligor level analysis.
)isk grading $ould also "e relevant for surveillance and monitoring, internal *+% and
assessing the aggregate risk pro2le of a Bank. +t is also relevant for portfolio level
analysis.
C0e3it Ris8 G0a3ing De-nitions:
For loans to individuals or "usinesses credit quality is typically assessed through a
process of credit scoring. The criteria for 'redit )isk 7rading 5')76 are?
Financial risk
BusinessCindustry risk
*anagement risk
%ecurity risk
)elationship risk.
The follo$ing ')7 is "eing set "y the Bangladesh Bank, $hich helps to evaluate the
"orro$er. )isk manager $ill input data availa"le from their income statement, "alance
sheet and cash Go$ to the F%% kno$n as Financial %pread %heet, $hich $ill calculate the
risk ratio and provide the score 5Appendi# A6. Based on the total score of pro2ta"ility, risk
ratio etc. manager $ill grade the client. A "orro$er $ill "e categori&ed P%uperior3 $hen
he $ill provide fullcash security, or guaranteed "y the government or international "ank.
This type of guarantee is superior "ecause there is &ero possi"ility of loan "eing classi2ed
or &ero e#posure. 0e#t, a "orro$er is classi2ed as P7ood3 $hen the score is E= or more.
PAccepta"le3 $hen his credit risk grading score is "et$een D= and E<. Banker need not to
"e $orry till the score is D= "ecause they are considered to "e P7oodperforming loan3.
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Ahen the client is ranked P*arginal3 "anker needs to "e careful a"out sanctioning loan
"ecause this client has =HN pro"a"ility that he might classify. Then as the score "ecome
less "y 9H points the client $ill "e categori&ed P%pecial *ention3, P%u"standard3,
PDou"tful3 and PBadC-oss3 $hen score is "elo$ ;=. These four are called 0onperforming
loan. This scoring system is a decision making tool.
N2m)e0 G0a3ing A))0e+iate !co0e
9 %uperior %UP
9HHN
Fully cash secured, secured "y
government guaranteeCinternational "ank
guarantee
: 7ood 7D
E=K
%trong repayment capacity of the
"orro$er, e#cellent liquidity, lo$ leverage,
consistent strong earnings and cash Go$.
; Accepta"le A''PT
D=E<
0ot strong as 744D grade "orro$er "ut
has consistent earnings, cash Go$ and a
good record of accomplishment.
<
*arginalCAatch
list
*7CA-
>=D<
Borro$er having an a"ove average risk
due to strained liquidity, higher than
normal leverage, thin cash Go$ and Cor
inconsistent earnings.
= %pecial *ention %*
==><
Potential $eaknesses that deserve
management3s close attention. +f left
uncorrected, these $eaknesses may
result in a deterioration of the repayment
prospects of the "orro$er.
> %u"standard %%
<==<
Aeak 2nancial condition, capacity to
repay is in dou"t.
D Dou"tful DF
;=<<
Full repayment of principal and interest is
unlikely and the possi"ility of loss is
e#tremely high. Due to speci2cally
identi2a"le pending factors such as
litigation, liquidation procedures or capital
in!ection, the asset is not yet classi2ed as
Bad ( -oss.
E Bad C -oss B-
S;=
-ong outstanding $ith no progress in
o"taining repayment or on the verge of
$ind upCliquidation. Prospects of recovery
are poor and legal options have "een
pursued.
Ta);e : C0e3it Rate G0a3ing <CRG=
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Ultimately, if client $ants to ensure a good credit score they should keep 2nancially 2t
and deal responsi"ly $ith their 2nancial commitments. +t is con2dence that a loan $ill "e
paid "ack on schedule that determines $hether credit is granted.
)eassessing clients regularly is al$ays a good practice for ensuring proper risk
management and 2nancial gro$th in "anks. DB- updates the records $ith the latest
2nancial statement of the client every year and sometimes every si# months for clients.
+t is a good practice from a creditrisk control standpoint.
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CHAPTER &: %ENDING DECI!ION
The principal function of a "ank is to lend. -ending is a dynamic activity. +t is through the
medium of lending the "anking industry promotes economic activity instill and
encourages, at the individual level, the principle of selfreliance, and yields earnings for
the "ank. +t is lending alone that "rings "anking into a more meaningful and purposeful
contract $ith pu"lic and therefore, has the greatest impact upon them.
+t is a fundamental precept of "anking every$here that advances are made to customers
in reliance on his promise to repay, rather than the security held "y the "anker. %ecurity
is required "y the "anker as a protection against une#pected default in repayment "y the
customer. Thus, the o"!ect of "oth e#ternal and internal controls is to ensure the
employment of "ank funds in a pro2ta"le manner $ithout undue risk of loss to the
capital.
Although all lending involves some degree of risk, it is necessary for any "ank to develop
sound and safe lending policies and ne$ lending techniques in order to keep the risk to a
minimum. The principles of sound lending may, therefore, "e summari&ed on "elo$?
96 !aDet1: %afety is the 2rst guiding principle of a prudent "anker. A "ank is in "usiness
to make money. +t mainly uses depositorIs fund as a means of its earnings. The money of
the depositorIs "eing repaya"le on demand or, after a short notice, determines the
capacity of a "ank as to the period for $hich he can safely lend it out $ithout an
uncalculated risk. %afety should never "e sacri2ced for pro2ta"ility. 4nce the con2dence
of the depositorIs is shaken, the "anker cannot carry on the "anking "usiness. 4n
principle he, therefore, cannot indulge in unsecured or long term advances. Advances
should "e e#pected to come "ack to resort to legal action or to sell the securities to
liquidate the advance. The repayment of the loan depends upon the "orro$erIs i6
capacity to pay, and ii6 $illingness to pay.
:6 %iJ2i3it1: -iquidity is the availa"ility of "ank funds on short notice. +t is not enough
that the money $ill come "ack, it is also necessary that it must come "ack on demand or
in accordance $ith agreed terms of repayment. The "orro$er must "e in a position to
repay $ithin a reasona"le time after a demand for repayment is madeT other$ise, the
liquidity position of the "ank is endangered.
;6 P0o-ta)i;it1: 'ommercial "ank has to distri"ute its resources in a manner that they
meet the t$in requirements of liquidity and pro2ta"ility. A "anker hasT therefore, to see
that ma!or portion of the assets o$ned "y it are not only liquid "ut also aim at earning a
good pro2t.
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The $orking funds of a "ank are collected mainly "y means of deposits from the pu"lic
and interest has to "e paid on these deposits. They have also to meet their
esta"lishment charge and other e#penses. They have to make provision for depreciation
of their 2#ed assets and also for any possi"le "ad or dou"tful de"ts. +nterest earned "y a
"ank on its advances is the main source of its income. The diBerence "et$een the
interest received on advances and the interest paid on deposits constitutes a ma!or
portion of the "ankerIs income. The "ank $ill not, ho$ever, enter into a transaction
unless a fair return is assured. %o, there is little point in a "anker granting facilities $hich
do not "ring directly or indirectly some returns.
<6 P20,ose: A "anker $ould not thro$ a$ay money for any purpose for $hich the
"orro$er $ants. The purpose should "e productive so that the money not only remains
safe "ut also provides a de2nite source of repayment. The "anker should study the
purpose for $hich loan is required and the resources from $hich the "orro$er is e#pected
to repay. +f the funds "orro$ed are employed for unproductive purposes like marriage
ceremony, pleasure trip, repayment of old de"ts etc. or speculative activities, the
repayment in the normal course $ill "ecome uncertain. Banks also discourage advances
for hoarding of stocks.
=6 !ec20it1: +t is the practice of "anks not to lend money $ithout any security. The
security oBered for an advance is insurance or a cushion to fall "ack upon in case of
need. A "anker $ould normally like to recover the advance from the sale of the security.
They $ould prefer an advance to come "ack from the normal source. The importance of
an adequate and accepta"le security can, ho$ever, "e hardly over emphasi&ed. %ecurity
serves as a safety value for an une#pected emergency. An element of risk is al$ays
present in every advances ho$ever securities are not insisted upon, there are chances
that the "orro$er may raise funds else$here "y charging them to others and there"y the
"ankerIs position is !eopardi&ed.
!ec20it1 ta8en )1 )an8s can )e c;assi-e3 into two )0oa3 catego0ies s2c9 as:
a6 P0ima01 !ec20it1 may "e either personal security or impersonal security or "oth.
Personal security is given "y a "orro$er "y $ay of duly e#ecuted promissory note,
acceptanceCendorsement on a "ill of e#change and personal covenants in mortgage
deeds or loan agreements. +mpersonal security is given $hen a charge is created "y $ay
of pledgeC hypothecationCmortgage over the "orro$er3s tangi"le assets, such as, goods
and commodity, 2#ed assets, "ills receiva"les, "ook de"ts.
"6 Co;;ate0a; !ec20it1 may "e direct or indirect. 'ollateral security o"tained from the
"orro$er himself to secure his o$n account is kno$n as direct collateral security. For
e#ample, advance against hypothecation of stockintrade is strengthened "y equita"le
mortgage of the title deeds of house property of the "orro$er. +ndirect collateral security
means any form of security given "y a third person to secure a customerIs account. A
guarantee given "y a third party is an indirect collateral security.
>6 Dis,osa;: The advances should "e as much "road"ased as possi"le and must "e in
keeping $ith the deposit structure. The advances must not "e in one particular direction
or to one particular industryT "ecause any adversity faced "y that particular industry $ill
have serious repercussions on the "ank. Again, advances must not "e granted in one
area alone. There should "e spread of advances against diBerent securities, industries as
$ell as areas. Thus, "y a diversi2cation of the advance a "anker $ill "e a"le to spread his
risks and considera"ly improve the safety of advances.
D6 Nationa; Inte0est: Banking industry has signi2cant role to play in the economic
development of a country. The "anker $ould lend if the purpose of the advance is for
overall national development plans necessitating Go$ of credit to priority sector in the
larger national interest. %ometimes the need of the "orro$er may "e considered so
essential for the "ene2t of the national economy that despite heavy risks involved the
advance may "e granted. +n the changing concept of "anking, national interest for
2nancing in some areas, especially in advances to agriculture, small industries, small
"orro$ers, and e#portoriented industries, are assuming great importance.
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CHAPTER .: RO%E OF CIB IN CREDIT $ANAGE$ENT
Due to irregular and insu,cient Go$ of credit information in the "anking system the
proportion of classi2ed loan in relation to the total credit is very high. This proportion of
classi2ed loan operated a "ad culture in the "anking sector. +n order to eliminate the "ad
culture ( to equip the "anks $ith proper credit information for loan application
processing, proposal for creation of 5'+B6 $as put for$ard "y diBerent committees and
organi&ations and it $as esta"lished in 9FF:.
The main o"!ectives of the '+B are to collect all sorts of information in respect of the
"orro$ers from the scheduled "anks and other non"ank 2nancial institutions ( creation
of computer data"ase in order to feed"ack the same information to the "anks ( other
non"ank 2nancial institutions for quick processing of ne$ loan application, rescheduling,
etc. and preparation of various reports for *+% purposes to "e used in Bangladesh Bank (
ministry concerned.
T9e Fo;;owing A0e T9e $ain F2nctions OD CIB:
96 To standardi&e information Go$ on loansC credits $ithin the Bangladesh "anking
system.
:6 To increase the speed ( accuracy $ith $hich the credit information is made
availa"le to "anker assessing credit role.
;6 To com"ine the information gathered on classi2ed loans $ith the information on
ne$ly sanctioned loans to the "orro$ers there"y making availa"le on integrated
information package.
<6 To integrate the default loan information in the '+B and its timely su"mission to
the "anks for loan application processing.
=6 To collect credit information on quarterly "asis from Banks.
>6 To make policy for keeping utmost security ( con2dentiality of '+B data (
reports thereon.
D6 To convey the '+B information to Banks as quickly as possi"le for quick disposal
of loan application.
E6 To prepare various reports on credit information of the "orro$ers.
F6 To help the commercial Banks to generate their o$n 5automatic6 data"ase
system for time reduction in su"mitting the credit report to '+B for assimilation.
9H6 To conduct itself supervisory !o" 5survey6 in case of need to revie$ the
correctness of the information su"mitted "y Banks.
996 To prepare summary reports on availa"le information at '+B for management
purposes.
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From the a"ove discussion, $e can conclude '+B data"ase is one of the most
important information canters for the 2nancial institutions. This information, if used
properly, $ill de2nitely improve the relationship "et$een the Bank ( its customers and
ultimately "e helpful to eliminate the present "ad culture in "anking sector.
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CHAPTER /: %OAN! M AD(ANCE!
/.E1 Int0o32ction
Banking "usiness is like all other pro2toriented "usiness. +t depends mainly on ho$
much pro2t they can make. Pro2t is the yardstick for the "ank to move on. Banking is a
"usiness that deals only $ith money and credit. They $ork as reserves of .savings1 of
the community and also as lenders or investors for trade "usiness and industry. Banks
are pro2t oriented. They invest their funds in many to earn income. 8uge amount of
income derives from loans and advances. 'redit is continuous process. )ecovery of one
credit gives rise to another credit. +n this process of revolving of funds, "ank earns
income in the form of interest. A "ank can invest its fund in many $ays. Banks "ake
loans and advances to traders, "usinessmen, and industrialists against the security.
*oreover nature of credit may diBer in terms of security requirement, dis"ursement
provision, terms and conditions etc. The Dhaka Bank should take proper caution in
lending other$ise the risk of default in repayment may arise.
/.E2 Ta0get C2stome0s oD t9e D9a8a Ban8 %imite3
The customers for the loan services are categories as follo$s?
U +ndividual person.
U %ole proprietorship 2rms.
U Partnership 2rms.
U Private limited company.
U Pu"lic limited company.
U 7overnment and semi government organi&ation.
U Bank employees.
/.E# Reasons Fo0 P0o+i3ing %oans An3 A3+ances
-oans and advances are the survival unit of the "ank "ecause until and unless the
success of this section, the survival is a question to every "ank. +f this section is not
properly $orking, the "ank itself may "ecome "ankrupt. This is important "ecause this is
the earning unit of the "ank. Banks are accepting deposits from the depositors in
condition of providing interest to them as $ell as safe keeping their interest. 0o$ the
question may gradually arise ho$ the "ank $ill provide interest to the clients and the
simple ans$er is advance.
591 t9e )an8 ,0o+i3es a3+ances to t9e )o00owe0s
U To earn interest from the "orro$ers and give the depositors interest "ack.
U To accelerate economic development "y providing diBerent industrial as $ell as
agricultural advances.
U To create employment "y providing industrial loans.
U To pay the employees as $ell as meeting the interest groups.
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Ae often use loans and advances as an alternative to one another. But academically this
concept is incorrect. Academically advance is the com"ination of such items $here loan
is a part only. For this credit section of this "ank is kno$n as advance section.
/.E& T1,es oD A3+ances
+t is not possi"le to discuss all types of advances in details in this report "ut an attempt
has "een made to analy&e the "asic diBerence and characteristics of these advances all
in the follo$ing?
Advances
Staff Loan
Staff House
Building Loan
Staff Loan against
Provident Fund
Overdraft
Secured
Overdraft
Loan
General
Cash Credit
CC-Hyo CC-Pledge
!er" Loan
#ndustrial Loan Others Loan
House Building
Loan-HBL
!ransort Loan
Ban$ Guarantee
Bid Bond Perfor"ance
Bond
Bills Purchased
and %iscounted
Sche"e
Consu"er Credit
Sche"e
#nvestors Accounts
O+e030aDt
R 4verdrafts are those dra$ings, $hich are allo$ed "y the "anker in e#cess of the
"alance in the account up to a speci2ed amount for de2nite period 5normally 9
year6 as arranged for.
R 4verdraft facility is generally given to the "usinessmen for e#pansion of their
"usiness.
R Any deposit in the %4D account is treated as repayment of overdraft.
R 7enerally it is provided against FD), P%P or any primary security.
R 0ormally it is provided $ith :HN margin, "ut it may vary.
!ec20e3 O+e030aDtF!OD %oan Gene0a;F%G
9.
:.
;.
<.
4nly "usinessmen can open this.
4nly 'D Account holder can open
this.
+nterest rate is 9<.=HN $ith
quarterly rest.
+nterest starts from the date of 2rst
$ithdra$al.
9.
:.
;.
<.
Anyone can open this account.
Both 'DC%B account holder can open
this.
+nterest rate is 9<.=HN $ith
quarterly rest.
+nterest starts from the date of
sanction of the overdraft.
Cas9 C0e3it N 5o08ing Ca,ita;F CCN5C
U 'ash credit is given through the 'ash 'redit 5''6 account.
U 'ash 'redit account is "asically a current accountT ho$ever a little diBerence
e#ists "et$een them. The distinction "et$een a current account and a cash credit
account is that the former is intended to "e an account $ith credit "alance and
the letter is an account for dra$ing of advances.
U 4peration of cash credit is same as that of overdraft. The purpose of cash credit
is to meet $orking capital needs of traders, farmers, and industrialists.
Cas9 C0e3it <H1,ot9ecation= Cas9 C0e3it <P;e3ge=
9.
:.
;.
<.
+t is a charge against a property for
a de"t $here neither the o$nership
nor the possession is passed to the
Banker.
+t is granted only to 2rst class party.
+nstrument8ypothecation deed.
Possession of goods is surrendered
to the lender $hen called upon to
do so.
'harge is then converted to pledge.
9.
:.
;.
<.
+t is a charge against a property for a
de"t $here the o$nership remains to
the "orro$er "ut the possession is
passed to the Banker.
+t is granted to all types of parties.
+nstrument Pledge deed.
+n case of default, Bank may sell the
security on giving the de"tor
reasona"le notice of sale.
Te0m %oans
T1,es oD Te0m %oans C9a0acte0istics
1. In32st0ia; %oans R +t is given for ; years at equal monthly installment
R +nterest rate is 9>.=HN.
R 7race period is allo$ed depending on types of
pro!ect.
R This is given to facilitate the industrial gro$th.
2. T0ans,o0t %oans R This is given to accelerate the transport
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facility nation$ide.
R +t is given for ; years at equal monthly installment.
R 4thers condition are almost same as the industrial
loans.
#. Ho2se B2i;3ing
%oans
R This is given for the construction of d$elling house.
R This loan is not given frequently.
&. Ot9e0s %oanF
Inc;23ing Ag0ic2;t20e
%oan
R Actually Agricultural loan is not given from this
"ranch of The Dhaka Bank "ut all other items
e#cluding the mentioned a"ove $ill go under this head
of term loans.
!TAFF %OAN!
1. !taG Ho2se B2i;3ing %oanF!HB%
%taB house "uilding loan is provided to the employees having = years continuous
con2rmed service in the "ank. 'eiling of this loan is 9:H times of "asic salary. %ecurity of
the loan is the legal mortgage of the land. )ate of interest is 9N more than Bank rate
that is E.HHN simple rate 5no compounding rate6. )epayment procedure is :<H equal
monthly installments. +t is started after > months from the date of 9
st
dis"ursement of the
loan. )epayment is ad!usted from their monthly salary. Principle amount is ad!usted 2rst,
and then interest is ad!usted.
2. !taG %oan Against P0o+i3ent F2n3F!PF
This loan facility is provided only for The Dhaka Bank staB. +n the provident fund, 9HN of
"asic salary is contri"uted "y employee in every month and also 9HN of "asic salary of
the employee is contri"uted "y the "ank. Any continuous con2rmed staB can apply for
this loan. The rate of interest is EN 5simple rate6. )epayment is ad!usted from their
monthly salary.
Hea3 oHce a;;ow ;oan to staG against t9ei0 ,0o+i3ent D2n3 as ,e0 t9e Do;;owing
c0ite0ion:
!%.
No.
C0ite0ion P.F. %oan
Cei;ing
Re,a1ment
Pe0io3 <$a7.=
9. /mployees having less than = years
continuous con2rmed service in the "ank.
EHN of o$n
contri"ution.
<E equal monthly
installments.
:. /mployees having = years "ut less than D
years continuous con2rmed service in the
"ank.
>HN of "oth
contri"utions.
<E equal monthly
installments.
;. /mployees having D years "ut less than
9H years continuous con2rmed service in
the "ank.
DHN of "oth
contri"utions.
<E equal monthly
installments.
<. /mployees having 9 H years and a"ove
years continuous con2rmed service in the
EHN of "oth
contri"utions.
<E equal monthly
installments.
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"ank.
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Ban8 G2a0antee
The "ank very often requested "y his customer to issue guarantees on their "ehalf to a
third party committing to make an unconditional payment of certain amount of money to
the third party, if the customer 5on $hose "ehalf it gives guarantee6 "ecomes lia"le, or
creates any loss or damage to the third party. +t is a contingent lia"ility for the "ank.
Bank is charged ;N commission for this guarantee. After the e#piry of the guarantee
period Bank is no longer lia"le to the third party. Bank guarantee is generally issued "y
the "anker for payment of tender.
T1,es oD Ban8
G2a0antee
C9a0acte0istics
1. Ten3e0 o0
Bi3 Bon3
R +t is issued on "ehalf of contractor in favor of 2rms, giving
a sort of guarantee for payment of money $here tender has
"een approved "ut the contractor is not $illing to proceed
$ith it.
R +t is normally issued for a period of ; to > months against
higher cash margin.
2. Pe0Do0mance
G2a0antee
R +f a contract is a$arded to the contractor he $ould "e
required to furnish a guarantee $here"y his e#ecution of
contract as per terms and conditions agreed is guaranteed.
This is kno$n as performance guarantee.
R +t $ould require high cash margin in addition to collateral
security $ith po$er of attorney to collect "ills.
#. Ot9e0s
G2a0antee
R 4thers guarantee $hich is issued "y the "ank include
%hipping guarantee, +nvestment "ank guarantee, 'ustoms
and /#cise guarantee, 7uarantee on account of foreign
correspondent, and Deferred payment guarantee.
Bi;; P20c9ase3 M Disco2nte3
%ometimes "anks are to purchase "ills of e#change of "usinessmen to facilitate
commercial transactions. Purchasing of inland "ill of e#change arising out of commercial
transaction is called inland "ill purchased. Bank purchase t$o types of inland "ill $hich
are as follo$s?
1. C;ean Bi;;: 'lean "ills are that "ill $hich requires no document for payment
like 'heques, Demand Draft, Pay 4rder, Tele# Transfer, and *ail Transfer.
2. Doc2menta01 Bi;;: Ahen the dra$er of a "ill encloses the documents of title
to goods, such as, Bill of -ading, )ail$ay )eceipt, %teamer )eceipt, to "e delivered
to the dra$ee of the "ill on payment or against acceptance of "ill, as the case
may "e, the "ill is called Documentary "ill. This is often created in "usiness and
the Bank purchases these "efore their maturity.
+n case of .Discounting of Bill1 the charges are more "ecause the "ank, "esides charging
for the service rendered, $ill also charge for interest from the date of discounting the "ill
till the date of maturity.
+n all the cases of purchasing and discounting of "ills, the "ank is granting advance to the
customers and, therefore, .Bills Purchased and Discounted1 are sho$n as advances "y a
"ank in its "alance sheet.
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Cons2me0 C0e3it !c9eme
The o"!ective of this loan is to provide credit to the customer 5%ervice 8older6 for
purchasing of essential 8ousehold dura"le like computer, Television, %ound %ystem,
%e$ing machine, Furniture etc. The "orro$er e#ecuted the follo$ing documents in the
BankIs favor to secure the loan?
U Demand Promissory 0ote 5%ingle6.
U -etter of Arrangement.
U -etter of +nstallment.
U -etter of Dis"ursement.
U -etter of 8ypothecation.
U Personal guarantee signed "y the ;rd party $ith particulars of guarantee form
'.
U Assets and -ia"ility position of the "orro$er.
U *onthly income of the "orro$er.
By considering those documents Bank provides loan to "orro$er under the follo$ing
terms and conditions?
$a0gin: :HN on the value of the household items to "e purchased.
Re,a1ment: )epayment procedure is :<C;>C<E equal monthly installments.
!ec20it1: 8ypothecation of the purchased assets.
Rate oD inte0est: 9>N 5)evised from time to time6.
E7tent oD ;imit: The loan amount sought can not e#ceed EHN of the purchased price.
Di+e0si-cation oD C0e3it
As per Bangladesh Bank rule on credit, Dhaka Bank can e#tended EHN of its deposits.
Dhaka Bank e#tends credit in four sectors $hich are organi&ed under a "road sector?
Ag0ic2;t20a; C0e3it
A"out E=N people of rural area are engaged in agricultural activities. But most of them
do not have enough money to cultivate their land. Under this category Dhaka Bank
provides credit in various agricultural activities such as crops, 2sheries, and live stocks,
!ute ( !ute goods e#port etc.
In32st0ia; C0e3it
Bangladesh is a developing country. Ae have to develop industry for the economic
gro$th of the country. But most of the people of our country do not have su,cient capital
to develop industry. Under this category Dhaka Bank provides credit in various
industrial activities such as small ( cottage industry, "ig and medium industry.
Comme0cia; C0e3it
Dhaka Bank gives credit to purchase commercial goods. As a result the producers of
goods can sale their outputs and the traders can do their "usiness e,ciently. Under this
sector Dhaka Bank provides credit for various activities such as trade, e#port, import,
$orking capital etc.
Ot9e0 C0e3it
*any of our country $ant to organi&e some productive activities. But they do not achieve
their goal for lack of capital to meet up their needs for capitalT Dhaka Bank helps to
improve the socioeconomic condition of the country. Under this sector Bank provides
credit for various activities such as 8ousing, 'onsumption, 'onstruction, Transportation,
and /quipment 5*edical6 etc.
&.E. Gene0a; P0oce320e Fo0 %oans An3 A3+ances
The follo$ing procedure is applica"le for giving loans to the customer. These are?
A,,;ication Do0 ;oan
The "orro$er applies for the loan in the prescri"ed form of the "ank descri"ing the types
and purpose of loan.
Getting C0e3it InDo0mation
The "ank collects credit information a"out the applicant to determine the credit
$orthiness of the "orro$er. Bank collects the information a"out the "orro$er from the
follo$ing sources?
U Personal investigation.
U 'on2dential report from other "ank 8ead 4,ceCBranchC 'ham"er of the
'ommerce.
U '+B )eport from 'entral Bank.
InDo0mation Co;;ection
The loans and advance department gets a form 2lled "y the party seeking a lot of
information. The informationIs are listed "elo$?
U 0ame and address of the "orro$er 5present and permanent6.
U 'onstitution or status of the "usiness.
U Date of esta"lishment and place of incorporation.
U Particulars of properties, Partners, and Directors.
U Background and "usiness e#perience of the "orro$ers.
U Particulars of personal assets, 0ames of su"sidiaries, Percentage of share
holding and 0ature of "usiness.
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U Details of lia"ilities in name of "orro$ers, in the name of any directors.
U Financial statement for the last three years.
U 0ature and details of "usinessCproducts.
U Details of requested credit facilities.
U Details of securities oBered.
U Proposed de"t equity ratio.
U 4ther relevant information.
Ana;1:ing t9ese inDo0mation
Bank then starts e#amination that $hether the loan applied for, is complying $ith its
lending policy. +f comply, then it e#amines the documents su"mitted and the credit
$orthiness. 'redit $orthiness analysis, i.e. analysis 2nancial conditions of the loan
applicant is very important. +f loan amount is more than =H lac then "ank goes for
-ending )isk Analysis 5-)A6 and %preadsheet Analysis 5%A6 $hich are recently introduced
"y Bangladesh Bank. According to Bangladesh Bank rule, -)A and %A are must for the
loan e#ceed one crore.
+f these t$o analyses reGect favora"le condition and documents su"mitted for the loan
appear to "e satisfactory, then "anks goes for further action.
%en3ing Ris8 Ana;1sisF%RA:
-)A is a traditional technique used "y e#perienced people of credit department of "anks
to calculate the risk of loan. ')7 is an upgraded tool of -)A. -)A is a ranking $hose total
score is 9<H. Among this score, 9:H is for total Business )isk and :H for Total %ecurity
)isk.
Ta);e: B2siness Ris8 Ta);e: !ec20it1 Ris8
-)A is a very important and vital analysis for deciding $hether the loan proposal is
potential or not. *any types of scienti2c, mathematical, statistical and managerial tools
and devices are required to perform this analysis.
The Dhaka Bank 'redit 4perations ( 'hange *anagement Dept., 8ead 4,ce maintains
a prescri"ed format containing 9< pages for -ending )isk Analysis, $hich includes a
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!co0e B2siness Ris8 !co0e !ec20it1 Ris8
9; V 9F Poor risk H V 9H Poor risk
:H :> Accepta"le risk 9H 9< Accepta"le risk
:D V ;< *arginal risk 9< V :H *arginal risk
A"ove ;< 7ood risk A"ove :H 7ood risk
%preadsheet to analy&e a lot of things. +t is not possi"le to discuss the entire -)A in this
report, "ut the entire frame$ork under $hich it $orks has given in the follo$ing manner?
%en3ing Ris8 Ana;1sisO%RA
a6 +ndustry )isk?
i6 %upply )isk Ahat is the risk of failure to disruption in the supply
of inputW
ii6 %ales )isksAhat is the risk of failure due to disruption of salesW
"6 'ompany )isk?
9. 'ompany
Position )isk i6 Performance )iskAhat is the risk that the company
position is so $eak that it can not perform $ell enough to
repay the loan, given e#pected e#ternal conditionW
ii6 )esilience )iskX$hat is the risk of failure due to lack of
resilience to une#pected e#ternal conditionsW
:. *anagement
)isk ? i6 *anagement 'ompetence )iskX$hat is the risk of failure
due to lack of management competenceW
ii6 *anagement +ntegrity )iskX$hat is the risk of failure due
to lack of management integrityW
c6 %ecurity )isk? i6 %ecurity 'ontrol )iskX$hat is the risk that the "ank fails
to reali&e the securityW
ii6 %ecurity 'over )iskX$hat is the risk that the reali&ed
security value is less than the e#posureW
/.E. Re;e+ant $atte0 oD Doc2ment C9ec8e3 BeDo0e !anctioning
an1 %oan
U There must "e an account of the person $ant to take loan. The account must
have a transaction for not less than ; months to > monthsT other$ise the loan $ill
not "e sanctioned.
U After checking the duration of account then the transaction made "y the
account holder must "e checked. The de"it credit position must "e also checked,
"ecause it is related $ith future dealings of the "orro$er.
U The purpose for $hat the loan is taken "y the "orro$er is another important
matter to see and check. Ahether the purpose is "usiness or else must "e
checked $ith its marketa"ility. Because there is risk of fraud and forgery "y the
"orro$er "y seeing one purpose in cash of doing any illegal "usiness.
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U The "anker should check through security $hether it is enough or not.
/.E/ P0o,osa; Ana;1sis
The pro!ect proposal is analy&ed and decision a"out the pro!ect is taken. The loans and
advance department is responsi"le for the analysis. After preliminary appraisal of the
loan pro!ect the 2nal approval is o"tained from the manager. +f the loan amount crosses a
certain amount 5not found6 manager sends the loan pro!ect to the principal o,ce for 2nal
approval. The e#perts in principal o,ce 2nd out diBerent pro!ected ratios and develop an
understanding a"out the potentiality of the pro!ect. Bank evaluates a loan proposal "y
considering fe$ predetermined varia"les. These are?
U %afety.
U -iquidity.
U Pro2ta"ility.
U %ecurity.
U Purpose of the loans.
U %ources of repayment.
U Diversi2cation of risks etc.
The most important measure of appraising a loan proposal is safety of the pro!ect. %afety
is measured "y the security oBered "y the "orro$er and repaying capacity of the
"orro$er. The attitude of the "orro$er is also important consideration. -iquidity means
the inGo$ of cash into the pro!ect in course of its operation. The pro2t is the "lood of any
commercial institution. Before approval of any loan pro!ect the "ank authority has to sure
that the proposed pro!ect $ill "e pro2ta"le venture. Pro2ta"ility is assessed from the
pro!ected pro2t and loss statement. The security is the only tangi"le remains $ith the
"anker. %ecuring of collateral is the only $eapon to recover the loan amount. %o "ank has
to see that the collateral, it is accepting is easy to sale and su,cient to recover the loan
amount. Bank cannot sanction loan "y only depending on collateral. The sources of the
payment of the pro!ect should "e a feasi"le one. During sanctioning any loan "ank has to
"e attentive a"out diversi2cation of risk. All money must not "e dis"ursed amongst a
small num"er of people. +n addition any pro!ect must "e esta"lished for the national
interest gro$th.
/.E4 Co;;ate0a; E+a;2ation
The Dhaka Bank, 'redit 4perations ( 'hange *anagement Dept., 8ead 4,ce is very
cautious a"out valuation of the collateral. The "ank o,cials and simultaneously evaluate
the collateral the party oBers "y private 2rm. This t$o $ay valuation of the collateral
increases the accuracy of its value estimated. Three types of value of the collateral are
assumed?
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U 'urrent market price U Distress price U Price after 2ve years
The legal o,cers of the "ank check the documents ascertain their impurity.
/.EC Fina; Decision A)o2t t9e P0o*ect
+f the loan decision remains $ith the "ranch level, "ranch sanctions the loan and if the
approving authority is head o,ce then the decision comes to the "ranch "y tele# or fa#.
/.E? P0o,e0 !2,e0+ision oD t9e P0o*ect
+f such provision is kept in the sanction contracts, the "ank o,cials go to the pro!ect area
and o"serve ho$ the loan is utili&ed. +f no such clause to supervise the loan is added,
even then the "ank can see the performance of the pro!ect.
/.1E Doc2mentation oD t9e %oan
These are the most frequently used and common documents for creation of a"ove
mentioned charged and for other formalities for sanctioning the loan?
UDemand promissory note? 8ere the "orro$er promises to pay the loan as and
$hen demanded "y the "ank to repay the loan.
U-etter of Arrangement? 8ere the $ritten amount of the loan sanctioned to the
"orro$er is speci2ed.
U-etter of 'ontinuity? +t is used to take continuous facilities as providing
continuous securities.
U-etter of 8ypothecation? +t is the $ritten document of the goods hypothecated
thus to put in case of need.
U%tock )eport? This report is used for %4D and ''. in this report, information
a"out the quality and quantity of goods hypothecated furnished.
U*emorandum of deposit of title deed of property duly signed "y the o$ners of
the property $ith resolution of "oard of directors of the company o$ning the
landed property.
UPersonal guarantee? +t is the additional con2rmation of the "orro$er to repay.
U7uarantee of all the directors of the company.
U)esolution of the "oard of directors? +t is used to "orro$ the fund to e#ecute
documents and complete other documents.
U-etter of disclaimer? By this letter, the "orro$er $ithdra$s his all claim on the
propertyCgoods lienedCmortgaged.
UForm no. 9EC9F for 2lling charges $ith the register of !oint stock companies under
relevant section.
U-etter of Acceptance? -etter indicating the acceptance of the sanction proposal
"y the "orro$er.
U-etter of Pledge? +t is the $ritten document of the goods pledge thus the legality
of holding the goods.
U-etter of Dis"ursement? This is the document through $hich the payment of
sanctioned loan indicates.
U-etter of Partnership? +n case of partnership 2rm, the partnership deeds are to "e
provided.
U-etter of +nstallment? The amount of installment that is to "e paid at certain
intervals.
U+nsurance Policy? +t sho$s the uptodate insurance pro2le of the customer.
UTa# Paying 'erti2cate.
UAny document if descri"ed, as essential in the sanctioned advice sanctioned "y
the head o,ce.
/.11 E7isting P0ocess oD Han3;ing %oans
/#isting loan +nformation /valuating pro!ect
Proposal 'ollection and proposal
A"out A"out Branch -evel
Pro!ect Party /valuation
-egal /valuating 'ollateral
Assessment
/valuating
By Agent
Usual Branch
)ecovery -evel
)ecovery of %upervision %anctioning ( Decision
the loan of loan dis"ursing loan
-egal 8ead 4,ce
)ecovery -evel
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/.12 E7ec2tion oD Doc2ments
/#ecution of documents should "e done $ith stamping a required under stamps act.
There are three kinds of stamp $hich is used for e#ecution of documents?
i6 '23icia;FT9e1 are of special mark used in the courts.
ii6 Non '23icia;F+t is printed on special paper in diBerent denominations and used for
e#ecution of agreements. +ndemnity "ond, sale deed, mortgage deed etc. are also called
impressed stamp.
iii6 A39esi+e)evenue stamps, %pecial adhesive stamps and a,#ed as required on
documents like promissory note. +t is receipt on standard printed form such as -etter of
continuity, -etter of pledge, -etter of hypothecation, -etter of lien, %upplementary
agreement, -etter of guarantee, Trust )eceipt etc. such stamp are needed to "e canceled
in an eBective manner so that the same can not "e used again.
Documents to "e e#ecuted 5signed6 "y parties concerned competent to do so either in
o,cial capacity or in personal capacity as the case may "e. +n some cases such
documents are required to "e e#ecuted in presence of $itness.
The follo$ing precautions are to "e taken at the time of e#ecution of documents.
Documents to "e 2lled in and are e#ecuted in the presence of the manager or an
authori&ed o,cer of the "ank. 8e must put his initial in pencil so that in future it can "e
ascertained in $hose presence the documents $ere e#ecuted. 8e may have to depose in
a court in future. The client should sign in accordance $ith the specimen signature
recorded $ith the "ank. +f documents consist of more than one page, all the pages are to
"e signed "y the e#pectant at the end of the form and also at the end of the schedule of
securities. *ention of date and place of e#ecution on a document is mandatory.
/.1# C0eation oD C9a0ges Do0 !ec20ing %oan
For the safety of loan, "ank requires security from the leaner so that it can recover the
loan "y selling security if "orro$er fails to repay. 'reation of a charge means making it
availa"le as a cover for an advance. The method of charging should "e legal, perfect, and
complete. +mportance of charging security?
U Protection of interest.
U /nsuring the recovery of the money lended.
U Provision against une#pected change.
U 'ommitment of the "orro$er.
%ecurities are t$o types?
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a6 P0ima01 !ec20it1X%ecurity deposited "y the "orro$er himself to cover the
loan such as FD), 'ash, P%%, P%P easily casha"le items.
"6 Co;;ate0a; !ec20it1Xany types of security on $hich the creditor has a
personal right of action on the de"tor in respect of advance.
T9e common met9o3s oD c9a0ging sec20it1 an3 t9ei0 nat20e a0e 3esc0i)e3
)e;ow:
$o3e oD !ec20it1 Nat20e oD sec20it1 M its c9a0acte0istics
-ien R 'ash, cash collateral and documents of the title to the
goods.
R +t is the right of the "anker to hold the de"torIs
properly until the de"t is dischargedgenerally retained
"y the "ank in its o$n custody or to the hands of third
party $ith lien marked.
R The third party cannot discharge it $ithout the
permission of the "ank.
R +n case of need "ank needs the permission from the
court to sell the property.
Assignment R Borro$er transfers the right of property or de"t to the
"ank.
R -ife insurance policies, supply "ills, "ook de"t of the
"orro$er can "e assigned.
Pledge R *ovea"le stock of ra$ materials, 2nished goods,
merchandise.
R Pledge is also lien "ut here "ank en!oys more right.
R Physical transfer of goods to the "ank is must.
R Bank can sell the property $ithout the intervention of
any court, in case of default on loan.
8ypothecation R *ovea"le stock of ra$ materials, 2nished goods,
merchandise.
R 7oods remain in the hands of de"tor, "ut documents of
title to goods are handed over to the "anker. This
method is also called Yequita"le chargeY.
R Bank inspects the goods regularly to !udge its quality
and quantity for the ma#imum safety of its loan.
*ortgage R *ortgage is the transfer of speci2c immovea"le
propertylike land, "uilding, plant etc.
R *ost common type of mortgage is legal mortgage in
$hich o$nership is transferred to the "ank "y
registration of the mortgage deed.
R Another method called equita"le mortgage is also used
in "ank for creation of charge. 8ere mere deposit of title
to goods is su,cient for creation of charge. )egistration
is not required. +n "oth the cases, the mortgaged
property is retained in the hand of "orro$er.
Trust )eceipt R +ntangi"le asset 5good$ill6
R +t is used in foreign e#change "usiness.
/.1& %imitation Pe0io3
Broad guidelines regarding period of limitation are mentioned hereunder. 8o$ever, for
many clari2cations and the safeguard for the interest of the "ank, Branch manager must
consult $ith the legal adviser of the "ank regarding application of limitation period. -egal
action for recovery must "e taken $ithin limitation period. The period of limitation $ithin
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$hich a suit for recovery of an advance lies, is the ordinary period of three years from the
date of $hich the advance is made. -a$ of limitation in case of equita"leClegal mortgage
of property is 9: 5t$elve6 years. +n case of "ill of e#change and promissory notes paya"le
on demand, the period of limitation, $hich is of ; 5three6 years, "egins to run from the
date it "ears. +n this case the date column is left "lank "ut the signature of the "orro$ers
dated, the limitation period $ill "egin to run from the date $hichever is later. Ahen such
instruments are paya"le at sight, the date of presentation and in the case of "ills and
notes paya"le at a future date, the due date $ill "e the date of the commencement of
the period of limitation.
/.1. %oan C;assi-cation
Ahen the repayment schedule of a "orro$er is disrupted then the question of
classi2cation arises. /very "ank has to send a quarterly '+B report to the Bangladesh
Bank for amounts due up to Tk =HHHH mentioning the name of the "orro$er and the
purpose for $hich loan has "een sanctioned and a monthly statement for the amount
due more than TQ 9 crore. Bangladesh Bank provides 'F 5'lassi2ed Form6 to every "ank
for preparing this report. The procedure for loan classi2cation is given "y Bangladesh
Bank under B)PD circular no. 9>, dated H>C9:C9FFE. According to Bangladesh Bank there
are < types of loan. +f any "orro$er fails to repay his amount or installment $ithin the
time period then it $ill fall under the follo$ing classi2cation status?
C;assi-cation Contin2o2s ;oan
CNC> OND
Deman3 %oan
<%I$> PAD> FBD>
IBP=
Te0m %oan 2,
to . 1ea0s
TR a)o+e .
1ea0s.
Unclassi2ed -ess than ;
months
-ess than ;
months
-ess than >
months
-ess than 9:
months
%u"standard *ore than ;
months "ut less
than > months
*ore than ;
months "ut less
than > months
> months or
more
9: months or
more
Dou"tful *ore than >
months "ut less
than 9: months
*ore than >
months "ut less
than 9: months
9: months or
more
9E months or
more
Bad -oan 9: months or
more
9: months or
more
9 E months or
more
:< months or
more
Bank should preserve the follo$ing provisions for continuous, forced and term loan?
U For loan unclassi2ed 9N
U For loan classi2ed :HN
U For loan dou"tful =HN
P Fo0 ;oan )a3 3e)t FFFFFFFFF1EEI
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CHAPTER4: RECO(ER" OF %OAN! AND AD(ANCE!
To lend money is an easy matter. To "e sure of recovery of the loan is not that easy. 0o
"anker $hatsoever careful and diligent he is in granting advances succeeds on getting all
the money that has "een advanced. Aith the outcome of social responsi"ilities of the
commercial "anks to make advances to the priority sectors the situation has "een
"ecoming more and more comple#. The most serious pro"lem that aBects the entire
"anking industry today is the pro"lem of recovery of "ank advances.
+n $hatever from "ank advances is granted, they are repaya"le on demand or at the
e#piry of some 2#ed period. 4verdraft and 'ash 'redit are legally repaya"le on demand.
-oans are repaya"le on the e#piry of the periods for $hich they are granted. +n case loan
is repaya"le in installments and default occurs in the payment of any installment, entire
loan usually "ecomes immediately recovera"le at the option of the "ank. Bills of
/#change discounted are paya"le on maturity. Banker has to keep a close $atch on the
"orro$er and to take adequate follo$up measures for ensuring that recovery of advance
is smooth and timely. A sound practice to follo$ in handling advance, the systematic plan
of repayment. From the "ankIs point of vie$, this is important for at least t$o reasons?
i6 +f the "orro$er has no or has inde2nite plans for repayment of the advance, it
may indicate that the loan is too risky or is too speculative for the "ank to handle.
ii6 +f the "orro$er has a plan for the repayment of the loan, the "anker is placed in
a position to consider the source from $hich the funds $ill come for repayment
and to analy&e the risk involved more intelligently.
4.E1 Reasons Do0 nonF0eco+e01 oD ;oansNa3+ances
a6 U0ot careful a"out the $eak points $hile preparing credit proposal.
U 0egligence in carefully implementing terms of sanction letter, as a result, loans
remain faulty.
U Borro$ers take advantage of the situation.
U Failure of the controlling o,ce in monitoring the recovery.
"6 %election of "orro$erIs essential prerequests of good loan not properly done.
U 8is ; '3s ; )3s or = '3s or > '3s not properly assessed, hence recovery "ecomes
di,cult.
c6 Feasi"ility study not properly done, pro!ect not properly implemented leading to loan
"ecoming undue.
d6 All important required papers not o"tained "efore dis"ursement, la$ o,cer not
consulted legal actions "ecome di,cult.
e6 Arong valuation of pledged goods mortgaged properly over valuation. Branch
managers in some cases not a$are that goods actually pledged.
f6 -oansCadvances do not "ecome overdue overnight corrective measures are not taken
$hen symptoms detected.
g6 -ack of control and proper supervision, diversion,
h6 +nspection of godo$nsCfactories not done.
U %tereotype inspection.
U Borro$ers take advantages.
U 7oods are either damaged or destroyed or removed for $ant of timely action.
4.E2 P0oce320e Do0 Reco+e01
+f a "orro$er fails to make repayment of the dues the "ank has to consider $hat steps
need to "e taken to recover the de"t. Banker $ill eventually have to take the follo$ing
steps to recover the stuck up advances.
a6 /#isting loans 5all categories6?
U Diari&ing due dates of repayment.
U )egular follo$up.
U Periodical inspection.
U %urprise visits.
"6 4verdue loansCadvances?
U Preparation of quarterly lists? Branch copy, controlling o,ce copy and head
o,ce copy.
U Attempts made for ad!ustment of loans "efore application of quarterly interest.
U *ust "e ad!usted "efore "eing classi2ed.
c6 'lassi2ed loansCadvances 5%u"standard, dou"tful and "ad.6?
U Targets for recovery.
U %teps for classi2cation.
d6 +nterest e#emption?
U Juick decision.
U 'ommunication of decision quickly.
4.E# Reme3ia; $eas20es oD %oan Reco+e01
U Ascertain reasons for nonpayment.
U Persuasion.
U 0egotiation.
U -itigation.
U Training and motivating of staB.
U 'lassi2cation of Borro$ers to A, B, ' ( D.
U *anager handles YDY type customer.
4.E& !t0ategies Do0 Reco+e0ing oD %oan
Follo$ing are some strategies that yielded apprecia"le results?
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U Tailormade strategies for diBerent pro"lems must "e prescri"ed.
U Timely $isdom alone $orks as timely strategy.
U )ecovery often proves eBective $hen follo$up done $ith co
o"ligates.
U 4ld loans cleared to secure ne$ loans to "e taken advantage.
U 'lean loans not recovered are regulari&ed "y taking some sort of security to
have some hold on "orro$ers.
U Friendship and e#change of courtesies $ith dites of the place like D', %P,
elected representatives credit moral impact on "orro$ers.
4.E. 5a0ning !igna;
U *aterial change.
U *anagement composition.
U /conomic trends local and international.
U 'lient performance versus "udget.
U Bank versus client relationship.
U /vidence of $eakness in "orro$ers.
4.E/ P0e+ention
U Understand clientIs "usiness.
U Analy&e 'lientIs 2nancials.
U Frequent visits to clients.
U Perfected legal documentation.
U %ecurity covers for BankIs risk.
U +nvestigate market rumors.
U Use credit "ureau checking.
4.E4 Co00ecti+e $eas20e:
U -egal revie$ of documents ( situation.
U Aorkout strategy ( action.
U -oss evaluation versus security cover.
U %tay or leave decision ( reclassi2cation.
U 'ontinuous visits to the client 5Defaulter6.
U 0egotiation versus court action.
U -egal e#penses multiplying.
U 4"tain support senior management, legal counsel and specialistT legal,
"usiness, and government.
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4.EC DiGe0ent T1,es oD %ega; Actions:
Ahen the "anks fail to recover the loans through pursuance, they 2le suit against the
defaulting "orro$ers in competent courts of la$ through "anks approved la$yers to
ensure recovery through legal course of action?
U Filling certi2cate cases under pu"lic demand recovery act. 9F9;.
U )ecovery of loans through sale of mortgaged property or taking over
management of the defaulting concern.
U Filing criminal cases for "reach of trust under <H>C<:H BP'.
U Filing money suit cases under Artha )in Adalat Act 9FFH.
U Filing Bankruptcy cases under Bankruptcy Act 9FFD.
Prior to setting of Artha )in Adalat in 9FFH, BankIs had to 2le cases in su"!udge courts,
commercial courts, assistant !udge courts and certi2cate cases to the authori&ed
certi2cate o,cers in districts ( thanas through out the country under Pu"lic Demand
)ecovery Act, 9F9; and thousands of cases have "een pending for years together in
various courts. This legal frame$ork $as found quickly inadequate to cope up $ith the
challenges of rapidly changing 2nancial environment.
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CHAPTER C: CREDIT PO%IC"
C.E1 $eaning oD C0e3it Po;ic1
Policy entails pro!ected course of action. /ach "ank should have its o$n policy of granting
credit although credit is al$ays a matter of !udgment applying common sense in the light
of oneIs o$n e#perience.
A sound credit policy includes among other things safety of funds invested visZvis
pro2ta"ility of the "ank. /ncouraging ma#imum num"er of small loans is "etter than
concentration in a particular type of advances $hich ensures su,cient liquidity $ith least
incidence of "ad de"ts.
+t has to "e "orne in mind that a good loan allo$ed to a properly selected "orro$er is half
collected. +n order to make a good loan there should have a good loan policy.
C.E2 O)*ecti+e oD C0e3it Po;ic1
There are some o"!ectives "ehind a $ritten credit policy that are as follo$s?
U To provide a guideline for giving loan.
U Prompt response to the customer need.
U %horten the procedure of giving loan.
U )educe the volume of $ork from top level management.
U Delegation of authority to the middle level management.
U To check and "alance the operational activities.
C.E# Im,o0tance oD C0e3it Po;ic1:
The necessity of a $ritten credit policy is to provide a frame$ork of standards and points
of reference $ithin $hich individual lending personnel can operate $ith con2dence,
relative uniformity, and Ge#i"ility. -ending o,cers $ill then "e a"le to make their o$n
decisions $ithin delegated authority, $ithout the necessity for constant referral to higher
management.
Aithout such a $ritten policy, there is a tendency to concentrate all decision making in
one or t$o people at or near the top, $ith the o"vious disadvantages of slo$er decisions
and the ina"ility of loan o,cers to develop their full potential. The other tendency is to
foster a dangerous diversity of lending practices and philosophies $ithin the
organi&ation, pro"a"ly leading ultimately to an inordinate num"er of pro"lem loans. +n
addition to esta"lishing uniform guidelines for loan o,cers and satisfying the regulator
agencies, a $ritten credit policy can aid "ank management in de2ning the o"!ectives of
the "ank. -ike any other "usiness, the commercial "anks esta"lish particular o"!ectives
to "e met.
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C.E& Fo0m2;ation oD C0e3it Po;ic1:
4ne of the questions that should arise in a discussion of credit policy is $ho should
formulate the policy. Although the ultimate responsi"ility lays at the highest level in the
organi&ation i.e. the "oard of directors, yet the actual drafting shall have to "e done "y
the senior lending o,cer in consultation $ith the chief e#ecutive o,cer and $ith
contri"utions from senior o,cers, associates and su"ordinates. 4"viously, the level of
origin $ill vary $ith the si&e and structure of the organi&ation. The matter than "e
referred to the "oard for approval after careful e#amination, consideration and
discussion.
C.E. Essentia; Com,onents oD A !o2n3 C0e3it Po;ic1:
There can "e some variations "ased on the needs of a particular organi&ation, "ut at
least the follo$ing areas should "e covered in any comprehensive statement of credit
policy?
1. %ega; consi3e0ation: The "ankIs legal lending limit and other legal constraints
should "e set forth to avoid inadvertent violation of "anking regulations.
2. De;egation oD a2t9o0it1: /ach individual authori&ed to e#tend credit should kno$
precisely ho$ much and under $hat conditions he or she may commit the "ankIs funds.
These authorities should "e approved, at least annually, "y $ritten resolution of the
"oard of directors and kept current at all times.
#. T1,es oD c0e3it e7tension: 4ne of the most su"stances parts of a loan policy is a
delineation of $hich types of loans are accepta"le and $hich type are not.
&. P0icing: +n any pro2t motivated endeavor, the price to "e charged for the goods or
services rendered is of paramount. Aithout it, individuals have fe$ guidelines for quoting
rates or fees, and the variations resulting from human nature $ill "e a source of
customer dissatisfaction.
.. $a08et a0ea: /ach "ank should esta"lish its proper market area, "ased upon, among
other things, the si&e and sophistication of its organi&ation, its capital standpoint,
de2ning oneIs market area is pro"a"ly more important in the lending function than in any
other aspect of "anking.
/. %oan stan3a03s: This is a de2nition of the types of credit to "e e#tended, $herein
the qualitative standards for accepta"le loans are set forth.
4. C0e3it g0anting ,0oce320es: This su"!ect may "e covered in a separate manual,
and usual is in larger "anks. At any rate, it should not "e overlooked "ecause proper
procedures are essential in loan esta"lishing policy and standards. Aithout proper
procedures for granting credit and constant policing to ensure that these procedures are
meticulous carried out, the "est conceived loan policy $ill not function and, inevita"ly,
pro"lems $ill develop.
C.E/. %en3ing G2i3e;ines
As the Bank have a high rate of non performing loans. Banks risk taking applied should
"e contained and our focus should "e to maintain a credit portfolio keeping in mind of
Banks capital adequacy and recovery strength. Thus Banks strategy $ill "e invigorating
loan processing steps including identifying, measuring, containing risks as $ell as
maintaining a "alance portfolio through minimi&ing loan concentration, encouraging loan
diversi2cation, e#panding product range, streamlining security, insurance etc. as "uBer
against une#pected cash Go$.
'onsidering the a"ove fe$ -ending guidelines are ela"orated "elo$?
C.E4 In32st01 an3 )2siness segment Doc2s
In32st01 Foc2s T0a3ing NB2siness Foc2s
i. Te#tile i. Distri"ution
ii. Pharmaceuticals ii. Brick 2eld
iii. Agro"ased iii. )ice *illCFlour *illC4il *ill.
iv. Food and allied iv. Aork order
v. Telecommunication v. Marn trading
vi. Po$er generation and distri"ution vi. 'loth merchant
vii. 8ealth care vii. +ndustrial spares
viii. /ntertainment viii. 8ard$are
i#. %ervices i#. /lectronic ( /lectrical goods
#. 'hemicals #. 'onstruction materials
#i. Transport #i. Fish trading
#ii. +nfrastructure Development #ii. 7rocery
#iii. -inkage industries #iii. AholesaleCretails
#iv. +nformation Technology #iv. 4thers as decided from time to time
#v. 'eramics
#vi. 4thers as decided from time to
time
C.EC T1,es oD c0e3it Daci;ities:
Bank $ill go for?
U Term 2nancing for ne$ pro!ect and B*)/ of e#isting pro!ects 5-arge, *edium,
%*/, %'+6
U Aorking 'apital for industries, trading, services and others 5-arge, *edium,
%*/, %'+6
U Trade 2nance for import and e#port
U -ease Finance.
U %mall loan for Traders, *icro enterprise and other productive small venture.
U 'onsumer Finance
U Fee "usiness
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U +slamic mode of 2nance
C9a,te0 ?: C0e3it A,,0aisa; !1stem oD D9a8a Ban8 %t3.
There is no hard and fast procedure of managing credit, yet is should follo$ the
instructions of the Bangladesh Bank, 'entral Bank of Bangladesh and the 'ircular of
8ead 4,ce from time to tome. The 2rst step of credit proceedings is the request for
credit from the clients. Then scrutini&ing and collection of information from primary and
secondary sources take place. 'redit appraisal and evaluation is the most important part
of credit management. 4n the "asis of evaluation approval is given "y the higher
authority $ith certain conditions to "e ful2lled. %anction of credit is done "y the
sanctioning o,cer, $ho has the authority to sanction the 'redits. After ful2lling the
conditions the credit is dis"ursed. 'redit monitoring and revie$ing start at the time of
dis"ursement. 0ecessary steps should "e taken to minimi&e the risk and increase the
return of the Bank. Delegation of Business Po$er is important in credit sanctioning. Four
tire level is maintained in case of large amount of credit sanctioning. -ending risk
analysis is also done in case of credit a"ove Tk. =H lac.
?.1 ReJ2ests Do0 C0e3it D0om t9e C;ient
Bank provides credit facilities to the people $ho are credit $orthy to the "ank. 'redit
$orthiness depends on the credi"ility, 2nancial capa"ility, and feasi"ility of the pro!ect
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)equest for 'redit from the 'lient
%crutini&ing ( 'ollection of +nformation
Dis"ursement of 'redit
%anction of 'redit *entioning Terms and 'ondition
Appraisal of 'redit ( Presentation of 'redit Proposal for Approval
Approval of 'redit "y BranchC'redit 'ommitteeC /#ecutive 'ommitteeC Board of
Directors
'redit Administration
'redit *onitoring and 'lassi2cation of Accounts
Taking PrecautionC -egal Action against Delinquent 'lients
and management a"ility of the credits to earn pro2ts. Ahen "ank is satis2ed $ith all
these then the client is provided $ith the requested credit. At this point it should "e
mentioned that the client has to go through an intervie$ $here his credit potentiality is
!usti2ed through critical o"servation. Ahen credit o,cer is satis2ed $ith the customer he
is asked to su"mit an application and to 2ll up a form $ith speci2c details.
C0e3it A,,;ication:
'ompleteness of information can "est "e o"tained "y requesting the applicant to 2ll out
a comprehensive application. Psychological attitudes to$ard the seriousness of credit
o"ligations are improved $hen the application is rather formal and complete.
Ahen the customer 2lls in the application, it is $ell for the intervie$er to look over the
form and to provide supplemental information, $hich $ill assure completion of the "lanks
not 2lled in, or $hich pro"es more deeply into the questiona"le areas. +t is $ell to provide
space on the form for the recording of more information after the customer has left.
Points in favor of having the applicant 2ll out the form are that fe$er skilled credit
personnel are necessary and that more customers can "e accommodated in the same
space.
!ignat20e an3 Cont0act:
+t is regarded as good credit practice to have the applicant sign the application. %ome
credit departments add $ords a"ove the signature, $hich make the application a rather
formal $ritten contract. The clause may "e a testimony that the information is given for
the purpose of o"taining credit and that the facts are complete and correct. The clause
may also "e recite the terms and "e dra$n as contract "et$een creditor and de"tor.
?.2 !c02tini:ing an3 Co;;ection oD InDo0mation
+n case of clients $ho have previous record of taking credit facilities, their in2le records
are e#amined to see $hether the client has a good record of payments in time.
InDo0mation gat9e0e3 t90o2g9 3i0ect inJ2i01:
Direct inquiry one of the common methods of o"taining information to verify facts
presented on the application of during the intervie$ of an applicant for an initial credit
transaction. A careful distinction is made "et$een o"taining credit information directly
form sources having such facts and "et$een "uying some$hat similar credit data in the
form of prepared reports from the credit reporting "ureaus and agencies.
InDo0mation gat9e0e3 t90o2g9 inF-;e ;e3ge0 Dact:
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+n2le ledger facts are one of the most important sources of information availa"le to
credit committee $hether to accept or re!ect a larger amount of credit from an
esta"lished credit customer. From the in2le records, credit analysts have at their
disposal the e#perience of the concern $ith the customer. They kno$ the customerIs
payment ha"its, the complaints registered, the collection eBorts, if needed to keep the
customer in line $ith the esta"lished terms.
?.# C0e3it A,,0aising M P0esentation oD C0e3it P0o,osa; Do0
A,,0o+a;
Ahen credit o,cer is satis2ed $ith his credit $orthiness, 2nancial capa"ility,
management a"ility and feasi"ility of the pro!ect through credit appraisal of clients in a
prescri"ed form, he can hope for credit from the "ank. 'redit appraisal is done through
Icredit appraisal formI. )atio analysis is give importance in case of pro!ect 2nance. But
most of the medium quality loans are given on the "asis of 2nancial capa"ility of
repaying and credit $orthiness of the client. -ending risk analysis is done in a prescri"ed
form in case of large amount of loan, a"ove =H -ac.
'redit o,cer prepares a credit proposal along $ith the prescri"ed I'redit Proposal FormI.
'redit o,cer measures the risk associated $ith the credit facility. 0o credit proposal can
"e put for approval unless there has "een a complete $ritten analysis. +t is a"solute
responsi"ility of the Proposing 4,cer to ensure that all necessary proposal
documentation have "een collected "efore the facility request is sent to the %anctioning
4,cer.
?.& A,,0o+a; oD C0e3it )1 Hig9e0 A2t9o0it1
Branch 'redit 'ommittee? Branch credit committee to "e headed "y the Branch *anager,
other mem"ers to "e selected "y the manager in consultation $ith 8ead 4,ce.
8ead 4,ce 'redit committee? 8ead o,ce credit in accordance $ith authority esta"lished
and delegated "y the Board of Directors.
)evie$ing, analy&ing and approving e#tension of credit in accordance $ith authority
esta"lished and delegated "y the Board of Directors.
/valuate the quality of tending staB in the "ank ( take appropriate steps to improve
upon.
)ecommending credit proposal to the /#ecutive 'ommitteeCBoard of Directors $hich
are "eyond the delegated authority.
/nsuring, that all elements of 'redit application i.e. Forms, Analysis of statements
and other papers have "een o"tained and are in order.
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'on2rming that the transaction is consistent $ith e#isting loan policy and Bangladesh
Bank guidelines ( if not the 'ommittee may prepare a recommendation form an
e#ception to or change in policy for consideration "y the /#ecutive 'ommitteeCBoard
of Directors.
/#ecutive 'ommittee? Approving credit facilities as delegated "y the Board of Directors.
%upervising the implementation of the directives of the Board of Directors. )evie$ing of
each e#tension of credit approval "y the 8ead 4,ce 'redit 'ommitteeC*anaging
Director. Qeeping Board of Directors informed covering all these aspect.
Board of Directors? /sta"lishing overall policies and procedures for approving and
revie$ing credits. Delegating authority to approve and revie$ credits. Approving credit
for $hich authority is not delegated. Approving all e#tensions of credit $hich are contrary
to "ankIs $ritten credit policies.
?.. !anction oD C0e3it
*ost important step of providing credit facility is the sanctioning of credit. Because
sanctioning authority $ill "e held responsi"le for any discrepancy. +n this step all the
documentation is completed and the customer is sent an advising letter for the credit
facility along $ith all the terms and conditions.
0orms maintained in sanctioning of credits are descri"ed "elo$?
'redit $ill "e sanctioned and dis"ursed strictly in terms of the approved 'redit
4perational *anual of the Bank and 8ead 4,ce 'irculars issued from time to time.
All norms informed through the 'irculars of 'redit Division in particular and all other
relevant circulars in general, $hich are to "e follo$ed meticulously $hile e#ercising
po$er.
'redits $ill "e su"!ect of Bangladesh Bank restriction.
The party to $hom credit $ill "e allo$ed should "e as far as possi"le $ithin the
command area i.e. Area of operation of the Branch. Deviations, if any are to "e
e#plicitly e#plained in the proposal.
0o %anctioning 4,cer can sanction any credit to any of his near relations and to any
2rmCcompany $here his relations have 2nancial interest. %uch cases should "e sent
to the 8ead 4,ce.
All %anctioning 4,cers maintain a %anctioned )egister for recording serially all the
credits sanctioned "y him. %anctioning o,cer $ill accounta"le for nonrecovery due
to his in!udicious decision.
All approval of credit facilities must "e conveyed under dual signature. +deally "oth
the signatories must have the required lending authority. +f ho$ever, t$o lending
o,cers of the required lending are not availa"le, one of the signatories must have the
required authority.
?./ Dis)20sement oD C0e3it
Dis"ursement of credits presupposes o"servance of all norms and procedures, $hich are
conveyed through diBerent 'irculars of 8ead 4,ce, issued from time to time.
?.4 C0e3it A3minist0ation an3 Fi;e $aintenance
'redit File *aintenance? The credit 2le for each facility shall contain all information
necessary to facilitate ready monitoring of that facility. +t should contain a through history
of the customer relationship to help credit o,cerI? track any pro"lems, assist a ne$ly
assigned credit o,cer in understanding the customer and make the lending process
transparent. Primary items in 'redit File include?
'redit application and 'redit approval notesCanalysis. /vidence of credit approval and
data upon $hich approval $as granted together $ith any comments, if appropriate.
'opy of sanction and loan agreement. A checklist along $ith copies of all legal (
"anking documents o"tained C to "e o"tained. Details and > monthly updated
information of all related facilities to the name customer group,
All supporting data such as 2nancial statements and analysis, references, credit
investigation results, '+B ( other Bank reports and notes of all discussions $ith the
"orro$er and other relevant parties $ith paper clipping.
'orrespondences call reports, site visit reports, stock report etc. each credit 2le shall
"e maintained in a secured location and $here access restricted to authori&ed
personnelIs only. 'opies of the information may "e kept $here regular access is
required.
Facility /vidence *aintenance? All charge documents should "e maintained in a place of
utmost security. All charge documents as prescri"ed "y the "ank ( local la$s, for the
relevant credit facility, %igned credit agreement, %igned guarantees or other evidence of
credit security or collateral agreement shall "e kept in 2re proof safe under the custody
of Branch manager or his designate alternative and another o,cer. A register of charge
and security documents should "e maintained under the supervision of the Branch
*anager.
?.C C0e3it $onito0ing an3 Re+iewing
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+t is the responsi"ility of the *anager to monitor the over all pro2le and risk aspect of the
credit portfolio in accordance $ith the criteria set do$n in the Bank 'redit Policy. %uch
monitoring shall "e evidenced from the comments of the *anager in monthly 'allCOisit
)eport and "e kept in the 'redit File $ith a copy to the 8ead 4,ce.
This )evie$ shall "e formally performed at intervals prescri"ed "y 8ead 4,ce "ut it is
the responsi"ility of the *anger to ensure at all times that the credit portfolio meets the
standard set forth "y the Bank.
Periodic )evie$ and Follo$up should aim at ensuring?
+. Terms of approval has "een maintained.
++. 'onduct 5turnover, regularity of repayment etc.6 of the "orro$ing accounts during
the period under the revie$ has "een satisfactory or as e#pected.
+++. 'ontinuing value of the collateral is adequate.
+O. There are no adverse trends in market, economic and political conditions $hich may
endanger the relia"ility of the facility.
O. Business reciprocity oBered and received is commensurate $ith the facilities
allo$ed.
O+. /arning from the account is cost eBective 5i.e. adequate to meet "usiness cost of
funds and leave su,cient margin for adequate risk re$ard, overheads and pro2ts6.
O++. Borro$ers "usiness is "eing satisfactorily conducted as reGected through a revie$
and analysis of the 2nancial and operating statements.
Assessment of 7roup /#posure? +f facilities of any one customer group are "ooked in a
num"er of locations, an o,cer designated "y 8ead 4,ce shall "e responsi"le for the
management of the BankIs glo"al e#posure to that customer group. Any development in
the customerIs $hich may eBect the management of the facility and in particular the
credit rating assigned to the customer, shall "e documented and advised "y the
designated o,cer to the concerned Branch ( to the 8ead 4,ce, 'redit Division.
7eneral 0orms for *onitoring 'redit Facilities? The Branches $ill su"mit a monthly
statement of the credits allo$ed under the discretionary po$ers of the *anager to the
8ead 4,ce irrespective $hether the same are outstanding or not on the date of return.
?.? Ta8ing P0eca2tionN%ega; Action against De;inJ2ent C;ients
The responsi"ility for revie$ and classi2cation of credit facilities starts at Branch level.
The frequency of the supervision and monitoring depends on the classi2cation of credits.
%u"standard Advances? This classi2cation contains accounts $here irregularities have
occurred "ut $here such irregularities are considered to "e either YtechnicalY or
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YtemporaryY in nature. The main criteria for a su"standard advance are that despite
these YtechnicalY or temporary irregularities no loss is e#pected to arise.
These accounts $ill require close supervision "y the management to ensure that the
situation does not deteriorate further.
Provision L 9=N of the "ase is required for de"t in this classi2cation $here the "ase is
the outstanding "alance less interest kept in +nterest %uspense Account less the value of
eligi"le securities.
Dou"tful De"t? This classi2cation contains de"ts $here dou"t e#ists the full recovera"ility
of the principal andCor interest. Although a loss is anticipated it is not possi"le at this
state to quantify the e#act e#tent of that loss. *anagement is required to handle such
de"ts $ith the utmost caution to either avoid or minimi&e the BankIs losses. Provision L
=HN of the "ase is required for de"ts in this classi2cation.
BadDe"ts? These facilities are considered to "e uncorrecta"le shall "e made a provision
L 9HHN of the "ase.
%pecial *ention? +n addition to the a"ove classi2cation rating, there should "e another
category $hich is not classi2ed "ut $here special attention is necessary to keep the
account out of classi2cation. This category $ill "e kno$n as %pecial *ention. Facilities
required special monitoring are to "e Gagged or put on a $atch list. 0o provision is
necessary for this category.
CHAPTER 1E? PERFOR$ANCE AN%"!I! OF DHAA BAN
%I$ITED
1E.E1 PO!ITION OF THE DHAA BAN AT A G%ANCE FOR THE %A!T
. "EAR!.
<T in $i;;ion=
Pa0tic2;a0s 2EE& 2EE. 2EE/ 2EE4 2EEC
Income !tatement
+nterest +ncome :,H99 :,EFD <,;<: =,>;> D,9D9
+nterest /#pense 9,;EF :,9<F ;,;EH <,H<F =,:9<
Net Inte0est Income /22 4&C ?/2 1>.C4 1>?.C
0on +nterest +ncome ><E D;F 9,99H 9,=E: 9,F:F
0on +nterest /#pense =:; =F< EEF 9,9=F 9,;=;
Net Non Inte0est Income 12. 1&. 221 &2# .4/
Pro2t "efore Ta# ( Provision D<D EF; 9,9E; :,H9H :,=;;
Provision for -oans ( Assets 99< 9:= :;; <DF >>F
Provision for Ta# 5including Deferred Ta#6 :D= ;H= ;DH E:D 9,H:=
Pro2t after Ta# ;=E <>; =EH DH< E;F

Ba;ance !9eet
Authori&e 'apital 9,HHH :,>=H :,>=H >,HHH >,HHH
Paid up 'apital >>< 9,::E 9,:EF 9,=<D 9,F;<
)eserve Funds ( 4ther )eserve E:< FEE 9,:>: 9,=DE :,H>=
%hareholdersI /quity 5'apital ( )eserve6 9,<EE :,:9> :,==9 ;,9:= <,HHH
Deposits 5Base ( Bank e#cluding 'all6 ::,:DH :E,<;F <9,==< <E,D;9 =>,FE>
-oans ( Advances 9>,=;F :;,;D: ;<,H<F ;F,FD: <F,>FE
+nvestments ;,HDE ;,F:> =,;DE =,FD: D,:;F
Fi#ed Assets 9:= 9:: :9D :F9 ;ED
Total Assets 5 e#cluding oB"alance sheet items6 :E,9DE ;;,HD: <D,=F< =D,<<; D9,9;D

Fo0eign E7c9ange B2siness
+mport Business :E,H<E ;H,:9; <>,:DD <F,<F> >=,D;D
/#port Business E,EE9 9;,=H= :;,:>E ;9,HE9 ;F,H;E
7uarantee Business ;,>>; >,HFF >,<D; >,=:; D,EED
+n$ard Foreign )emittance 9,99H ;,;DD 9>,D>< 9H,>HF 99,E;<

Ca,ita; $eas20es
'ore 'apital 5 Tier + 6 9<EE ::9> :==9 ;9:> ;F><
%upplementary 'apital 5Tier ++ 6 9>; :;D ;D; ==< E<<
Tier + 'apital )atio F.<D F.F< E.:; E.EH F.DD
Tier ++ 'apital )atio 9.H< 9.H> 9.: 9.=> :.HE
Total 'apital 9>=9 :,<=; :,F:< ;,>EH <,EHE
Total 'apital )atio 9H.=9 99.HH F.<; 9H.;> 99.E<

C0e3it Q2a;it1
Oolume of 0onperforming loans :D9 ;=9 ==< 9,:=E 9,FHE
N of 0P-s to Total -oans ( Advances 9.>= 9.=9 9.>< ;.9= ;.E<
Provision for unclassi2ed -oans 9>: :;> ;D: <>= >:H
Provision for 'lassi2ed -oans D> 9H; 9D: <;F E:=

!9a0e InDo0mation
0um"er of %hares 4utstanding >.>< 9:.:E 9:.EF 9=.<D 9F.;<
/arning per %hare 5Taka6 >9 << <= ;> <;
Book Oalue per share 5Taka6 ::< 9EH 9FE :H: :HD
*arket Price per share 5Taka6 E=H <>F <>> DH> ;>9
Price /arning )atio 5Times6 9<.H; 9H.>> 9H.;: 9=.;; E.;9
Price /quity )atio 5Times6 ;.DF :.>H :.;= ;.<F 9.D<
Di+i3en3 ,e0 !9a0e:
'ash Dividend 5N6 9H :H 9H 9=
Bonus %hare D?:H 9?:H 9?= 9?< 9?9H

O,e0ating Pe0Do0mance Ratio
0et +nterest *argin ;.=D ;.<; ;.DD <.=< <.>H
'redit C Deposit )atio 5N6 D<.:> E:.9E E9.F< E:.H; ED.:9
'urrent )atio 5Times6 9.>H 9.;; 9.:< 9.;E 9.:E
)eturn on /quity 5)4/6 N :<.H> :H.EF ::.D< ::.=; :H.FD
)eturn on Assets 5)4A6 N 9.:D 9.<H 9.:: 9.:; 9.9E
'ost of Deposit 5N6 >.D= E.9; F.9= E.FD F.<H
'ost C +ncome ratio in operating "usiness 5N6 D9.F9 D=.<< DE.9< D:.9= D:.9>
Provisional Figures
7raph9? Pro2t
7raph:? %ources of Funds
7raph;? Uses of Funds
7raph<? /#port ( +mport
7raph=? Deposit
7raph>? +nvestment
7raphD? -oans ( Advances
7raphE? -oan 'lassi2cation
1E.E2 Ana;1sis oD t9e C0e3it O,e0ations oD D9a8a Ban8 %imite3
<InDo0mation U, to '2neF2EEC=
+ndustry$ise -oans ( Advances Amounts 5TQ in *illion6
9. Agricultural +ndustries
99E.>9<
:. Pharmaceuticals +ndustries
D=F.<;=
;. Te#tile ( 7arment +ndustries
FH9F.9H>
<. 'hemical +ndustries 9H<>.=9;
=. Food ( alied +ndustries :9H:.>E;
>. Transport ( 'ommunication :HEF.FD;
D. /lectronics ( Automo"ile +ndustries =;:.<>>
E. 8ousing ( 'onstruction +ndustries <;:D.:9F
F. /ngineering ( 'onstruction +ndustries including ship
Breaking :><H.D==
9H. /nergy ( Po$er +ndustries =D:.E:F
99. %ervice +ndustries E:F.FDE
9:. 4ther +ndustries
:HDD9.=F
Total <<E99.9>
7raphF? N in Amount of -oans ( Advances
1E.E# C;assi-e3 %oans an3 A3+ances oD t9e D9a8a Ban8 C0e3it
O,e0ations
5Figure in *illion Taka6
5The A"ove +nformation +s Furnished Up to @une:HHE6
7raph9H? 'lassi2ed -oans ( Advances
'lassi2ed %tatus Amounts 4utstanding +nterests %uspense
5Provision6
9. Unclassi2ed <;H<9.E <;H.<:
:. %u"standard 9>D.DH9; 9HD.F;>:
;. Dou"tful :=H.9E=: 9F<.:<:;
<. Bad ( -oss 99>9.99: =D>.>;<>
.. Tota; C;assi-e3 9=DE.FFF EDE.E9;9
>. Total As Per '- <<>:H.E <;DF;.F9
D. %taB -oan Against PF 9FH.;=EE
1E.E& !5OT Ana;1sis
+n order to develop marketing strategy %A4T analysis is very vital. +n the process of
making a %A4T marketer identi2es the strength and $eakness of the company and also
the opportunities and threat to the company. The %A4T analysis of Dhaka Bank -imited
has given "elo$?
!t0engt9s
9. Dhaka Bank -imited has nation $ide image of providing quality service. +t provides
e#cellent and prompt services $ith higher degree of secrecy to corporate and mass
level of customers.
:. +t has an e#cellent management team and disciplined $orkforce.
;. 0'' a"ides "y a set of core values that reGects high commitment to customer?
U )esponsive to customers needs.
U Fle#i"le in approach
U Professional in manner
U %trive for service e#cellence.
9. A group of quali2ed, e#perienced, dedicated and $elltrained personnel employing
the "est eBort to accomplish the organi&ational o"!ective.
<. %tring net$ork through out the country and correspondent relationship $ith almost all
international and local "anks operating in Bangladesh created a good accessi"ility
and relationship $ith people.
5ea8ness
9. *ost to the employees are not properly trained.
:. The appropriate employees are not in the appropriate position.
;. DB- currently donIt have any marketing division and any strong marketing activities
through mass media e.g. Television. TO ads playa vital role in a$areness "uilding. DB-
has no such TO ad campaign.
<. +n order to "e more competitive in the market DB- should come up $ith more ne$
attractive products. This one of the $eakness that DB- is currently passing through.
O,,o0t2nit1
9. Bonus is given four times in a year this is another reason of the employee
satisfaction.
:. Promotion system of Dhaka Bank is perfectly structure for the employee inspiration.
7enerally promotion has "een every three years after.
;. +ncentives are given to the employee from pro2t.
<. )e$ards are oBered to the employees $ho are a"le to arrange handsome amount of
deposit.
T90eat
9. %ome foreign "anks and private "anks are coming threat to Dhaka Bank. At present in
retail "anking %tandard 'hartered Bank and in "usiness "anking %tandard 'hartered
Bank, 8ong Qong %hanghai Banking 'orporation, '+TM Bank 0.A. are rival of Dhaka Bank.
Also some private "anks like +F+' Bank, DutchBangla Bank, /astern Bank, Prime Bank,
Bank Asia etc. are "ecoming the ne$ competitions for the "ank and $ill "e creating a
competitive pressure on Dhaka Bank.
:. 0o$ a day3s diBerent foreign and private "ank are also oBering similar type of retail
lending products like Dhaka Bank. %o, if all competitions 2ght $ith the same $eapons,
the natural result is declining pro2t.
;. Bangladesh "ank provides some rules and regulations for all "anking institutions.
Ahether the rules and regulations suit the organi&ation or not, it must o"ey these that
sometimes impose "arriers on daily normal operation.
CHAPTER 11: CONC%U!ION AND RECO$$ENDATION!
11.E1 Conc;2sion
During the t$o months internship program at 'redit 4perations ( 'hange *anagement
Dept., 8ead 4,ce, almost all the desks have "een o"served more or less. This internship
program, in 2rst, has "een arranged for gaining kno$ledge of practical "anking and to
compare this practical kno$ledge $ith theoretical kno$ledge. 'omparing practical
kno$ledge $ith theoretical involves identi2cation of $eakness in the activities and
making recommendations for solving the $eakness identi2ed. Though all departments
and sections are covered in the internship program, it is not possi"le to go to the depth
of each activities of "ranch "ecause of time limitation. %o, the o"!ectives of this
internship program have not "een ful2lled $ith complete satisfaction. 8o$ever, highest
eBort has "een given to achieve the o"!ectives the internship program.
During the internship, it is found that the "ranch provides all the conventional "anking
services as $ell as some speciali&ed 2nancing activities to the economy. The 'redit
department provides all the services related to international and dis"urse credit if the
proposal is sound. As speciali&ed 2nancing, it provides term 2nance to medium and
smallscale industries. Thus, "y providing this various services, 'redit 4perations (
'hange *anagement Dept., 8ead 4,ce, is playing an important role in the "anking
system and e#pansion of "usiness ( industry for economic development of Bangladesh.
11.E2 O)se0+ation
Though + am not in any position to provide any assistance for the "etterment of this
"ank, "ut + am e#pressing my task from three months o"servation. %ome of my
o"servations are not mentioned here rather it has given as recommendation directly.
a= Gene0a; O)se0+ation oD C0e3it O,e0ations De,t.F
Despite the fact that :HHE $as a year of many challenges, the Bank $as managed quite
successfully. The year $as concluded $ith a steady gro$th and the market share $as
retained in all areas of operations. Bank management is con2dent a"out its a"ility to
sustain its earning capacity and maintenance of asset quality in the coming years. %ome
o"servations are given in the follo$ing?
U The head of this department is a very dynamic person holding a personality and $ell
capa"le of handling a department like this in the most e,ciently and eBective manner.
U 'ordial relation among the employees e#ists.
U *ost of the employees are e#perienced "anker.
U The employees are highly committed to their !o".
)= Ban8ing O)se0+ation oD C0e3it O,e0ations De,t.F
+n credit management, it is conventional that proposals of credit facilities must "e
supported "y a complete analysis of the proposed credit. *ore importance should "e
given on refund of loans out of funds generated "y the "orro$er from their "usiness
activities 5cash Go$6 instead of reali&ation of money "y disposing of the securities held
against the advance, $hich is very much uncertain in present conte#t of Bangladesh,
$here a num"er of creditors are $illful defaulters. 'redit o,cer measures the risk
associated $ith the credit facility. 8e should not "e li"eral in this respectT he should
strictly follo$ the credit evaluation principle setup "y the "ank. The analysis should
contain information a"out the "orro$er, credit purpose, credit repayment sources, details
of collateral security $ith valuation and guarantee. +t should also contain an assessment
of the competence and quality of the "orro$erIs management a"ility, the general
economic and competitive environment of the "orro$ers industry and other pertinent
factors, $hich may aBect the "orro$erIs a"ility to repay the facility, should "e given
much importance. +t should improve in 2le management system to faster the dealings
$ith the clientIs proposal. )eturn on /quity 5)4/6 model is a good model for measuring
returns and risks associated $ith a "ank regarding its credit facilities provided "y the
"ank.
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