Documente Academic
Documente Profesional
Documente Cultură
Prepared for
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Associate Professor
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Prepared by
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Nafis Raihan
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Roll # 37
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18 June 2005
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Letter of Transmittal
Chairperson
Internship & Placement Program
Institute of Business Administration
University of Dhaka
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Dear Sir
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As per requirement of the degree completion, I here by submit my internship report titled A Study
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on Corporate Banking Division of Eastern Bank Limited after completing my internship
successfully in Eastern Bank Limited, Dhaka.
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As instructed I am submitting five copies of the report along with a soft version. Please wish me
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luck in my endeavor to success after four years course in Institute of Business Administration.
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Thank you,
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Nafis Raihan
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BBA 9 batch
Roll # 37
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ACKNOWLEDGEMENT
ADVISOR MR. NEAZ AHMED FOR HELPING ME OUT WITH DIRECTIONS TIME TO
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TIME WHEN I NEEDED IT MOST. I ALSO WANT TO THANK THE INTERNSHIP
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AND PLACEMENT OFFICE FOR GIVING ME THE CHANCE TO DO MY INTERNSHIP
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IN EBL WHERE I LEARNED; EVEN WORKING UNDER PRESSURE CAN BE FUN.
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I ALSO WANT TO THANK MR. MD. ABDUL WADUD, SAVP & HEAD OF
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INTERNSHIP. I ALSO WANT TO THANK MR. SYED FAKHRE FAISAL (SRM & AVP
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UNIT - 3), MR. WAHID-BIN AHMED (RM & SPO, UNIT-3), MR. ANISUR ROUF
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(ARM & PO, UNIT3), MR. SHOEB (MTO, UNIT-3), MR. TARIQ (RM, UNIT-4), MR.
SADIQ (MTO, UNIT-4), MR. HUMAYUN (RM, UNIT-5), MR. RIYADH (RM, UNIT-5),
MR. IRFAN (MTO, UNIT-5) AND ALL OTHERS WHO TIME TO TIME HELPED ME
TO DO MY WORK.
WITHOUT THE HELP AND SUPPORT OF THESE PEOPLE THIS REPORT MIGHT
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EXECUTIVE SUMMERY
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THIS I WORKED IN CORPORATE BANKING RELATIONSHIP MANAGEMENT UNIT3 IN
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DHAKA AREA AND USED OBSERVATION TECHNIQUE WITH INFORMAL UNSTRUCTURED
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INTERVIEWS FROM TIME TO TIME. BIGGEST PROBLEM I FACED TO DO THIS REPORT
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WAS THE EMPLOYEES WERE RELUCTANT TO GIVE INFORMATION IN FEAR OF LEAKING
CLIENT DATA.
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OPERATING ITS OPERATION. NOW IT HAS 22 BRANCHES ALL OVER BANGLADESH AND
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THE CORPORATE BANKING DIVISION IS MAINLY DIVIDED INTO TWO AREA DHAKA
AND CHITTANGONG. DHAKA HAS FOUR UNITS WHERE CHITTAGONG HAS ONLY ONE
UNIT. THEIR JOB IS TO DO BUSINESS WITH THE BIGGER CORPORATE HOUSES WITH
WHOM THEIR BUSINESS CREDIT AMOUNT EXCEEDS BDT 5 (FIVE) CRORE. THE
TREASURY DIVISION DEALS WITH FUND MANAGEMENT I.E. MONEY MARKET DEALING
AND LC PAYMENTS. THEY ARE ALSO RESPONSIBLE FOR MAINTAINING THE
STATUTORY REQUIREMENTS WITH BANGLADESH BANK. CONSUMER BANKING
DIVISION DEALS WITH THE FINANCIAL NEEDS OF INDIVIDUAL CUSTOMERS. THE
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TWENTY-TWO BRANCHES OF EBL, WHICH ARE NOW TERMED AS THE SALES &
SERVICE CENTERS PRINCIPALLY FOCUS ON RETAIL BANKING BASED ON
RELATIONSHIP WITH INDIVIDUAL CUSTOMERS.
AMONG THE OTHER DIVISIONS THEM MAJOR DIVISIONS ARE CREDIT RISK
MANAGEMENT WHO ANALYZE THE RISK INVOLVED IN CREDIT BUSINESS. CREDIT
ADMINISTRATION DIVISION WHICH LOOKS AFTER THE PROPER DISBURSEMENT OF
CREDITS. BRAND MANAGEMENT DIVISION LOOKS AFTER THE IMAGE OF EBL. FINANCE
DIVISION LOOKS AT THE CORE FINANCIAL ACTIVITIES OF EBL. HUMAN RESOURCE
DIVISION IS ENGAGE TO ENRICH THEIR HUMAN RESOURCES FOR WHICH THEY
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DEVELOPED THEIR OWN SLOGAN EMPLOYEE OF CHOICE. SPECIAL ASSET
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MANAGEMENT DEALS WITH THE CLASSIFIED ACCOUNTS. THE OPERATIONS DIVISION
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CONSISTS OF SERVICE DELIVERY, TRADE SERVICE, TREASURY SUPPORT DIVISION
AND IT DIVISION. THESE SUBDIVISIONS PROVIDE SUPPORT TO THE FRONT OFFICE
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IDENTIFYING THE NEED AND DEVELOPING SOFTWARE FOR THE BANKS OPERATION,
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THE CORPORATE CULTURE OF EBL IS A EASY GOING ONE. HUMAN RELATIONSHIP AND
SIMPLICITY IS OF GREAT VALUE TO THEM. THAT IS WHY THEY DEVELOPED A SLOGAN
SIMPLE MATH, THE PHILOSOPHY OF EASY BANKING. WHILE CELEBRATING THE 10TH
ANNIVERSARY IN 2002, EBLS LOGO WAS CHANGED TO REFLECT THE
RESTRUCTURING AND THE TRANSFORMATIONS IT IS GOING THROUGH; THE COLORS
OF THE NEW LOGO SIGNIFY THE VIBRANT GREEN OF MOTHER EARTH, A BLUE SKY
FULL OF POSSIBILITIES AND A YELLOW RISING SUN OF HOPE.
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EBL is in the business of providing banking service and is changing its approaches to
become more and more customer focused. At present EBL offers a variety of
services/products for the retail customers as well as for corporate clients. Currently they
are providing four types of services: Savings and Current Accounts, Fund Transfer,
Securities and Commercial Lending.
Although EBL is a banking business they do not promote them aggressively like the other
banks. They rather believe in focused customer group and target them as their
employees. But as now they are planning to go for large-scale consumer banking, they
will need to build strong brand image through promotions in near future.
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The strengths of EBL are its functional operation focused business matrix structure,
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centralized decision-making process and superior IT platform. But the unimpressive
branch layout and inadequate marketing approach is their weakness. Still EBL can exploit
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their opportunity of being the early mover of Internet banking which they introduced for
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the first time in Bangladesh. They can implement some innovative products too and
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draw clients. The greatest threat that EBL posses are from the failure of identifying
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opportunities that they have proven to be not so keep of. Again another threat might be
the technological obsolesce of the high cost IT platform that they implemented.
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The corporate division of EBL generates about 70% of the Banks revenue and the main
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focus of EBLs business. Corporate divisions main functions are targeting corporate
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clients and building business relationship with them, evaluating financial strength of the
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clients, designing customized service for the clients and making possible
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recommendations for further financial expansion. The relationship units are the main
units in corporate banking, which consist one RM, one or two ARM and a unit head who
reports directly to Head of Corporate Banking. The two other subdivision of Structured
Finance and Project Finance Division who deals with Syndication process and Project
Appraisals mainly. The other non-corporate division and subdivision on which corporate
activity are dependent are Cridit Risk Management, Credit Administration, IT Division,
International Division, Marketing Division, R&D Division and Consumer Banking Division.
EBL always follow participative leadership. So the corporate division employees are
always welcome to take initiative and do things if it aligns with the betterment of the
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organization. Corporate Division employees enjoy a good deal of autonomy about
decision-making. Their job is supported with state of the art banking software Flexcube
through this they can track their clients transactions online. As all 22 of the branches are
connected with this software it makes monitoring and controlling job easier. EBL believes
in their clients satisfaction. They are ready to lengths in order to maintain their clients
satisfaction provided it is not risky and not unlawful. They are not that much in
advertising them selves, as they believe in peoples network. But their plan to go
aggressive consumer banking might need for aggressive public advertising.
EBLs Corporate Banking has a unique culture. They believe in peoples network and
respect leadership and fellowship at the same time. The employees are very closely
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bonded and possess a we feeling. Most of the employee has high satisfaction in their
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job and are high performer.
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In EBL both upward and downward communication is in use. The targets, policies and
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some thing new are communicated upward. The percentile of data loses in upward
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communication is very low and this kind of communication is very much appreciated.
When the bank communicates to external sources they rely on lateral communication
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mainly. Letters and Faxes are the most common media in these cases. Use of Phones
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and E-mails are not uncommon. The internal communication in EBL is of Grapevine
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structure. Most of the communications are done on point-to-point basis via e-mail and
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phones. In EBL e-mail gets the same importance as of a written document and printout
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very common. As they have the sole responsibility for their clients, they move from
divisions to division to get their work done faster and surely, so that they can provide
services to their clients in no times.
In EBL both formal and informal groups can be seen. As the organogram generates
formal group, the informal group are generated from work dependency and personal
relationship. The employees feel motivated as their effort are properly recognized and
rewarded. The working environment is very friendly and comfortable. Peoples are very
helpful. The employees also get to exercise decision-making. In EBL both short-term and
long-term goals are well communicated to the employees this helps the employees to
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visualize their roles contribution to the big picture. It is also a big motivational drive for
them.
The employees of EBL are ready to perform, as they are happy with the reward and
remuneration they get. But since the salary structure is not changed for the last few
years, it is loosing its competitiveness and should be upgraded soon specially the
insurances. Most of the employees know each other and feels home like in EBL as many
have them have very close interpersonal term with each other. The job security is high
in EBL. Thus the employees of EBL are extremely happy about their organization and
corporate banking division is no exception.
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The Corporate Banking Division of EBL has its own strengths and weakness. EBL
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corporate divisions strength is its structures within which they can set strategies for
growth, asset quality, arrange low cost funding; maximize customer earnings and flatter
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structure. Centralization of decision-making is another strength as it ensures faster
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IN THE NEW STRUCTURE EACH FUNCTIONAL DIVISION IS FLAT WITHIN THE DIVISION
AND DELEGATION OF AUTHORITY IS ALSO CENTRALIZED. IT HAS A SIGNIFICANT
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EFFECT OVER THE CORPORATE DIVISION EMPLOYEES BECAUSE MID AND LOW-LEVEL
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MOTIVATED THEN THEIR SERVICE MIGHT SERIOUSLY BE HAMPERED AND THERE WILL
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With the changes in business environment, the ways of doing business is changing. The
competing banks are aggressively developing new products, which will facilitate the
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purposes of the corporate houses. But EBLs R&D division is weak and not producing
much to attract corporate clients. If EBL dont develop new products to provide more
facilities to corporate houses or if they dont offer custom made products to their clients,
they may well be bitten by competitor banks and may loose clients to other banks. This
may seriously hamper the profitability of EBL.
Though EBLs corporate banking division is doing well in the market, it is not free from
problems. The main problems of corporate banking are too many corporate clients per
unit, multidimensional corporate clients per unit, slow paced output of the other
divisions, in appropriately trained employees of IT division, no definite process of
executing jobs and lack of internal growth. Despite these problems EBLs corporate
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divisions are still the strongest division in EBL and an asset for the bank.
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TABLE OF CONTENTS
PART A: INTRODUCTION
1.1 PROLEGOMENON 1
1.2 ORIGIN OF THE REPORT 2
1.3 OBJECTIVES OF THE STUDY 3
1.4 METHODOLOGY 3
1.5 SOURCES OF DATA 3
1.6 SCOPE 3
1.7 LIMITATION
1.8 ORGANIZATION OF THE REPORT 4
PART B: ORGANIZATION
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2.1 HISTORICAL PROFILE OF EBL 5
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2.2 CURRENT PROFILE OF EBL 5
2.2.1. CORPORATE BANKING DIVISION 6
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2.2.2. TREASURY DIVISION 6
2.2.3. CONSUMER BANKING DIVISION SU 6
2.2.4. CREDIT RISK MANAGEMENT DIVISION 7
2.2.5 BRAND MANAGEMENT DIVISION 7
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2.2.9 OPERATIONS 10
2.2.10 AUDIT AND COMPLIANCE DIVISION 10
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2.7. SWOT OF EASTERN BANK LTD 19
2.7.1. STRENGTHS OF THE ORGANIZATION 19
2.7.2. WEAKNESSES OF THE ORGANIZATION 19
2.7.3 OPPORTUNITIES FOR EBL 20
2.7.4 THREATS 21
PART C: PROJECT
3.1 INTRODUCTION 22
3.1.2 PRINCIPLES OF LENDING 22
3.2 CORPORATE DIVISION 24
3.2.1 GENERAL INFORMATION 24
3.2.2 THE PAPERS CORPORATE PREPARES 24
3.2.3 CREDIT PRODUCTS 27
3.2.4 MODES OF CHARGING SECURITY 29
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3.2.5 LOAN PROCESSING COST 31
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3.2.6 LOAN PROCESSING TIME 31
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3.2.7 BOOKS MAINTAINED 32
3.4.4 MONITORING 45
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3.4.6 RECOVERY 45
3.4.7 SOME OTHER CASES 46
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APPENDIX 54
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PART A: INTRODUCTION
1.1 PROLEGOMENON
Linguistics and etymology showed that both French word banque and Italian word banca
were used 2,000 years ago to mean a bench or money changing table. Those first
bankers were moneychangers situated at a table aiding travelers who came to town by
exchanging foreign coins for local money or discounting commercial notes for a fee in
order to supply merchants with working capital. Afterwards came the idea of attracting
deposits and securing temporary loans for earning interest. And by offering these
services banks has survived two thousand years! In the mean time other competitors
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have arrived in the arena of lending business--- governmental agencies, credit unions,
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cooperatives, insurance agencies, financing companies etc. But banks are still in the
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scenario. Theorists ask that what essential services banks provide that other businesses
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and individuals cannot provide themselves. Financial economists explain this by pointing
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to imperfections in the financial system. For example, all loans and securities are not
perfectly divisible into small denominations that everyone can afford, while perfect
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market requires equal power of the participants. Banks provide a valuable service in
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dividing up such instruments into smaller securities in the form of deposits that are
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readily affordable for small savers. Another contribution banks make is their willingness
to accept risky loans from borrowers, while issuing low-risk securities to their depositors.
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Banks also satisfy the strong need of many customers for liquidity. Financial instruments
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are liquid if they can be sold quickly in a ready market with little risk of loss to the seller.
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Banks play this unique role by offering high liquidity in the deposits they sell and in the
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loans they provide. Still another reason banks have existed in their superior ability to
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evaluate information. Some borrowers and lenders know more than others, so they can
choose exceptionally profitable investments and avoid poorest ones. These informational
asymmetries reduce the efficiency of markets, but provide an important role for banks
that have the expertise and experience to evaluate financial instruments and to choose
those with the most desirable risk-return features.
Modern banks play an important part in promoting economic development of a country.
They collect savings of mass people scattered through out the country and provide
necessary funds for executing various programs underway in the process of economic
development. Economic history shows that development has started everywhere with the
banking system and its contribution towards financial development of a country is highest
in the initial stage. Schumpeter (1933) regarded the banking system as one of the two
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main agents (other being entrepreneurship) in the whole process of development.
Alexander Gerschenkron (1962) in his popularly known Gerschenkrons Hypothesis
explained the banking system as the key role player at certain stage of the
industrialization process.
Leaving aside the generalizations made above, the case studies of some particular
developed countries also show the useful roles played by the banks in economic
development process of those countries. Prior and after World War II, Japan
experienced very high rates of both industrial production and per capita income.
Takeuchi (1970) credited Japanese banking system with making vital contributions to
that growth.
So banks are still there and they are worth serious study.
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1.2 ORIGIN OF THE REPORT SU
After completion of 8 semesters in IBA to complete BBA Program, 10 weeks
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organizational attachment is a must and I was placed in the Head Office at Corporate
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Banking Division of Eastern Bank Limited (EBL). Only theoretical knowledge without any
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practical experience makes a person sterile. On the other hand a person having practical
experience but no theoretical exposure keeps him blind. The internship program is
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designed to overcome such sterile position. This program gives the chance to fulfill the
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theoretical knowledge that is acquired from class lectures, books, journals etc. in the
practical settings. Here, I got an opportunity to realize the relevance and usefulness of
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the classroom learning as I was placed in the Easten Bank Limited for 10 weeks starting
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1.3 OBJECTIVES OF THE STUDY
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1.4 METHODOLOGY
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This report has been prepared on the basis of experience gathered during the period of
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internship form March 01 to May 07 in the Head Office of Eastern Bank Limited at Corporate
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Banking Division. The observational technique will be used widely and primarily to conduct
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the research. The work procedure of the corporate sub-divisions will be observed closely to
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1.6 SCOPE
This report is done only on the corporate banking division of EBL. Again among EBL only
the area -1 (Dhaka region) is considered. Area -1 has 5 (five) units, four of which is
situated in Dilkusha C/A and one in Gulshan. This report focuses only on the four units of
Dilkusha C/A due to access in data, convenience and time constraints.
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1.7 Limitation
The major limitation of this report is that no previous study is done beforehand on EBLs
corporate division. So no secondary study material was available. The study is heavily
relied on observational method, which has its own disadvantages, and not a very
effective method. The corporate division is not very well structured and has anomalies in
practices among the sub-units. Employees of corporate divisions were reluctant to give
information, as they are afraid that their clients information might get licked outside. The
non-corporate division employees were even more reluctant to disburse information.
More over the time span to do the research was very short.
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1.8 ORGANIZATION OF THE REPORT SU
This report is broadly organized into three broad parts. The first part is on the
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introductory part. The second part is on the overview of the organization itself. The third
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part concentrates on the research project. Finally fourth and final part contains the
recommendations and the conclusion
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PART B: ORGANIZATION
Eastern Bank Limited was incorporated as a public limited company and a scheduled
bank on 16 August 1992 to commence business. EBL is the successor of BCCI. In 1991
when BCCI collapsed internationally, the operation of this bank closed down in
Bangladesh. After discussions with BCCI employees and taking into consideration the
depositors and customers interests, Bangladesh Bank gave permission to form a bank
named Eastern Bank Limited by taking all assets and liabilities of erstwhile BCCI
(Overseas). It was established under the Bank of Credit and Commerce
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International (Overseas) Limited (Reconstruction) Scheme formulated by
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Bangladesh Bank. EBL started business with four branches-Principal Branch, Motijheel
Branch, Agrabad Branch and Khulna Branch and had authorized capital of TK.1000
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million with 10 million shares of TK. 100 each and of paid up capital of TK.310 million.
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The paid up capital increased to TK. 600 million in 1994. The first Board of Directors
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constituted of 7 directors of Bangladesh Government. Mr. Nurul Hossain Khan was the
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License from Bangladesh Bank on 7th July 1993. Six new branches opened in 1994 and
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three in 1995. the very next year they inaugurated two more branches. Their number of
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branches reached to twenty-one (21) as they open five more branches in 1997. Since
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then they only opened one more branch that was in 2001. Still now they are operating
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with 22 branches.
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At present, the bank has 22 branches throughout the country with 500 employees. The
existing Board of Directors has 12 members. Mr. M. Ghaziul Haque is the Chairman of
Board and Mr. K Mahmood Sattar is the Managing Director.
EBL is currently going through a restructuring stage where the traditional Branch
Banking System is gradually discarded and being replaced by a Centralized System. Till
2000, EBL operated in a Geographical Matrix where the business of the bank was
concentrated in the twenty- two branches. In 2001, the management of EBL changed it
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business philosophy into Business Matrix. The main three businesses that the bank is
now concentrating on are:
Corporate
Consumer
Treasury
Corporate Banking Division of EBL caters to the needs of corporate clients. The entire
corporate division is divided into three broad areas: Area-1 that comprises of Dhaka,
Area-2 that comprises Chittagong and Area-3 that comprises of Outstation Branches i.e.
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the branches in areas other than Dhaka and Chittagong. There are five units in Area-1,
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while Area-2 has three units. Also there are Small Business Unit (SBU) in Dhaka and
Agrabad (Chittagong). All the units are operated from the Corporate Banking Division at
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Head Office. In general this divisions functions are:
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The Treasury Division of EBL deals with fund management i.e. money market dealing
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and LC Payments. They are also responsible for maintaining the statutory requirements
with Bangladesh Bank.
Consumer Banking Division deals with the financial needs of individual customers. The
twenty-two branches of EBL, which are now termed as the Sales & Service Centers
principally focus on retail banking based on relationship with individual customers. This
divisions principal functions are:
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New Product Development
Brand Management
Maintenance of CASA and HP Accounts
Providing Consumer Loan
Providing Locker Services
Beside these 3 business units several ancillary units are present which support the
business units in day-to-day activities. They are:
This division is responsible for evaluating the credit worthiness and debt payment
capability of present loan customers and loan applicants. The department also monitors
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the risk worthiness regularly. The branches send all proposals from the prospective
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borrowers to the corporate division, which in turn analyze the financial statements and
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prepare credit memorandum, application for limit, account profitability and other
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necessary papers and send them to the Credit Risk Management division for approval.
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The department keeps track of credit portfolio by obtaining regular information from the
branches. It sets price for credits and ensures its implementation at the branches. This
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department also monitors the various loan accounts of the branches and prepares
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responsible for all activities related to managing the organizations brand and building
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brand equity. It designs the logo, greeting cards and official stationary and prepares
promotional plan and budget.
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Amortization of all fixed and other assets,
Central bank & other statutory reporting,
Management reporting (MIS),
Preparation of various financial statements
Weekly deposit and advance analysis of the bank,
Cost of fund analysis,
Maintenance of accounts,
Preparation of annual report of the bank,
Maintenance of provident fund accounts,
Maintenance of income and expenditure posting,
At present around 500 people are employed in EBL. All aspects of the employees are
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looked after by the Human Resources Department. HR Department is responsible for
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recruitment and development of staff members.
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The Mission Statement of HR Division is:
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Employee of Choice
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CHAIRMAN (1)
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SENIOR ASSISTANT VICE (11)
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FIRST ASSISTANT VICE (23)
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PRESIDENT
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ASSISTANT VICE PRESIDENT (57)
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SENIOR PRINCIPAL OFFICER (63)
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OFFICER (35)
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2.2.9 OPERATIONS
The Operations division consists of Service Delivery, Trade Service, Treasury Support
division and IT division. These subdivisions provide support to the front office
functionalities.
This division provides legal assistance to the branches and formulates strategy for
classified loans and ensures observance of rules and policies by all stakeholders of the
bank through routine and surprise inspection and audit.
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2.2.11 CREDIT ADMINISTRATION DIVISION
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Credit Administration Division deals with Credit Administration, Loan Monitoring and
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Documentation. Credit Administration entails post-approval functions of the division,
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which are monitoring credit expiry, dues, excess over limit, document deficiency and
reporting the deficiencies. Loan monitoring part entails follow-up on approval terms,
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maintaining balance with general ledger. Documentation function entails ensuring that
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proper loan documents are present, filing with the Registered Joint Stock Corporation
(RJSC) and executing registered mortgage deed.
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The Information Technology Division deals with identifying the need and developing
software for the banks operation, its maintenance and purchase of new software rights,
maintaining the computers and upgrade them whenever required and training the staff
for operation of computers and preparing training materials. Presently the IT Division is
carrying out batches of training program to introduce the integrated banking software
called Flex Cube. A team from iflex Solutions India is assisting EBL with this software.
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2.2.13 INTERNATIONAL DIVISION
The International Division is responsible for helping in import and export businesses on
account of the customers of the bank. It also deals with all the correspondents of foreign
banks, which have account with the bank.
The management of EBL as a part of the restructuring program rephrased the banks
vision in 2001. Before that the bank did not have any structured vision and mission
statement. Now EBLs vision is:
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To become the bank of choice by transforming the way
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we do business and developing a truly unique financial
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institution that delivers superior growth and financial
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We will deliver service excellence to all our customers, both internal and
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external.
We will constantly challenge our systems, procedures and training to maintain
a cohesive and professional team to order to achieve service excellence.
We will create an enabling environment and embrace a team-based culture
where people will excel.
We will ensure to maximize shareholders value.
EBLs Value Statement does not claim to be No. 1 in banking or The most Superior in
banking. Rather it simply maintains Simple Math, the Philosophy of Easy Banking.
While celebrating the 10th anniversary in 2002, EBLs logo was changed to reflect the
restructuring and the transformations it is going through; the colors of the new logo
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signify the vibrant green of mother earth, a blue sky full of possibilities and a yellow
rising sun of hope.
The Board of Directors establishes the objectives and policies of the bank. It has the
authority to declare dividend, to approve the balance sheet, etc. The Chairman informs
the board of directors on the progress of the bank and implements the policies
established. The board is not directly concerned with the day-to-day operation of bank
rather it has delegated authority to its management committee. There are three
committees of the board for different purposes, which are:
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1. Executive Committee comprising of seven members of the board
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2. Committee of the board for Administrative Matters
3. Committee to examine Bad Loan Cases
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EBL is in the business of providing banking service and is changing its approaches to
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become more and more customer focused. At present EBL offers a variety of
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services/products for the retail customers as well as for corporate clients. There are four
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Savings Accounts
High Performance Account (HPA)
Short Term Deposits (STD)
Fixed Deposits (FDR)
Current Deposits for Individual
Current Deposits for Partnership
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Current Deposits for Joint Account
Current Deposits for Limited Companies
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2.4.1.3. SECURITIES
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It includes the following services:
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Sale of Bangladesh Sanchaya Patra, Pratirakkhya Sanchaya patra, ICB
certificates, etc
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Fast Loan
Fast Cash
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of EBL in August. Also new services like Automated Teller Machine (ATM), Telephone
Banking, Online Banking, Credit Card Facility, Sweep in-out Facility etc will be introduced
by the end of July 2003.
2.4.2 PROMOTION
Although EBL is in the banking business for quite sometime its brand image has not
grown strong and in order to succeed in the competitive bank environment it needs
enrich its brand equity. So far EBL has shunned any sort of promotional tools except for
a few inconspicuous billboard advertisements, signboards and newspaper recruitment
ads. However a new department called Brand Management has been set up in 2001 to
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give a new and enhanced brand identity to EBL. This department supervises the
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planning of advertisement campaigns for EBLs products and analyzing customer
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feedbacks. With the aid of a advertising agency the logo and stationary of EBL has been
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changed and eye-catching brochures, calendars and posters have been prepared which
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are displayed at the sales & service centers.
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2.4.3. DISTRIBUTION
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EBLs 22 branches are now termed as Sales & Centers, which will all be connected
ed
through the network by mid July 2003. After that the customer can make transactions
ct
25
20
15 21 21
21 21 22 22 22
10 14 16
0
1995 1996 1997 1998 1999 2000 2001 2002 2003
- 25 -
2.5. FINANCIAL PROFILE OF EBL
2.5.1. INVESTMENTS
The quantum of investment of bank stood at taka 3611 million in 2003 from taka 2268
million of 2002, thus registering an increase of 60%.
At the end of the year 2003, the total shareholders equity of the bank was TK 2,321
million where as in 2000 it was only 1,700 million. In four years time the equity
M
increased by 621 million. Changes in shareholders equity are given below:
O
.C
2000 2001
SU 2002 2003
other reserves
Retained earnings 297 223 252 49
om
The Banks total asset was Tk. 18284 million on December 31,2001 as against Tk. 16880
C
million on December 31, 2000. The composition of its assets in 2001 is given below:
2003 2002
Cash 1,070 1,082
Placement with Other banks 1,546 3,244
Investments 3,611 2,268
Loans & Advances 11,288 10,891
Fixed & Other Assets 945 475
Total 18,460 17,960
Table 2: Composition of EBLs Assets in 2001
- 26 -
2.6 GROWTH AND DEVELOPMENT PROFILE OF EBL
GROWTH IN DEPOSITS:
Deposits increased by 7.29% from Tk 12375 million in 2000 to Tk 13277 million in 2001
and in 2002 only by 3.8% to Tk. 13662 million. But in 2003 the deposit decreased to Tk.
11952 million mainly because of reduction of some high interest deposit. The bank has
focused on reducing cost of funds by increasing transactional deposits and other low-
M
cost deposit. Rates of interest were revised periodically as par market condition.
O
.C
Yearwise Growth in Deposits
SU
-N
:E
14000
om
12000
13277
12375
10000
13662
11231
Fr
11952
8879
8000
9568
ed
6000
ct
4000
le
2000
ol
0
1997 1998 1999 2000 2001 2002 2003
C
The total loans and advances of the bank were Tk. 10891 million showing an increase of
9.5% only over the year 2002 as against in the year 2001 when the increase was of
22%. The total classified loans of the bank stood at Tk. 1466 million in December 2002
as against Tk. 1146 million at the end of December 2001. Then it increased even further
in 2003 and became Tk. 11288 million at the end of year. Loans increased due to
- 27 -
procedural streamlining and establishing transparencies to the credit management
system.
12000
10000
Tk in Million
8000
11288
10891
6000
9946
4000
7902
8141
5258
5744
2000
0
M
1997 1998 1999 2000 2001 2002 2003
O
Year
.C
Chart 3: Growth in Loans
SU
IMPORT & EXPORT BUSINESS:
-N
:E
The banks total foreign exchange business was of Tk. 17272 million, which included
Import, Export, and Remittance of Tk. 11415 million, Tk. 5432 million and Tk. 425
om
million respectively in 2001. which increased to Tk. 20143 million including import,
Fr
export and remittance amount of Tk. 18256 million, Tk. 3533 million and Tk. 354 million
respectively. Major items of export were readymade garments, shrimps, tea, jute goods,
ed
leather goods and non-traditional items. Major import items were consumer goods and
ct
le
old vessels for scrapping, industrial raw materials, fabrics and accessories of garment
ol
industries etc.
C
- 28 -
Chart 4: Yearwise Growth in Import, Export & Remittance
20000
16256
12642
12533
11818
11415
9965
15000
Tk in Million
7015
7281
5729
10000
5402
4822
4358
3533
3426
5000
425
237
275
354
113
156
0
1997 1998 1999 2000 2001 2002 2003
Year
Export Import Remittances
M
O
.C
2.6.2. GROWTH IN ASSETS SU
-N
EBLs assets have grown steadily over the years. In the year 2003 it stood at Tk. 18715
million as against Tk. 18445, showing a minor increase of 1.46%.
:E
om
20,000 16,880
14,394
ct
15,000
10,186 10,973
le
ol
10,000
C
5,000
-
1997 1998 1999 2000 2001 2002 2003
- 29 -
2.7. SWOT OF EASTERN BANK LTD.
Studying the internal and external environment of EBL the following strengths,
weaknesses, opportunities and threats could be identified:
Changed Organizational Structure: Up until 2000 EBL carried out its operation like
every other local bank. All of its braches acted as single banks and did everything from
marketing to loan processing to relationship maintaining. In 2001 EBL changed its
traditional way of doing business. Rather than operating as a geographical matrix, EBL
started operating as a business matrix. The functional areas were separated and
M
O
redefined as Business Units. This has allowed management to operate more efficiently.
.C
Centralized Processes: The new organizational structure has resulted in centralized
SU
operations. Before all the branches were empowered to do almost everything within
-N
limits. They were responsible for marketing, loan processing, account activity monitoring
:E
and other transactions. Their accountability did not go much beyond sending statements
om
to the head office annually. Under the current system management has more control on
the overall bank and its day-to-day operations. For example, loan default at branches
Fr
would be lower if the Corporate Division and the Risk Management Division, at Head
ed
Office, scrutinize the loan proposals along with the branch managers.
ct
le
Superior IT Platform: From 15 March 2003 EBL has started using Flex cube - a
ol
banking software, which caters to all the needs of retail, corporate, treasury and
C
investment banking. Flex cube enables EBL to remain associated between all its
branches and business units.
- 30 -
Unimpressive Physical Layout: The physical layouts of several of the EBL branches are
quite unappealing. Some are located at inconspicuous locations with dull premises. The
interiors of Principal and Head Office are drab and not cleaned properly or regularly.
Sometimes the air conditioning does not work. These features of the Bank may create a
wrong impression in the customers minds, specially the ones who come in for the first
time.
Online Banking: On March 15, 2003 EBL went Online. All its Dhaka and Chittagong
M
branches are already connected through the web and transactions in accounts can be
O
made from any one of the branches online. By the middle of July all the 22 branches
.C
would go online and thus customers all over Bangladesh will get access to all EBL
SU
products anytime from any branches. Also each and every customer will be given an ID
-N
and a password, so that they can login to the website of EBL and carry out transactions
on their own. EBL is the first local bank, which has gone online and gives its customers
:E
the satisfaction of anytime and any branch banking. In the fast paced life of today,
om
people will appreciate this unique convenience and bank with EBL.
Fr
New Products and Services: By the end of July 2003, EBL launched new consumer
ed
products like EBL Monthly Income Plan (MIP) and Savings Insurance Schemes. Also
ct
Automated Teller Machine (ATM), Telephone Banking, Credit Card Facility, Sweep in-out
le
ol
Facility etc was introduced. Although most of these are already available in other banks
C
and EBL is quite late in introducing them, its current customer base will welcome the
new features. In order to promote the new facilities EBL has decided to take up an
extensive promotional program, which will include direct marketing and advertising.
Already the first phase of selection and recruiting marketing executives and sales people
has finished. If these services are properly communicated to their potential customers, it
can be a good business growth opportunity for EBL.
- 31 -
2.7.4 THREATS
Lost Opportunities: Till date EBL offers very few consumer products e.g. car loans,
house building loans, festival loans and other facilities like credit card, ATM, telephone
banking etc. All the multinational and several of the local banks of Bangladesh already
provide these and thus already have created a huge loyal customer base. When EBL
starts offering these features it would be difficult to attract new customers and lure away
the ones who do business with other banks as they have well established brand equity.
Most of the established banks have extensive marketing practices and emphasize on
aggressive direct marketing, which EBL has not started yet. Other opportunities have
also been lost e.g. several of the banks both multinational and local participated in the
M
Automobile Shows to offer Car Loan schemes. EBL do not take part in these shows,
O
though it has such offering. Although the bank has given out a press release about
.C
Internet banking, not much promotion was done as the management is waiting for all of
SU
the branches to go online. After that an extensive promotional program will be launched.
However while waiting for the right moment, few other banks, which do not provide
-N
proper online banking, have already started massive promotion. This publicity may dilute
:E
Technological Obsolescence: EBL has recently started using a very modern and
sophisticated IT Platform. The bank plans to change its entire business philosophy based
ed
on the uniqueness of this platform and ancillary infrastructure. However like every other
ct
novelty this system has the risk of being obsolete as technological changes are coming
le
- 32 -
PART C: PROJECT
3.1 INTRODUCTION
The principle reason banks are chartered is to make LOANS to their customers. Banks
are expected to support their local communities with an adequate supply of credit for all
legitimate business and consumer activities and to price that credit reasonably in line
with competitively determined interest rates. Indeed making loans is the principal
economic function of bankshow well a bank performs its lending function has a great
deal to do with the economic health of its region, because bank loans support the
M
growth of new businesses and jobs within the banks trade territory. Moreover, bank
O
loans often seem to convey positive information to the marketplace about a borrowers
.C
credit quality, enabling a borrower to obtain more and cheaper funds from other
sources.
SU
-N
EBL extends its Credit facilities only to the qualified borrowers whose use of proceeds is
:E
clearly and legitimately established. The Credit must have a clearly defined source of
om
repayment. All borrowers must meet credit standards of EBL and Bangladesh Bank.
Creditworthiness is established by review of financials, track record, ownership and
Fr
industry condition.
ed
- 33 -
EBL also makes it sure that the Obligor is a man of Character, he has adequate Capital, and he is
Competent enough to carry on his business.
a) Consumer Banking Division: This division gives loan to the individuals. In Principal
branch there is three desks to deal with the job.
b) Corporate Division: Every branch has one department dealing with the credit given
to corporate bodies. It is the recommender of loan. In principal branch there are 5 unit
each headed by Relationship Managers. They guide the Assistant Relationship Managers to
M
deal with the corporate bodies.
O
.C
c) Credit Risk Management: it is situated in head office. All credit proposals come here
SU
and it decides whether the credit line will be given. It also considers whether additional
terms and conditions are needed, whether the credit line should be changed. It plays the
-N
role of Decider. It has a Credit Committee which sits for meeting everyday and decides
:E
which proposals are creditworthy. This committee consists of Managing Director and
om
Executive Vice President. Head of corporate and officers of Credit Risk Management Dept.
Fr
presents scrutinized proposals before them. After detail discussion, decision is taken. If
any proposal goes beyond 1.50 crore cumulatively or 1.00 crore in cash only, it goes to
ed
Board of Directors.
ct
le
gives direction to accounts dept. to disburse new credit line. It also keeps the charge
documents. For all the branches of Dhaka, there is one Credit Administration department
situated in Head office. For all the branches of Chittagong, there is one Credit
Administration department situated in Agrabad branch. Other branches of the country
have their own Credit Administration Departments.
- 34 -
3.2 CORPORATE DIVISION
M
Management. Administration
O
.C
Sanction Letter prepared by Credit Risk Management Dept. is sent to Credit Administration
SU
Department, Credit Administration department provides a copy of the letter to Corporate
Banking Division.
-N
:E
Corporate
om
Credit
Administration Banking
Fr
Borrower first comes to Corporate Division of any branch and fills a loan application
ed
specific for corporate borrowers. The client provides own information (Trade license,
ct
Documents Contents
6. Financial analysis
- 35 -
7.Threats and mitigation factors,etc
of Company, Branch
M
5. Declaration: That All Procedures in respect of opening account
O
have been complied with, Existing Securities with their valuation
.C
have been checked, etc.
Profitability
amount deposited called Credit summation, Average utilization of
the credit limit, Interest Income, Commission Income, Other
om
2. Net Profit
le
4. Portfolio Review
3. Net profit/ Sales (%)
ol
C
4. Receivables
6. Stock Report Here the proprietor or the company management itself fills in the
Bank-supplied format to declare the stock they are holding on a
specific date. Important things are
- 36 -
1. Description of the stock: Quantity, Value per unit, Total Value
7. Stock An officer of the bank usually a SRM goes to the establishment and
inspects the stock that whether it really conforms to Stock Report.
Inspection Report
M
O
.C
Personal net-worth of the Proprietor, partners or the Directors
8. Net Worth SU
1. Liabilities (Payable to banks, other creditors, unpaid taxes etc.)
Statement Report
-N
2. Assets (Cash in hands, Real Estates, Investments, etc.)
:E
om
9. CIB Report 1. Name of the Banks client has taken loan from
ed
10. Appraisers For example, a report from Jorip O Paridarshan Company assesses
C
Report the value of the land client offered for mortgage, on behalf of EBL.
- 37 -
3.2.3 CREDIT PRODUCTS
TENOR/
Product ELABORATION NATURE RISK FACTOR
VALIDITY
*Interest is charge only on the Recourse on
Cash Credit Against
amount drawn for a period. Pledge Inventory.
CC Pledge of Inventory 12
*To Finance Inventory. High Monitory
(PLEDGE and Hypothecation of Months.
*Working Capital Risk.
Inventor.
*General Purposes. Ever Green
*Interest is charge only on the
Cash Credit Against
amount drawn for a period. Recourse on
CC Hypothecation 12
*To Finance Inventory. Sales Proceeds
(HYPO) Inventory and Book Month.
*Working Capital
Debts.
*General Purposes.
*Say, a supplier sells some goods to
a buyer. Buyer has not paid yet but
a bank has given guarantee that he
M
would. The seller then can come to Recourses on
O
EBL with sales documents and Banks thru
Local Bill Purchase 45/180
.C
LBPD seeks loan against them. Buyers Acceptance.
Documentary. Days.
bank must accept the bill. EBL Residual on
SU
discounts the bill, gives the seller
cash and after the tenor is over will
Client.
bank.
:E
Clean Fiannce
LAFB Loan against Foreign *Only provided to highly valued *120
le
Performance
(Clean) Bill customer days
Risk
ol
C
ACCEP
Acceptance Against *Bank Accepts clients liability to Recourses on 12
TAN
ULC. another party, usually an exporter Sales . Months.
CE
- 38 -
Credit. *Deferred payment Sales. Months
Specifi
Performance
Period.
Letter of Guarantee. *For Contractual Obligation. Risk.
LG Open
Ever Green.
Ended.
Performance
Packing Credit *is given rarely.
Risk. 180
PC Against Export L/C& *To Finance Export L/C.
Lien on Export Days.
Export Order. *Preshipment Finance.
L/C.
*100% Cash Covered. 12
SOD Secured Overdraft.
*General Purposes. No Credit Risk. Months.
High Credit
Risk
Overdraft Against 12
OD *General purposes Recourse on
Other Collateral months
Sales
Ever green
Import Loan Against
M
Import *To Finance Import L/C or Against
Hypothecation Recourse on 180
Loan Contract.
O
Inventory and Book Sales. Day.
(Hypo)
Debts
.C
Import
Import Ioan Against
Imported
SU Recourse on
* To Finance Import L/C Pledge Inventory. 180
Loan Merchandise Pledged
-N
Merchandise under Pledged. High Monitory Days.
(Pledge) and Hypothecation of
Risk.
Book Debts.
:E
(Hypo) Locally.
Debts.
*To Finance Duty/Tax.
ed
Book Debts.
C
Recourse on
Sales
Time Time Loan Against 12
*To Finance Fixed / other Asset. Collateralize by
Loan Other Security Months.
Fixed /other
Assets.
Clean Finance
Time Time Loan Against 120
*To Finance Export Contract Performance
Loan Foreign Bill-Clean Days
Risk.
Over 12
Months.
Recourse on
Term Term Loan Against Max
*To Finance Fixed Assets. Fixed Assets
Loan Fixed assets. 7 Years.
High Risk.
- 39 -
BCP Bankers Cheque *To Purchase /Discount Foreign Recourse on 30
(Foreign Purchase (Foreign) Currency. Drafts/Payment Order. Banks. Days.
*Upfront Interest to be Realized. Residual on
Client.
Recourse on
*To Purchase /Discount Bank Draft
BCP Bankers Cheque Banks. 30
/Pay Order.
(Local) Purchase (Local). Residual on Days.
*Upfront Interest to be Realized.
Client.
M
behalf of client in advance.
O
Say, a valued customer is availing
.C
some credit facility. He has
SU
outstanding almost touching the
limit. He needs to draw an amount
Whether there
Negoti-
EOL Excess Over Limit is Sufficient
which exceeds the limit, but he ation
-N
collateral.
does not have enough time to have
a new credit facility. In this case
:E
EOL is given.
om
Fr
- 40 -
obligations in the title deeds are necessary.
ordinary course is necessary, even if
necessary. symbolic.
4. Letter of lien is used 4. Letter of pledge is 4. Letter of 4. Memorandum of
for creation of charge necessary. hypothecation is deposit of title deeds or
but even in the absence necessary. Registration of
of letter of lien, Bank mortgage deed is
has general lien on its necessary.
own financial obligations
to the Bank.
5. Lien is two types- 5. Pledge is one type 5.Hypothecation is only 5.Mortgage is various
General lien and i.e. pledge in closed one type types, but in case of
M
particular lien. Banks godown with Banks mortgage to Bank only
O
.C
lien is general lien over possession.. two types are used-
its own financial SU Equitable & registered
obligation to clients. mortgage
-N
:E
6. Property under lien 6. Pledge goods may be 6. Hypothecated goods 6. In case of Equitable
om
cannot be realized/sold sold out and proceeds cannot be sold out mortgage, Court Order
Fr
and proceeds thereof thereof may be /disposed off without is necessary & in case
cannot be appropriated appropriated towards notice & courts order. of registered mortgage
ed
without notice to the adjustment of liability in However, if a special courts order is not
ct
owner & sometimes case of failure of the power of attorney is necessary for
le
without courts order. borrower to repay or taken in that case can sale/disposal of the
ol
fulfill the terms and be disposed off without mortgaged property for
C
- 41 -
Guarantee Indemnity
Guarantee has three parties. Say, A will give Indemnity has two parties. A will
guarantee to C that if B does not repay the indemnify that if B faces any loss or
loan taken from C or does not perform any damage from the act of A or any third
act promised; A will repay the loan or party, A will save B from the
compensate for B failure. consequences.
M
Also named as Non-Possessory Lien. In the case of a negative lien, the securities are not
O
in the possession of the creditor. But, the debtor gives an undertaking that he will
.C
SU
not create any charge on those securities in question without the prior written permission
of the creditor. Such a letter of undertaking must be duly stamped. Thus in case of a
-N
negative lien, the possession of the security is with the debtor himself. Who promises not
to create any charge over them until the loan is repaid. EBL usually charge this mode
:E
when borrower is reluctant to give mortgage or hypothecation. EBL charges it as that the
borrower can not give the property to anyone else for security purpose without prior
om
permission of EBL.
Fr
ed
Documentation fee: Actual basis. Appraisal fee: 0.5% - 1% of the total loan
C
sanctioned.
Legal fee: Examination and technical assistance fee (in case of project).
- 42 -
3.2.7 BOOKS MAINTAINED:
Corporate keeps a unique file for every client and puts all the documents in it. This file
has five parts and each contains different contents:
M
Call reports, Stock Inspection Reports,
O
Valuation Report, Credit/CIB Report, Irregular
3 Reports
.C
Transaction/Overdue Report, Loan
SU
Documentation Report
Certificate.
le
ol
C
Officers of Corporate Division receive the application of loan; other documents supplied
by client and check them closely. They consider whether the applicant is loan-worthy; if
yes, how much credit he should be sanctioned. Corporate then prepares all documents
stated earlier, forwards them to Credit Risk Management Division. If that division
approves the proposal, sanction letter is sent to Credit Administration Department.
Corporate then prepares Charge Documents (Discussed later) gets them signed form the
borrower. If any existing facility needs to be renewed, proposal comes to Corporate
Division again.
- 43 -
3.3 CREDIT RISK MANAGEMENT DIVISION
3.3.1 GENERAL INFORMATION
This department is the most sensitive one in the banking operation. In EBL
CRMD is the final authority to decide whether a borrower should be given loan. If
it gives loans and advances without discretion, it is likely that a large portion
would become unrealizable and bank would face serious consequences. On the
other hand if this section is unnecessarily fuzzy about loan sanction, bank would
M
not be able to cover its own expenditure, since interest income is the main source
O
.C
of income. So CRMD has to look after every side of an issuesecurity,
SU
profitability, image.
-N
:E
Credit Risk Management properly assesses credit product risk and structure the
om
credit facility based on customers business needs with effective control on cash
Fr
flow and collateral. This division scrutinizes all the documents sent by Corporate
ed
ct
Division and look for flaw in them. They are the gatekeeper here. CRMD can call
le
ol
in the corporate officers for any discrepancy in the document and can ask for the
C
correction. If the concerned officers of this department are satisfied, only then the
proposal goes to Head Office Credit Committee for final approval. Credit
Committee has total power to reject any proposal. Facilities cannot be activated
- 44 -
3.3.2 CONSIDERATIONS OF CRMD
M
Having innovative ideas
O
Who have good dealings with the bankers /outside parties and has social
.C
contacts and standings.
Have an A/C with EBL
SU
-N
The project should be viable from organizational, technical, commercial, financial and
economic points of view.
Fr
a. Technical viability
ed
- 45 -
Plant layout
Balancing of different sections of the plant
Reputation of the machinery supplies, etc.
Building and layout- the operative efficiency of industrial project also depends
on the layout.
b. Commercial viability
This study indicates evaluation of a projects feasibility in terms of market. The market
analysis contains:
Analysis of past and present demand
Analysis of past and present supply
M
Estimate future demand of the project
.C
Estimates projects share in the market, etc.
Marketing channel for the product should be accessible to the entrepreneur.
SU
-N
C. Financial viability
:E
D. Economic viability
ed
The project should ensure benefit to the national economy and create sufficient
opportunity.
ct
le
Generation of employment
ol
Environmental issues
Opportunity cost
C) SECURITY OFFERED
- 46 -
D) REPAYMENT SOURCES
After these considerations, CRMD decides whether the proposal will go to Credit
Committee.
To assess the risk quickly and objectively, EBL has divided the customers in 7 groups. As
a result whenever they come for new or renewal facility, CRMD easily identifies who is
risky and who is not.
M
O
.C
Rating Short No CRITERIA STRATEGY
SU
GOOD GD 1 Growing Industry (Growth Retain and grow with
-N
15%+) client
:E
succession
Steady growth in financial
ed
performance
ct
Satisfactory payment
le
record/account turnover
ol
- 47 -
market
Good management with
succession
Acceptable growth in
financial performance
Satisfactory payment
record/account turnover
Liquidity 1.5X and above
Leverage 1.5X and below
Timely submission of
financial information
Acceptable Parent/Sister
M
Office Guarantee
O
Acceptable collateral
.C
MARGI- MG/WL 3 Past due over 60 days No increase in credit limit
NAL/
SU
Loosing market share Close monitoring thru clear
-N
WATCHLIS Thin management with no action plan
T succession Ensure 100% completion
:E
Unreliable sales/operating of loan doc.
om
record/account turnover past dues
ed
Liquidity below 1X
ct
High Leverage
le
Perpetual delay in
ol
submission of financial
C
information
Incomplete Loan
Documentation
Drop in collateral value or
collateral shortfall
Problem in Industry
SPECIAL SM 4 Past due over 90 days Possible exit/reduction of
MENTION Loosing market share credit limit
Severe management Close monitoring thru clear
problem action plan
Company operating at Ensure 100% completion
- 48 -
losses with sales going of loan doc.
down. Quarterly review
Unsatisfactory payment Follow up for settlement of
record/account turnover past dues
Liquidity below 1X /
insufficient cash flow
High Leverage
Financial Information not
available
Incomplete Loan
Documentation
Drop in collateral value or
M
collateral shortfall
O
Diversion of fund
.C
SUB SS 5 All criteria of Special Credit limit for adjustment
STANDARD Mention
SU purpose
-N
Past due over 180 days Clear exit plan to be in
place
:E
Quarterly review
om
past dues
Legal action
- 49 -
M
3.3.4 CLASS OF RISK
O
All credit risks are properly defined in different classes as per EBLs policy guidelines on
.C
classes of risk. A clear definition of Class of Risk is provided in
SU
1. 100% Cash Covered by having the funds available in EBLs cash
-N
margin account
2. 100%EBL FDR fully liened & pledged in favor of the bank.
:E
3. 100% in the form of Govt. Sanchya Patra fully liened & pledged in
favor of bank
om
Class A
4. 110% cash covered if credit facilities are in different currency than
that of collateral.
Fr
ed
ct
le
- 50 -
2. Forward Contract against Letters of Credit
3. Hedge FX risk of EBL/Other Bank Letters of Credit
4. Risk for Maximum 180/360 days.
This class risk is concerned only with risk taken on a banking financial
institution and can be further explained as follows:
M
institutions
O
7. Nostro Account with other banking Financial Institutions
.C
8. Purchase of Treasury Bills from Bangladesh Bank.
SU
-N
:E
om
5 Term loan larger or exceeding loanable fund than Boards policy limits
- 51 -
9 Start up/Venture capital loan, no applicable collateral
M
O
17 Loan to directors or auditors
.C
18 Insufficient KYC/credit history on borrower
SU
19 NO clearly defined use of loan proceeds
-N
- 52 -
Total Asset Growth
Return on Assets
Interest Expense
M
Return on Equity
O
.C
Coverage Ratios Interest coverage
Payable in days
om
Inventory in days
Fr
Quick Ratio
ct
Current Ratio
le
ol
- 53 -
Inventory in days (365*inventory)/cost of good sold
M
O
.C
3.3.7 BOOKS MAINTAINED:
SU
Books Contents
-N
- 54 -
M
O
.C
3.4 CREDIT ADMINISTRATION DEPARTMENT
SU
-N
Credit Administration Department is established only a year ago. Loan monitoring and
keeping charge documents are its primary responsibility. Credit Administration keeps a
Fr
historical record of all disbursements by reference number for each loan, l/c guarantee
ed
Credit Admin prints out the credit position of each borrower every day and sends them
le
ol
to respective officers. This print out carries names of the borrower, date of sanction,
C
type of loan, accrued interest till date and amount repaid. Risk concentration by industry
or borrower is monitored on 6 month-basis. Credit approvals take account of a credits
impact on risk concentrations which is pointed out in individual credit presentations.
Credit Admin reports to Head Office Credit Division the largest sector by limits and
outstanding representing on a quarterly basis.
Facilities in process, renewal or amended CMs are tracked by way of a unique control
number issued by Credit Admin. It enters all credit facility amounts into MIS database,
which are able to detect computation errors. Accounting and system controls ensure that
outstandings are posted to the correct account and properly summarized for
management decision making.
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3.4.2 LOAN DISBURSEMENT
Loan disbursement is not allowed until Credit Admin gives green signal. This department
receives sanction letter from CRMD, keep the original with them and sends a copy to the
Corporate Division. Then Corporate Division stars preparing Sanction Letter. When
sanction letter provided to the borrower and all terms and conditions agreed by the
borrower, necessary charge documents are taken from the borrower. Later on a
particular account is created for the borrower as SOD, CC, LAOS, LIM etc as the case
may be. These are all new accounts in the name of the borrower, given cheque books to
them for drawing money. Charge documents are kept in Credit Admins safety box.
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3.4.3 LOAN SUPERVISION SU
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1. On site supervision: Credit officer visits the site that is factory building, office etc.
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2. Off site supervision: Supervising activities of the borrower from the office desk. It
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3.4.4 MONITORING
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Monitoring loan basically means that whether the loan is used exactly to that purpose for
which it was sought. If borrower uses it for other purpose he may be called in by the
officer of Corporate Division and asked to show cause. Also credit officer monitors the
accounts of the borrowerday-to-day transaction pattern, daily balance of the account
etc.
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information and help Corporate Division to issue a reminder letter. Getting the letter the
borrower may adjust the loan with interest. Or he may ask for renewal of the loan or
negotiate for rescheduling the portfolio. So he has to request the Corporate Division.
Corporate Division prepares a renewal CM and the circular flow stars again through
CRMD and credit Admin. In this case adjustment is deferred for the time being.
3.4.6 RECOVERY
Sometimes borrower can not repay the loan, for failure in business, for personal
dishonesty or for other reasons. Credit Admin transfer these cases to Special Assets
Department. After making all sorts of efforts and while the borrower is poised to become
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a defaulter, the file of the borrower is forwarded to legal action. Question arises that
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when the file is forwarded for recovery. However the timing comes after all the following
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procedures are made.
1.
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Request or persuasion by letter, phone or orally
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2. Final notice is given to the borrower
3. File forwarded to attorney for serving legal notice.
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4. Legal Suit
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2. Title Suit- Claim for the title of the property kept as security
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Approve of EVP and MD is essential for legal action against Borrowers and the
foreclosure and sale of collateral. This is then reported to EBLs Board of directors on
post-fact basis.
Rollovers require the same transaction approvals as initial drawdowns. Rollovers are
exceptional and clearly identified as part of a clients banking needs for specific approval
by the Competent Authorities.
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Rescheduled debt without established satisfactory repayment history is a classified asset.
Credit Admin reports all past dues to Head Office Credit Committe. Potentially
uncollectible or delinquent credit facilities are clearly identified and not suppressed
through rollovers, renewals or extensions.
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Cases Documents Required & Kept
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Letter of Borrower requesting for new facility/renewal
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Letter of authority in case of partnership
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Documents
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Letter of continuity
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Letter of Arrangement
Letter of Disbursement
Revival Letter
- 58 -
certificates FDR/SC/Bonds endorsed by holder
of 3rd party)
Resolution to deposit
Share certificates
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Pledge of Shares
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Irrevocable letter of authority for collection of dividends,
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bonus etc
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Notice of pledge by shareholder to the relative companies.
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Letter of pledge
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Letter of disclaimer
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Pledge of
RJSC Search Certificate
inventory
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Letter of Hyothecation
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RJSC form 18 & 19 properly filled in by client & receipt
Hypothecation Agreement
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Modification of Letter of Hypothecation
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Assignment on
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C.S., S.A. and R.S. Parchas
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Valuation Report
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RJSC search report
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Memorandum of deposit of title deed with approval of legal
counsel
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Power of Attorney
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Resolution of Guarantee
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Letter of guarantee
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Accepted Mandate Letter
Information Memorandum
Participation Letters
Syndication (more
than one bank are Facilities Agreement
giving loan)
Power of Attorney of participants
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Accepted Fee Letter
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Legal counsels opinion
Banks legal counsel ensures that the Banks security interests are perfected. The
account manager and credit Admin check documents for completeness and execution by
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Instances for incomplete documentation can receive a temporary waiver if EVP & Head
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Credit Admin keeps all these documents and on adjustment of loan returns to the
borrower.
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PART D: CONCLUSION & RECOMMENDATIONS
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Eastern Bank Limited is a very established in the market. But compare to the other
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players in the industry, it has very high classification rate which is quite unacceptable
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and the efficiency of corporate division is related with this issue. EBL can come out
from the present position if they follow the following recommendations properly
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The Bank should send the Relationship Managers and CRM employees to various
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so that the RMs can properly evaluate all the loan applications in a structured
and scientific way and select only those applications which has a sound credit
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The RMs should be encouraged to build up their knowledge base about various
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industries, the opportunities and risks in the sectors, the well performers and the
upcoming companies, industry standards etc. For example, RMs can be given
incentives to attend various seminars, workshops, or training programs in these
areas.
CRM must be strict to see that all the procedures Loan Evaluation and Monitoring
are followed before giving any new loans. It was observed that not all the steps
of the present guideline are followed strictly by the RMs. For example, the RMs
did not go on regular quarterly calls to the clients and also sometimes did not
verify all the information provided by the clients. This gives rise to chances that
the clients actual position may not be understood on time and increases the risk
- 63 -
of classification. So steps must be taken to ensure strict adherence to the loan
evaluation and monitoring policy.
The RMs should keep their eyes open about the position of the industries of their
respective clients. As soon as any new risk occurs in the industry or the industry
shows signs of deterioration, they should analyze its impact on their respective
clients and act accordingly.
As soon as the client fails to make timely repayment, pressure should be created
on him to make the payment urgently and no further credit should be allowed to
him unless he pays back the previous dues (except for cases where new loans
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are needed to ensure past loans recovery). Also no unnecessary restructuring of
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repayment schedule should be allowed.
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Credit Rating must be given proper emphasis. Whenever a credit rating is
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lowered, the RMs must look into the account to see whether there is any chance
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procedures against those accounts where negotiation has failed and there is no
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chance of repayment. They should try to recover as much of the loan as possible
ct
- 64 -
Bibliography:
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Commercial Bank Management, Peter S. Rose, Third Edition, Irwin.
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Money And Capital Market, Peter S. Rose, Eighth Edition,
McGrawhill-Irwin.
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APPENDIX
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CURRENT ORGANOGRAM BASED ON FUNCTIONALITY
CHAIRMAN
BOARD OF DIRECTORS
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MANAGING
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DIRECTOR
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BRAND HRD FIN CREDIT AUDIT CORPORATE SPECIAL OPERN CONSUMER CENTRAL
MGMT &ACC RISK & BANKING ASSET BANKING SUPPORT
MGMT COMPL . MGMT DEPT
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Table 1: Broad Performance Indicators of EBL from 2000-2003.
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Guarantee Business 1789 1054 1,183 354
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Operating Income 1916 2022 1,986 1,985
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Operating Expense 1242 1319 1,255 1,226
Operating Profit(Loss) 674 703
SU 731 759
Net Profit(Loss) before tax 475 553 631 638
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(Excluding Contingent)
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total loans
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- 69 -
Table 2: Comparison of lending rates of different banks
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SMALL INDUSTRIES 14-16% 9-14% 10-13% 15% 11.5-13%
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OTHERS 12-14% 7-20% 9-19% 13-16% 13-15%
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*Source: Bangladesh Bank Annual Report 2001-2002 SU
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and Advances
Textile 11.47%
Steel Products 4.57%
Cement 1.09%
Ship Breaking 7.65%
Pharmaceutical 1.48%
Chemical, Plastic & Plastic Products 2.45%
Foods & Beverage 6.33%
Edible Oil 6.11%
Power, Gas & Oil 4.63%
Leather 0.69%
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Jute 0.31%
Poultry & Hatchery 1.53%
Electronic Goods 3.16%
Brick & Ceramics 0.08%
Soap & Detergents 0.11%
Paper, Printing & Packaging 2.43%
RMG 9.13%
Shrimp Export 0.12%
Media 0.29%
Information Technology 0.02%
Telecommunication 5.27%
Shipping, Airline & Transport 0.66%
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Commodity Import 9.38%
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Construction 6.51%
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Trading 5.83%
Service SU 1.13%
Clinic, Hospital & NGOs 0.05%
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Individual 0.17%
Others 2.77%
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Total 100.00%
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1.0 INTRODUCTION
Risk is inherent in all aspects of a commercial operation; however for Banks and
financial institutions, credit risk is an essential factor that needs to be managed.
Credit risk is the possibility that a borrower or counter party will fail to meet its
obligations in accordance with agreed terms. Credit risk, therefore, arises from the
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banks dealings with or lending to corporate, individuals, and other banks or financial
institutions.
Credit risk management is of utmost importance to Banks, and as such, policies and
procedures should be endorsed and strictly enforced by the top level management and
the board of any Bank. According to the guideline prescribed by Bangladesh Bank,
Eastern Bank Ltd. (EBL) restructured its credit approval and monitoring procedures in
the year 2002. This improved the risk management culture and established minimum
standards for segregation of duties and responsibilities resulting better control on the
overall loan approval and monitoring process.
This study was conducted to find out the real effects on classified loans of the new
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approach in credit risk management.
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1.1 Origin of the Report
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completed this internship period in Eastern Bank Limited (EBL), one of the largest and
reputed Private Commercial Banks in Bangladesh. I worked in the credit administration
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department in the Head Office. The primary activities carried out by this department
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include collecting necessary documents for the loans approval, monitoring the loan
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after disbursement and ensuring its repayment, and finally initiating classification, in
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case of non-recovery. While working in this department, I found that EBL was doing
well in reducing their classified loan. By the end of the year 2002 and 2003 they had a
staggering classification rate of 13.46% and 13.61% in the total portfolio of loans and
advances. But at the end of September 2004 the classification percentage came down
to 8.22% with classified loans and advances totaling Taka 109 crore, which is almost
half of the previous two years. So, I felt an urge to explore the reasons behind such
magical improvement. I thought, the new approach in credit risk management might
be one of many reasons that had made this possible. My Internship advisor and
respected teacher Associate Professor Dr. Jawadur Rahim Zahid and supervisor in the
organization Mr. Monzur-Ul-Mowla, First Assistant Vice President and Assistant
- 72 -
Manager, Credit Administration of Eastern Bank Limited kindly approved my proposal
and the project originated.
1.2 Objectives
To find out the effects of new approach in credit risk management on credit
related processes.
To highlight the impact of the new approach in credit risk management on
classified loans and advances.
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1.3 Methodology
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The first step of this report work was concerned with problem identification and
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deciding on the topic. This was achieved through consultation with the faculty advisor
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and the supervisor in EBL. Next the particular objectives of the project were set.
om
Based on these objectives, the necessary data for completion of the project were
identified. Next, those internal sources were identified who would be able to provide
Fr
After this, the data collection process began. Both primary and secondary sources of
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information were used for the purpose of this report. The primary sources of
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information were the concerned officials of EBL. Data were collected from them
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After data collection was complete, the data was analyzed in a descriptive way to find
out their implications. Based on these findings, the final report was completed.
1.4 Scope
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The report only covers the impact of the new approach in credit risk management on
classified loans and advances and also the overall effect on credit approval and
monitoring process. The new approach is based on the guideline provided by
Bangladesh Bank. This is a descriptive study only. No attempt was made to find out a
direct relationship between these two variables (new approach and effect on classified
loans and advances). No recommendation has been provided in this report.
1.5 Limitations
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account could be revealed. As a result, specific reasons behind a particular clients
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classification could not be revealed. This hampered the fulfillment of the objectives of
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the report.
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The financial statements of EBL for 2005 have not been published yet. As a result,
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some of the data necessary for financial analysis in the organizational part could not
be availed.
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This report is organized into two broad parts. The first part is an overview of the
organization itself. The second part concentrates on the research project. The
organization part includes History of Eastern Bank Ltd., its profile, structure,
operations, management bodies, products, financial status etc. The next part focuses
on the project topic. Guideline of Bangladesh Bank for managing credit risk properly is
presented first. Then in the following chapters restructuring process, reason for
restructuring and effects of restructuring is described. Finally, a conclusion based on
the project findings is drawn.
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This part takes a glimpse at Eastern Bank Ltd. from different perspectives. History of
the bank, current status of the bank, its products, organizational structure and many
other things are discussed for the better understanding of the organization.
2.1 History
Eastern Bank Limited was incorporated as a public limited company and a scheduled
bank on 16 August 1992 to commence business. EBL is the successor of BCCI. In 1991
when BCCI collapsed internationally, the operation of this bank closed down in
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Bangladesh. After discussions with BCCI employees and taking into consideration the
depositors and customers interests, Bangladesh Bank gave permission to form a bank
named Eastern Bank Limited by taking all assets and liabilities of erstwhile BCCI
(Overseas). It was established under the Bank Of Credit And Commerce International
(Overseas) Limited (Reconstruction) Scheme formulated by Bangladesh Bank. EBL
started business with four branches-Principal Branch, Motijheel Branch, Agrabad
Branch and Khulna Branch and had authorized capital of TK.1000 million with 10
million shares of TK. 100 each and of paid up capital of TK.310 million. The paid up
capital increased to TK. 600 million in 1994. The first Board of Directors constituted of
7 directors of Bangladesh Government. Mr. Nurul Hossain Khan was the chairman and
Mr. Ghiyasuddin Ahmed was Managing Director.
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In 1993, EBL started its expansion of branches. The bank got its Authorized Dealership
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License from Bangladesh Bank on 7th July 1993. Six new branches opened in 1994 and
three in 1995.
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At present, the bank has 22 branches throughout the country with 500 employees. The
existing Board of Directors has 12 members. Mr. M. Ghaziul Haque is the Chairman of
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EBL has gone through a restructuring stage where the traditional Branch Banking
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System is gradually discarded and being replaced by a Centralized System. Till 2000,
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EBL operated in a Geographical Matrix where the business of the bank was
concentrated in the twenty- two branches. In 2001, the management of EBL changed it
business philosophy into Business Matrix. The main three businesses that the bank is
now concentrating on are:
Corporate
Consumer
Treasury
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Corporate Banking Division of EBL caters to the needs of corporate clients. The entire
corporate division is divided into three broad areas: Area-1 that comprises of Dhaka,
Area-2 that comprises Chittagong and Area-3 that comprises of Outstation Branches
i.e. the branches in areas other than Dhaka and Chittagong. There are five units in
Area-1, while Area-2 has three units. Also there are Small Business Unit (SBU) in Dhaka
and Agrabad (Chittagong). All the units are operated from the Corporate Banking
Division at Head Office. In general this divisions functions are:
Targeting corporate clients and building business relationship with them
Evaluating financial strength of the clients
Designing customized service for the clients
Making possible recommendations for further financial expansion
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2.2.2 Treasury Division
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The Treasury Division of EBL deals with fund management i.e. money market dealing
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and LC Payments. They are also responsible for maintaining the statutory requirements
with Bangladesh Bank.
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Consumer Banking Division deals with the financial needs of individual customers. The
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twenty-two branches of EBL, which are now termed as the Sales & Service Centers
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Beside these 3 business units several ancillary units are present which support the
business units in day-to-day activities. These are Credit Risk Management Division,
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Brand Management Division, Finance Division, Human Resources Department, Special
Asset Management Division, Operations, Audit and Compliance Division, Credit
Administration Division, Information Technology Division and International Division.
This division is responsible for evaluating the credit worthiness and debt payment
capability of present loan customers and loan applicants. The department also
monitors the risk worthiness regularly. The branches send all proposals from the
prospective borrowers to the corporate division, which in turn analyze the financial
statements and prepare credit memorandum, application for limit, account
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profitability and other necessary papers and send them to the Credit Risk Management
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division for approval. The department keeps track of credit portfolio by obtaining
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regular information from the branches. It sets price for credits and ensures its
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implementation at the branches. This department also monitors the various loan
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accounts of the branches and prepares various statements for Bangladesh Bank.
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brand equity. It designs the logo, greeting cards and official stationary and prepares
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2.3.3 Finance
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Cost of fund analysis,
Maintenance of accounts,
Preparation of annual report of the bank,
Maintenance of provident fund accounts,
Maintenance of income and expenditure posting.
At present around 500 people are employed in EBL. All aspects of the employees are
looked after by the Human Resources Department. HR Department is responsible for
recruitment and development of staff members.
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HR Department carries out the following functions:
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Identifying the need and recruiting new human resources.
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Taking care of all formalities regarding appointment and joining of the
successful candidates.
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Training, Remuneration, Compensation, Promotion, Demotion, Termination,
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In 2001 16 in-house training programs were designed and executed. Also EBL
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intended employees were offered severance packages and end service benefits.
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2.3.6 Operations
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The Operations division consists of Service Delivery, Trade Service, Treasury Support
division and IT division. These subdivisions provide support to the front office
functionalities.
This division provides legal assistance to the branches and formulates strategy for
classified loans and ensures observance of rules and policies by all stakeholders of the
bank through routine and surprise inspection and audit.
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2.3.8 Credit Administration
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Credit Administration Division deals with Credit Administration, Loan Monitoring and
Documentation.
SU
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monitoring credit expiry, dues, excess over limit, document deficiency and reporting
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the deficiencies. Loan monitoring part entails follow-up on approval terms, proper
Fr
proper loan documents are present, filing with the Registered Joint Stock Corporation
ct
The Information Technology Division deals with identifying the need and developing
software for the banks operation, its maintenance and purchase of new software
rights, maintaining the computers and upgrade them whenever required and training
the staff for operation of computers and preparing training materials. Presently the IT
Division is carrying out batches of training program to introduce the integrated banking
software called Flex Cube. A team from iflex Solutions India is assisting EBL with this
software.
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The International Division is responsible for helping in import and export businesses on
account of the customers of the bank. It also deals with all the correspondents of
foreign banks, which have account with the bank.
The management of EBL as a part of the restructuring program rephrased the banks
vision in 2001. Before that the bank did not have any structured vision and mission
statement. Now EBLs vision is:
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TO BECOME THE BANK OF CHOICE BY TRANSFORMING THE WAY WE DO BUSINESS AND
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DEVELOPING A TRULY UNIQUE FINANCIAL INSTITUTION THAT DELIVERS SUPERIOR
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GROWTH AND FINANCIAL PERFORMANCE AND BE THE MOST RECOGNIZABLE BRAND IN
We will deliver service excellence to all our customers, both internal and
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external.
We will constantly challenge our systems, procedures and training to maintain a
Fr
EBLs Value Statement does not claim to be No. 1 in banking or The most Superior in
banking. Rather it simply maintains Simple Math, the Philosophy of Easy Banking.
While celebrating the 10th anniversary in 2002, EBLs logo was changed to reflect the
restructuring and the transformations it is going through; the colors of the new logo
signify the vibrant green of mother earth, a blue sky full of possibilities and a yellow
rising sun of hope.
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The Board of Directors establishes the objectives and policies of the bank. It has the
authority to declare dividend, to approve the balance sheet, etc. The Chairman
informs the board of directors on the progress of the bank and implements the policies
established. The board is not directly concerned with the day-to-day operation of bank
rather it has delegated authority to its management committee. There are three
committees of the board for different purposes, which are:
Executive Committee comprising of seven members of the board
Committee of the board for Administrative Matters
Committee to examine Bad Loan Cases
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2.6 Organization chart
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Following is the present organization chart of EBL:
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CHAIRMAN
BOARD OF DIRECTORS
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VICE PRESIDENT
PRINCIPAL OFFICER
SENIOR OFFICER
OFFICER
SUPERVISORY OFFICER
JUNIOR OFFICER
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Figure1: EBL Organogram
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2.7 Marketing aspects
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EBL has a highly skilled marketing team which contributes to the growth of the
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EBL is in the business of providing banking service and is changing its approaches to
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become more and more customer focused. At present EBL offers a variety of
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services/products1 for the retail customers as well as for corporate clients. There are
four categories of services in EBL:
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Different savings accounts are: High Performance Account (HPA), Short Term Deposits
(STD), Fixed Deposits (FDR), Current Deposits for Individual, Current Deposits for
Partnership, Current Deposits for Joint Account, Current Deposits for Limited
Companies
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Sale of Travelers Cheque
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2.7.1.3 Securities
It includes the following services:
SU
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Sale of Bangladesh Sanchaya Patra, Pratirakkhya Sanchaya patra, ICB
certificates, etc.
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Cash, Payment against Documents (PAD), Cash Credit (CC/HYPO), Acceptance against
ct
(LAFBD), Sight Letter of Credit (SLC), Usance Letter of Credit (ULC), Letter of
Guarantee (LG), Packing Credit against Export L/C & Export Order (PC), etc.
2.7.2 Promotion
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Although EBL is in the banking business for quite sometime its brand image has not
grown strong and in order to succeed in the competitive bank environment it needs
enrich its brand equity. So far EBL has shunned any sort of promotional tools except for
a few inconspicuous billboard advertisements, signboards and newspaper recruitment
ads. However a new department called Brand Management has been set up in 2001
to give a new and enhanced brand identity to EBL. This department supervises the
planning of advertisement campaigns for EBLs products and analyzing customer
feedbacks. With the aid of a advertising agency the logo and stationary of EBL has
been changed and eye-catching brochures, calendars and posters have been prepared
which are displayed at the sales & service centers.
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2.7.3 Distribution
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EBLs 22 branches are now termed as Sales & Centers, which are all connected through
the network from mid July 2003. After that the customer can make transactions from
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25
20
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15 21
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21 21 21 22
16
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10 14
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5
2.8
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0
1995 1996 1997 1998 1999 2000 2001
The investment portfolio of EBL was as follows in 2002 and 2003. (Note: 2004 data
could not be availed from the respective dept.)
- 85 -
2002 % of total 2003 % of total
investment in investmen
2000 t in 2003
28 Days T-Bills 400,000,000 17.63% - 0.00%
364 Days T-Bills 100,000,000 4.40% 1,550,000,000 42.92%
2 Years T-Bills 590,000,000 26.01% 720,000,000 19.93%
5 Years T-Bills 880,000,000 38.79% 1,060,000,000 29.35%
Prize Bond 1,259,00 0.005% 1,354,100 .03%
Preference Shares of United 50,000,000 2.2% 50,000,000 1.38%
Cement Ind. Ltd.
Shares of Central 1,200,000 0.052% 4,000,000 0.11%
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depository Bangladesh Ltd
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15 Years ICB Debentures 110,000,000 4.84% 100,000,000 2.76%
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20 Years HBFC Debentures 135,000,000 5.95% 125,000,000 3.46%
8,566 ICB Shares (TK 100 856,600
SU
.037% 856,600 0.02%
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Each)
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From the above data it is seen that EBL prefers to invest in medium-term treasury bills
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(1 year and 2 year maturity). 0 In both 2002 and 2003, 75-80% of its investment was
ct
made in 1 year and 2 year T-bills. They adopt this policy primarily as a source of
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The rest 20-25% of investments were made in long-term debentures and shares of some
company. It means that EBL is getting higher returns from these high yielding long-
term investments but the trade off is that a large quantity of EBL's money is stuck in
those investments for a pretty long time and EBL can't use that money in case of
sudden high returning investments.
- 86 -
Eastern Bank has performed well in last few years where there has been significant
growth in different segments of the Bank. Here growth for some of the different
business of EBL is shown.
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Import 12533 11415 12,642 16,256
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Guarantee Business 1789 1054 1,183 354
Operating Income 1916 2022 SU 1,986 1,985
Operating Expense 1242 1319 1,255 1,226
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- 87 -
Growth in sales volume comprises of growth in deposits, growth in loans and advances
and growth in export and import business.
Growth in Deposits:
Deposits increased by 7.29% from Tk 12375 million in 2000 to Tk 13277 million in 2001
and in 2002 only by 3.8% to Tk. 13662 million. The bank has focused on reducing cost
of funds by increasing transactional deposits and other low-cost deposit. Rates of
interest were revised periodically as par market condition.
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14000
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12000
13277
SU
12375
10000
13662
11231
8879
8000
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9568
6000
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4000
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2000
0
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The total loans and advances of the bank were Tk. 10891 million showing an increase
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of 9.5% only over the year 2002 as against in the year 2001 when the increase was of
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22%. The total classified loans of the bank stood at Tk. 1466 million in December 2002
as against Tk. 1146 million at the end of December 2001. Loans increased due to
procedural streamlining and establishing transparencies to the credit management
system.
- 88 -
Yearwise
Chart 3: Year Growth in Loans
wise growth in Loans&and
Advances
Advances
12000
10000
Tk in Million
8000
10891
6000
9946
7902
8141
4000
5258
5744
2000
0
1997 1998 1999 2000 2001 2002
Year
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Import & Export Business: SU
The banks total foreign exchange business was of Tk. 17272 million, which included
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Import, Export, and Remittance of Tk. 11415 million, Tk. 5432 million and Tk. 425
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shrimps, tea, jute goods, leather goods and non-traditional items. Major import items
were consumer goods and old vessels for scrapping, industrial raw materials, fabrics
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14000
C
12000
12533
10000
11818
Tk in Million
11415
8000
9965
6000
7015
5402
7281
4000
3426
4822
5729
425
2000 156 237 275
0
1997 1998 1999 2000 2001
Year
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2.9.2 Growth in Assets
EBLs assets have grown steadily over the years. In the year 2002 it stood at Tk. 17648
million as against Tk. 18284, showing a decrease of 6.4%.
Growth
Chart of Assetsof Assets
5: Growth
18,284
20,000 16,880 17,648
14,394
15,000
10,186 10,973
10,000
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5,000
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1997 1998 1999 SU
2000 2001 2002
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2.10 Portfolio
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Sector-wise summary
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Clinic, Hospital & NGO's 77 0.03
Cloth 456 0.2
Commodity Import 22395 9.78
Computer & Electronics 1144 0.5
Consultancy 122 0.05
Cotton, yarn & Dyes 278 0.12
Crockeries 22 0.01
Edible Oil 5651 2.47
Educational Institution 200 0.09
Electronic Goods 6834 2.99
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Fertilizer & Medicine 610 0.27
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Financial Institution 10400 4.54
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Foods & Beverage 8632 3.77
Garment/ Accessories 2168
SU 0.95
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Individual 630 0.28
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Shrimp, Fish & Fishfry 593 0.26
Soap & Detergent 275 0.12
Steel Products 14630 6.39
Tea 135 0.06
Telecommunication 2816 1.23
Textile 27101 11.84
Travel Agency 345 0.15
Grand Total 228876 100
Table 3: Business Portfolio of Eastern Bank Limited.
Source: Head Office, Credit Risk Management.
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By analyzing the above table it is clear that EBL has a much diversified investment in
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its portfolio. The largest three sectors are Textile, Ship breaking and Commodity
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import. In the Textile sector EBL has invested 11.84% of its total portfolio. In the Ship
breaking sector the proportion is 10.55% and in the Commodity import the proportion
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is 9.78%. The other major sectors are RMG, Steel products, Power, Gas and Oil and
:E
lastly Civil. The percentages of the investments are 7.47%, 6.39%, 5.27%, and 5.08%
om
respectively. By analyzing the overall scenario we can say that EBL is giving preference
the RMG and Textile sectors, which is combined 19.31% of the total investment. And it
Fr
includes the commodity import section, because EBL is providing a lot of facilities for
ed
importing raw material and machinery to the textile sector and also the RMG sector.
ct
And another good thing is EBL invested above 5% in both the Civil and Power, gas and
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oil sector, which shows that EBL has the intention of investing for public welfare.
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3.0 GUIDELINES OF BANGLADESH BANK
Credit risk management needs to be a robust process that enables banks to proactively
manage loan portfolios in order to minimize losses and earn an acceptable level of
return for shareholders. Central to this is a comprehensive IT system, which should
have the ability to capture all key customer data, risk management and transaction
information including trade & Forex. Given the fast changing, dynamic global economy
and the increasing pressure of globalization, liberalization, consolidation and dis-
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intermediation, it is essential that banks have robust credit risk management policies
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and procedures that are sensitive and responsive to these changes.
.C
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The guidelines have been organized into the following sections:
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Policy Guidelines
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Lending Guidelines
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Segregation of Duties
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Internal Audit
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Procedural Guidelines
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Approval Process
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Credit Administration
Credit Monitoring
Credit Recovery
These guidelines were prepared and endorsed by senior credit executives from private
sector, foreign and nationalized commercial banks operating in Bangladesh. They are
intended for use in the corporate/commercial banking businesses.
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3.1 Policy Guidelines
This section details fundamental credit risk management policies that are
recommended for adoption by all banks in Bangladesh. The guidelines contained
herein outline general principles that are designed to govern the implementation of
more detailed lending procedures and risk grading systems within individual banks.
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All banks should have established Credit Policies (Lending Guidelines) that clearly
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outline the senior managements view of business development priorities and the
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terms and conditions that should be adhered to in order for loans to be approved. The
Lending Guidelines should be updated at least annually to reflect changes in the
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economic outlook and the evolution of the banks loan portfolio, and be distributed to
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Managing Director/CEO & Board of Directors of the bank based on the endorsement of
the banks Head of Credit Risk Management and the Head of Corporate/Commercial
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Banking.
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Any departure or deviation from the Lending Guidelines should be explicitly identified
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in credit applications and a justification for approval provided. Approval of loans that
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do not comply with Lending Guidelines should be restricted to the banks Head of
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The Lending Guidelines should provide the key foundations for account
officers/relationship managers (RM) to formulate their recommendations for approval,
and should include the following:
Industry and Business Segment Focus, Types of Loan Facilities, Single Borrower/Group
Limits/Syndication, Lending Caps, Discouraged Business Types, Loan Facility
Parameters, Cross Border Risk, Third world debt crisis.
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3.3 Credit Assessment & Risk Grading
A thorough credit and risk assessment should be conducted prior to the granting of
loans, and at least annually thereafter for all facilities. The results of this assessment
should be presented in a Credit Application that originates from the relationship
manager/account officer (RM), and is approved by Credit Risk Management (CRM).
The RM should be the owner of the customer relationship, and must be held
responsible to ensure the accuracy of the entire credit application submitted for
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approval. RMs must be familiar with the banks Lending Guidelines and should conduct
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due diligence on new borrowers, principals, and guarantors.
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It is essential that RMs know their customers and conduct due diligence on new
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borrowers, principals, and guarantors to ensure such parties are in fact who they
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represent themselves to be. All banks should have established Know Your Customer
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(KYC) and Money Laundering guidelines which should be adhered to at all times.
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Credit Applications should summaries the results of the RMs risk assessment and
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Purpose of loans.
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Security Arrangements.
Industry Analysis: The key risk factors of the borrowers industry should be assessed.
Any issues regarding the borrowers position in the industry, overall industry concerns
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or competitive forces should be addressed and the strengths and weaknesses of the
borrower relative to its competition should be identified.
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profitability must be analyzed.
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Projected Financial Performance: Where term facilities (tenor > 1 year) are being
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proposed, a projection of the borrowers future financial performance should be
provided, indicating an analysis of the sufficiency of cash flow to service debt
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repay debts.
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not the proposed application is in compliance with the banks Lending Guidelines. The
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Mitigating Factors: Mitigating factors for risks identified in the credit assessment
should be identified. Possible risks include, but are not limited to: margin
sustainability and/or volatility, high debt load (leverage/gearing), overstocking or
debtor issues; rapid growth, acquisition or expansion; new business line/product
expansion; management changes or succession issues; customer or supplier
concentrations; and lack of transparency or industry issues.
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Loan Structure: The amounts and tenors of financing proposed should be justified
based on the projected repayment ability and loan purpose. Excessive tenor or
amount relative to business needs increases the risk of fund diversion and may
adversely impact the borrowers repayment ability.
Security: A current valuation of collateral should be obtained and the quality and
priority of security being proposed should be assessed. Loans should not be granted
based solely on security. Adequacy and the extent of the insurance coverage should be
assessed.
Name Lending: Credit proposals should not be unduly influenced by an over reliance
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on the sponsoring principals reputation, reported independent means, or their
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perceived willingness to inject funds into various business enterprises in case of need.
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These situations should be discouraged and treated with great caution. Rather, credit
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proposals and the granting of loans should be based on sound fundamentals, supported
by a thorough financial and risk analysis.
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:E
According to this guideline, all Banks should adopt a credit risk grading system. The
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system should define the risk profile of borrowers to ensure that account
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management, structure and pricing are commensurate with the risk involved. Risk
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grading is a key measurement of a Banks asset quality, and as such, it is essential that
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grading is a robust process. All facilities should be assigned a risk grade. Where
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deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities
C
The following Risk Grade Matrix is provided as an example. The more conservative risk
grade (higher) should be applied if there is a difference between the personal
judgment and the Risk Grade Scorecard results. It is recognized that the banks may
have more or less Risk Grades; however, monitoring standards and account
management must be appropriate given the assigned Risk Grade [Appendix I].
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At least top twenty five clients/obligors of the Bank may preferably be rated by an
outside credit rating agency.
The Early Alert Report should be completed in a timely manner by the RM and
forwarded to CRM for approval to affect any downgrade. After approval, the report
should be forwarded to Credit Administration, who is responsible to ensure the correct
facility/borrower Risk Grades are updated on the system. The downgrading of an
account should be done immediately when adverse information is noted, and should
not be postponed until the annual review process.
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The authority to sanction/approve loans must be clearly delegated to senior credit
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executives by the Managing Director/CEO & Board based on the executives knowledge
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and experience. Approval authority should be delegated to individual executives and
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not to committees to ensure accountability in the approval process. The following
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Credit approval authority must be delegated in writing from the MD/CEO & Board (as
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The role of Credit Committee may be restricted to only review of proposals i.e.
recommendations or review of banks loan portfolios.
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All credit risks must be authorized by executives within the authority limit delegated
to them by the MD/CEO. The pooling or combining of authority limits should not be
permitted.
Credit approval should be centralized within the CRM function. Regional credit centers
may be established, however, all large loans must be approved by the Head of Credit
and Risk Management or Managing Director/CEO/Board or delegated Head Office credit
executive.
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Any credit proposal that does not comply with Lending Guidelines, regardless of
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amount, should be referred to Head Office for Approval.
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MD/Head of Credit Risk Management must approve and monitor any cross-border
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exposure risk.
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It is essential that executives charged with approving loans have relevant training and
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A monthly summary of all new facilities approved, renewed, enhanced, and a list of
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proposals declined stating reasons thereof should be reported by CRM to the CEO/MD.
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The purpose of the segregation is to improve the knowledge levels and expertise in
each department, to impose controls over the disbursement of authorized loan
facilities and obtain an objective and independent judgment of credit proposals.
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3.7 Preferred Organizational Structure & Responsibilities
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The appropriate organizational structure must be in place to support the adoption of
the policies detailed in Section 1 of these guidelines. The key feature is the
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Management/Administration functions.
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Credit approval should be centralized within the CRM function. Regional credit centers
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may be established, however, all applications must be approved by the Head of Credit
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executive.
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Managing Director / CEO
Monitoring / Recovery
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(includes regional recovery
centres if applicable)
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.C
Figure 2: Preferred management structure
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3.7.2 Key Responsibilities
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Oversight of the banks credit policies, procedures and controls relating to all credit
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treasury operations.
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Directly manage all Substandard, Doubtful & Bad and Loss accounts to maximize
recovery and ensure that appropriate and timely loan loss provisions have been made.
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To ensure that lending executives have adequate experience and/or training in order
to carry out job duties effectively.
To control loan disbursements only after all terms and conditions of approval have
M
been met, and all security documentation is in place.
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To maintain control over all security documentation.
SU
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To monitor borrowers compliance with covenants and agreed terms and conditions,
and general monitoring of account conduct/performance.
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To be responsible for the timely and accurate submission of Credit Applications for
new proposals and annual reviews, taking into account the credit assessment
requirements outlined in Section 1.2.1 of these guidelines.
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3.7.2.4 Internal Audit/Control
Conducts independent inspections annually to ensure compliance with Lending
Guidelines, operating procedures, bank policies and Bangladesh Bank directives.
Reports directly to MD/CEO or Audit committee of the Board.
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The approval process must reinforce the segregation of Relationship
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Management/Marketing from the approving authority. The responsibility for preparing
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the Credit Application should rest with the RM within the corporate/commercial
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banking department. Credit Applications should be recommended for approval by the
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RM team and forwarded to the approval team within CRM and approved by individual
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executives. Banks may wish to establish various thresholds, above which, the
recommendation of the Head of Corporate/Commercial Banking is required prior to
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onward recommendation to CRM for approval. In addition, banks may wish to establish
Fr
regional credit centers within the approval team to handle routine approvals.
Executives in head office CRM should approve all large loans.
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The recommending or approving executives should take responsibility for and be held
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should be such that all proposals where the facilities are up to 15% of the banks
capital should be approved at the CRM level, facilities up to 25% of capital should be
approved by CEO/MD, with proposals in excess of 25% of capital to be approved by the
EC/Board only after recommendation of CRM, Corporate Banking and MD/CEO.
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Credit Application
Recommended By RM / Marketing
1 2
3 4
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5 6
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7
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Managing Director
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7
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Executive Committee/Board
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3.8.3 Disbursement
Security documents are prepared in accordance with approval terms and are legally
enforceable. Standard loan facility documentation that has been reviewed by legal
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counsel should be used in all cases. Exceptions should be referred to legal counsel for
advice based on authorization from an appropriate executive in CRM.
Disbursements under loan facilities are only be made when all security documentation
is in place. CIB report should reflect/include the name of all the lenders with facility,
limit & outstanding. All formalities regarding large loans & loans to Directors should be
guided by Bangladesh Bank circulars & related section of Banking Companies Act. All
Credit Approval terms have been met. A sample documentation and disbursement
checklist is attached as Appendix 3.2.1, which banks may wish to use to control
disbursements.
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3.8.4 Custodial Duties
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Loan disbursements and the preparation and storage of security documents should be
centralized in the regional credit centers.
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storage.
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All required Bangladesh Bank returns are submitted in the correct format in a timely
manner.
All third party service providers (valuers, lawyers, insurers, CPAs etc.) are approved
and performance reviewed on an annual basis. Banks are referred to Bangladesh Bank
circular outlining approved external audit firms that are acceptable.
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3.8.6 Credit Monitoring
To minimize credit losses, monitoring procedures and systems should be in place that
provides an early indication of the deteriorating financial health of a borrower. At a
minimum, systems should be in place to report the following exceptions to relevant
executives in CRM and RM team:
Past due principal or interest payments, past due trade bills, account excesses, and
breach of loan covenants;
Loan terms and conditions are monitored, financial statements are received on a
M
regular basis, and any covenant breaches or exceptions are referred to CRM and the RM
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team for timely follow-up.
.C
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Timely corrective action is taken to address findings of any internal, external or
regulator inspection/audit.
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All borrower relationships/loan facilities are reviewed and approved through the
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Computer systems must be able to produce the above information for central/head
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office as well as local review. Where automated systems are not available, a manual
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process should have the capability to produce accurate exception reports. Exceptions
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should be followed up on and corrective action taken in a timely manner before the
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Despite a prudent credit approval process, loans may still become troubled.
Therefore, it is essential that early identification and prompt reporting of
deteriorating credit signs be done to ensure swift action to protect the Banks interest.
Moreover, regular contact with customers will enhance the likelihood of developing
strategies mutually acceptable to both the customer and the Bank. Representation
from the Bank in such discussions should include the local legal adviser when
appropriate.
- 106 -
An account may be reclassified as a Regular Account from Early Alert Account status
when the symptom, or symptoms, causing the Early Alert classification have been
regularized or no longer exist. The concurrence of the CRM approval authority is
required for conversion from Early Alert Account status to Regular Account status.
The Recovery Unit (RU) of CRM should directly manage accounts with sustained
deterioration (a Risk Rating of Sub Standard (6) or worse). Banks may wish to transfer
EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM
and Corporate Banking. Whenever an account is handed over from Relationship
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Management to RU, a Handover/Downgrade Checklist should be completed.
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The RUs primary functions are:
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Determine Account Action Plan/Recovery Strategy
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Pursue all options to maximize recovery, including placing customers into
:E
Ensure adequate and timely loan loss provisions are made based on actual and
expected losses.
Fr
Recovery Units should ensure that the following is carried out when an account is
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CIB reporting is updated according to Bangladesh Bank guidelines and the borrowers
Risk Grade is changed as appropriate.
Loan loss provisions are taken based on Force Sale Value (FSV).
- 107 -
Loans are only rescheduled in conjunction with the Large Loan Rescheduling guidelines
of Bangladesh Bank. Any rescheduling should be based on projected future cash flows,
and should be strictly monitored.
The guidelines established by Bangladesh Bank for CIB reporting, provisioning and write
off of bad and doubtful debts, and suspension of interest should be followed in all
cases.
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O
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SU
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Fr
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ct
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C
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4.0 RESTRUCTURING ACCORDING TO THE GUIDELINES
Eastern Bank Limited has been restructured in the year 2002. It has changed the way it
used to do its operation. Some new divisions have been introduced. The major
restructuring part is the centralization of the overall operation. Now the branches will
act as the sales and service center and all the decisions are made by the Head office.
The reason behind this centralization and restructuring is to optimize EBL profit and
also reduce the amount of bad or classified loans.
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Two new divisions named Corporate Banking and Credit administration have been
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introduced. Both the divisions are responsible for providing the facilities to the
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corporate clients and also monitor their daily transactions. And all the decisions about
providing facilities to the clients are made by the Credit Risk Management Division.
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Operation of Trade services also changed, now all the import/export businesses are
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Corporate Banking was introduced for maintaining good relationship with the
Corporate Clients through the Relationship Managers and also for better marketing of
Fr
Credit Administration was introduced to look after all the transaction made by the
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Before the restructuring, all credit related matters were handled in branch level,
which led to lower transparency and possibility of misjudging the clients capacity to
repay. Main objective of this new approach is to increase the centralized control over
credit approval and monitoring procedures. Other objectives are:
Reducing the amount of Bad-Assets and increasing the amount of Good-Assets.
Minimizing the mistakes and wrong decisions taken at the branch level.
Increasing amount of deposits.
- 109 -
Reducing the amount of bad loan through proper selection of the corporate
clients.
Reviewing and scrutinizing the loan repayment process more accurately.
Optimizing the Profit of the Bank.
Previously Eastern Bank followed a relatively tall structure. With only 698 employees,
M
EBL had 12 hierarchical levels. This tall structure caused too much bureaucratic cost
O
for EBL. The sources of this bureaucratic cost were too many middle level managers,
.C
information distortion, motivational and coordination problems among the employees.
SU
-N
Previously the operation of the banks were quite decentralized, the managers of each
:E
branch had been given wide discretion to make decisions regarding the branch
operations. But now the new management decided to centralize all operations. The
om
branches of the bank are now termed as the Sales & Services Center which is solely
Fr
the head office for processing. The head office will made the decisions and the branch
ct
According to the new organogram, the organization has become flat across the
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C
department but it still remains tall within the department. As some different
hierarchies have been created, the organization has avoided becoming too tall.
The board of directors being at the highest level of organizational structure plays an
important role on the policy formulation. The board of directors is not directly
concerned with the day-to-day operation of bank, at least in written. It has delegated
to its authority to its management committee. The board establishes the objectives
and policies of the bank. The board has the authority to declare dividend, to approve
the Balance Sheet, etc. Chairman keeps board of directors informed, on the progress
of the bank and implements the policies established. Among the 15 members of the
- 110 -
board, 7 are internal to the organizations and 8 are external to organization appointed
by different regulatory bodies.
There are three (3) committee of the board for different purposes:
Executive committee comprises 7 members of the board
Committee of the board for Administrative matter
Committee to examine Bad Loan Cases
The Managing Director is the head of the operational area of the bank and its chief
executive. The Managing Director was appointed by the board of directors with prior
permission of Bangladesh Bank. All policy formulation and subsequent executions are
M
done in the Head Office
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An Executive Vice President heads the Asset Management Division, Corporate Banking
SU
Division, Credit Risk and Credit Administration Division and a Senior Vice President
heads the IT Division, Consumer Banking Division and also the Brand Management
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Division. The whole corporate division is divided into two broad areas, Area1 (headed
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by a SVP) that comprises Dhaka and Outstation Branches and Area2 (headed by a SVP)
om
comprising Chittagong branches. A Senior Vice President heads each area. There are
six units in these two areas headed by a VP or AVP. Some senior relationship managers
Fr
helped them to carry out the job. A Senior Vice Presidents heads the Human Resource
ed
Department.
ct
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Strategic change is the movement of a company away from its present state toward
some desired future state to increase its competitive advantage.
- 111 -
strategic change. In order to initiate the change process, the Board of Directors
replaced the Managing Director Mr. M. Khairul Alam with K. Mahmood Sattar who was
the Head of corporate of the ANZ Gridlays Bank (Bangladesh).
In Eastern Bank Limited, two major strategic changes occurred reengineering and
restructuring.
4.2.2.2 Reengineering
EBL has changed some of its business processes. Previously each branch manager used
to take all the decisions regarding their branch operation by him or her. There are 22
branches of Eastern Bank Limited operating countrywide. But now all these branches
M
are termed as the Sales & Services Centers and they are now totally focusing on
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retail banking based on individual customers. Respective branches took all the
.C
necessary papers from clients and send all advance proposals to the Head office for
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approval. The head office will process the documents and let the customer know the
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decisions through the respective branch. Each branch is now involved with general
banking (deposit, withdrawal). EBL concentrates on Corporate Banking that deals with
:E
business houses including sole proprietorship concerns, Consumer Banking that deals
om
with all individuals, professionals, housewives, doctors, engineers, etc. and high net
worth individual, treasury Department dealing in call/placement. Money market (local
Fr
and foreign) operations, sell treasury products, maintain liquidity including CRR & SLR
ed
and responsible for presenting credit line proposals for Banking Financial Institution.
ct
le
EBLs information Technology (IT) Department have been providing uninterrupted high
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quality computerized banking services to meet the needs of its clientele which aims at
C
building, operating and maintaining the technology base of the bank to enable error-
free production of information that ensures ongoing efficiency and profitability of
operations. The management of the bank is on the threshold of shifting on the new IT
paradigm as a world class banking software has been selected which will provide
Online banking, Internet banking. Automated Teller Machine (ATM's), Point of Sale
(POS), Credit Card facility etc to its customer to meet the challenge of the 21st
Century. Steps have been taken to select the compatible Computer hardware,
Environmental software, Communication link, Local Area Network (LAN) and Wide Area
Network (WAN) equipments to implement the banking software successfully.
- 112 -
Moreover, Eastern Bank Limited has changed its vision and mission to face the
challenges of the external situation.
4.2.2.3 Restructuring
The top management realized a need for rightsizing the number of employees of the
Bank. After rightsizing the management decided to change the structure of the Bank,
and they changed the structure from the geographical matrix to the business matrix.
The next step was to place right people in the right place and define their job
description. Before the change the responsibility of the employees were not specific,
all of them were used o do everything. With this job description the responsibility was
also delegated towards the employees. They have also got job title, so there are two
M
hierarchies there in the Bank now: corporate hierarchy and the job hierarchy. The
O
main structural change that needs to be noticed is that the structure among the
.C
departments is decentralized whereas the structure within the departments is
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centralized. As a result, the organogram of the Bank has become more flat than
-N
before.
:E
is the nerve center of the business without which nothing can materialize. It is like the
ct
Consumer
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C
Corporate
Treasury
Support
Operations deal with every transaction and are involved in every affair, which
includes:
Starting an account relationship
Settlement of account,
Foreign trade dealing,
Resolving disputes and claims,
Shortened of lead-time in every transaction,
- 113 -
Reconciliation of suspense accounts.
Reforms recommended by the new management are,
Capacity planning
Change in organization structure
Renationalize human resources
Centralize processes
M
To bring in control in their activities.
O
To eliminate lapses on account of security documentations of risk assets.
.C
To provide efficient customer services.
SU
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4.2.3.2 Benefits of Centralization
:E
Containment of costs
Fr
Economies of scale.
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Eastern Bank has launched Corporate-banking division on the 10th January of 2002.
Corporate is responsible for providing all the facilities to the corporate clients.
Previously the procedure was different. Branches were responsible for providing all the
cash and non-cash facilities to the clients. But now the scenario is changed. The whole
corporate division is divided into two broad areas, Area1 that comprises Dhaka and
Outstation Branches and Area2 comprising Chittagong branches. Area 1 consists of six
units. Four of them are located in the principal branch and one is in the Gulshan
branch. Six units in area1 are looking after assets and one unit is responsible for
liabilities, while area2 has three asset units and one liabilities unit. Every unit has a
unit head, who is in charge of that unit and responsible for all the business activities of
- 114 -
that unit. Generally one RM and one ARM work under the unit head. All Unit heads
work under the head of Corporate, and they report directly to him. The management
hierarchy of the Corporate Banking is given below:
Head of Corporate
Unit Heads
M
O
.C
The broad functions of this division are as follows:
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Targeting corporate clients and building business relationship with them.
Designing customized service for the clients.
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of business houses with five years success track record, strong financials, good net
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Call Objectives: Obtain project details, financials, year to date results, current
banking arrangements, independent market opinion of sponsors & company, group
business information future requirements, CIB position, opinion on credit worthiness of
sponsors, security/rates/facility levels of existing bankers, ascertain how EBL value
offer fits in with customer requirement, try to understand customer need in terms of
value offer.
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4.3.1 Selection of the Borrower
In lending, the most important step is the selection of the borrower. Due to the
asymmetric information and moral hazard, banks have to suffer a lot due to the
classified loans and advances, which weakens the financial soundness of the bank. If
the selection of borrower is correct, that is, the borrower is of good character, capital
and capacity or of reliability, resourceful and responsible; the bank can easily get the
return from the lending. Consequently, monitoring is made much easier for the banker.
From this point of view, EBL follows the following procedures,
M
O
After getting an application for a loan, an EBL Official studies the past track record of
.C
the applicant. Generally the study includes,
Account balances and the past transactions.
SU
-N
Credit report from other banks.
Information of the Industry by studying market feasibility.
:E
Borrower analysis is done from the angle of 3-C (character, capital, capacity) or 3-R
(reliability, resourcefulness, responsibility). It follows that the bank forms a rational
judgment about the integrity of the borrower, which should be undoubted. The human
skill, conceptual skill, operational skill is qualitatively analyzed.
Business analysis is done from two angles-terms and conditions and collateral
securities.
- 116 -
4.3.5 Credit Approval Procedure
After receiving the application from the client, EBL official prepares a Credit Line
Proposal (CLP) and forwards the same to the Head Office to place before Head Office
Credit Committee (HOCC) for approval. It includes,
Request for credit limit of customer.
Project profile/ profile of business.
M
Copy of trade license duly attested.
O
Copy of TIN certificate.
.C
Certificate copy of Memorandum & Articles of Association, certificate of
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incorporation, certificate of commencement of business, Resolution of the
-N
Board, Partnership Deed. (Where applicable)
:E
of the security.
CIB Inquiry form duly filled in(for proposal of above 10lac)
ed
- 117 -
Disbursement of loans or advances.
Supervision and follow up of loans and advances.
It is observed that the bank is not evaluating the credit risk of its clients Central Bank
requires a lending risk to be analyzed with proper rating. Risk rating helps the bank to
properly identify the credit strength of its clients and this also helps in focusing on
appropriate action plan to be taken for both the good and classified borrowers. This
M
also strengthens of credit discipline in EB. In order to achieve the objectives; risk-
O
rating guideline has been introduced which is term as Obligor Risk Rating (ORR)
.C
[Appendix II].
SU
-N
Risk rating of client is a continuous process. Therefore, Branch should rates its clients
while presenting CLP [New or Renewal] and on a half-yearly basis i,e. 6 months from
:E
the date of payment of a credit proposal. During half yearly review this exercise should
om
be done in portfolio review format. Any upgrade or downgrade of risk rating should
Fr
- 118 -
Account Manager is basically dealing officer, responsible for managing clientele
relationship. Alternate Account Manager will take care of client relationship during
account manager absence.
Consumers are all individuals, professionals, housewives, doctors, and engineers, etc
and high net worth individuals.
M
Consumer banking is considered to the front officers of the bank, which interfaces with
O
the customers.
.C
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Monitoring of consumer banking is one by "Sales and Service center." They keep record
-N
of all the documents. If there is any exception, they monitor it and send it to the
clients and request it to adjust it. Head Office credit risk management finally monitors
:E
all branches consumer banking by using Management Information System (MIS). Eastern
om
disbursement. Also ensure that all credit approval conditions are adhered to and to
highlight exceptions and obtain approvals for any exceptions.
- 119 -
Step-1: The credit payments and monitoring process starting from review of credit
payment.
Step-2: Then obligor risk rating.
Step-3: Payment of credit limits.
Step-4: Disbursement of facilities.
Step-5: Portfolio review and monitoring of credit risk with proper documentation and
reporting.
The processes clearly reflect a strong check and balance ensuring superior credit
discipline. These processes will eventually be incorporated and highlighted in the EBL's
credit policy manual (under process).
M
O
The Credit Payments and Monitoring Process will also have the following merits:
.C
Expedite credit payment process better credit analysis of customer business.
Banks vision to provide service excellence.
SU
-N
Ensure superior asset quality with growth in sustainable profit.
Maintain appropriate check and balance in business transition with strong MIS
:E
database.
om
This will expedite in developing credit policy manual for the bank.
ed
Credit monitoring implies that the checking of the pattern of use of the disbursed fund
C
to ensure whether it is used for the right purpose or not. It includes a reporting system
and communication arrangement between the borrower and the lending institution and
within department, appraisal, disbursement, recoveries, follow-up etc.
The review and classification of credit facilities starts at Credit Department of the
Branch with the Branch Manager and finally ends with Head office credit division.
- 120 -
4.4 Comparative Scenario
Previously (before 2001) there was no standard loan evaluation, approval and
disbursement process and no strict loan monitoring policy. As a result, there were lots
of irregularities in loan disbursement and recovery of EBL. This is one of the main
reasons why EBL incurred so much classified loans and advances.
M
office management had poor control over the loan disbursement and monitoring
O
process. They only got involved during the time of loan approval and yearly renewal.
.C
On the other hand, the branch employees had significant control over the operations
SU
of the credits. Sometimes they used their discretions over head office approval in
-N
disbursing loans and collecting repayment. For example, once a client in Chittagong
:E
extra amount very quickly. However, the client could not pay back the loan completely
Fr
Also, previously the loan applicants background was not checked on a strict
basis. Sometimes the credit officers failed to corroborate the information and
ct
financial data checking etc. As a result, there have been instances where client took
C
loans through fake documents and never paid back the money.
In some instances, the credit officials also failed to monitor the loans properly.
Since there was no requirement of reports like Account Profitability, Portfolio Review
statements etc., there was no strict monitoring of the clients stocks, earnings, etc. on
a regular and timely basis. As a result, the concerned credit officials failed to detect
deterioration in the clients financial position on time.
Some Credit Administration Department officials also failed to perform their
duties properly. It is their responsibility to ensure that all loan documents are
authentic, in proper order, and up-to-date. However, there have been instances where
credit administration failed to ensure that valid insurance is held, charges are created
on the borrowers asset properly, land assets have been mortgaged properly etc.
- 121 -
Because of these deficiencies in loan documentation, EBL failed to recover some
classified loans by taking over and selling off the securities held against them.
Also there was a general tendency among the bank officials not to recognize
classified loans on time. It was considered that if an account became classified, it
represented a failure on the part of the concerned bank officials. As a result, when the
performances of an account began to deteriorate, in stead of putting in an exit plan,
the officials went for restructuring the repayment schedule. This resulted in more
accrued interest on the account and a higher amount of classification than the one
which would have occurred if the account had been classified in the initial phase.
After the new management took over, they have put in place lots of standard policies
M
and procedures for the purpose of proper evaluation and monitoring of a loan. This is
O
how the loan approval and monitoring process is structured now.
.C
SU
-N
:E
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Fr
ed
ct
le
ol
C
- 122 -
5.0 BENEFITS OF RESTRUCTURING
M
O
Loan classification is a process by which the risk or loss potential associated with the
.C
loan accounts of a bank on a particular date is identified and quantified to measure
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accurately the level of reserves to be maintained by the bank to provide for the
-N
probable loss on account those risky loan.
:E
All types of loans of a bank are fall into following four scales:
om
Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial
ct
recovery.
le
- 123 -
Qualitative judgment (QJ)
After being classified, if the borrower is disable to adjust the loan then the bank can
take the following legal actions by filing suit, -
Filing certificate cases under Public Demand Recovery Act-1913.
Filing money suit cases under Artha Rin Adalat-1990.
Filing Bankruptcy cases under Bankruptcy Act-1997.
Filing cases under Negotiable Instrument Act-1881 section 138 to 141 for insufficient
fund. (In case of term loan).
M
O
5.1.3 Reducing the Amount of Bad Asset and also Increase the amount of
.C
Good Asset
SU
-N
EBL had a huge loss in the year 2001, Top Management decided to centralize the whole
operation. And they also decided to introduce two new divisions named Corporate
:E
Banking and Credit Risk Management. The task of the relationship managers of the
om
corporate banking is to do the marketing for the Bank. They also facilitate the existing
Fr
clients in their daily transaction. Previously corporate clients can apply and take the
loan from their respective Branches and the loan is granted by the Branch manager.
ed
But now RMs does the marketing for the bank and deal with the clients. After the loan
ct
is granted, credit risk management look after the clients documents and also the
le
repayments.
ol
C
The major problem behind the decrease in the profitability was the amount of bad
assets (Loans and Advances). So, Corporate Relationship Managers have got specific
instruction about the selection of the clients and to make them repay the interest and
also the principal amount.
When EBL is giving loans to a new, small or not very well reputed organization, it
usually charges high interest rate to the clients. But when it is giving loan to a well-
reputed or financially strong organization, charges lower interest rate. So, when it is
providing loans to the less reputed organization its income is going down. But ht e
problem is financially weak organizations usually fails to repay the loans in the due
- 124 -
time. And there is also a probability of default. When any organization fails to pay the
quarterly or annual repayment EBL is conceding a loss.
But the fact is EBL had to face loss in two different ways if any organization fails to
repay its loan.
Bank is not receiving the money given to the client as loan and also the interest.
And the Bank has to make provision for this loss from its annual profit.
So, in both ways it is hampering the Banks profitability. EBLs main concern is to
reduce the amount of the bad loans and increase the amount of the good asset. So,
EBL is targeting the big and financially strong organizations for doing business with
them. By introducing the Corporate Banking and Credit Administration EBL is trying to
M
look for the new clients and monitor its existing clients regularly.
O
.C
By the end of the year 2002 and 2003 they had a staggering classification rate of
SU
13.46% and 13.61% in the total portfolio of loans and advances. But at the end of
September 2004 the classification percentage came down to 8.22% with classified loans
-N
and advances totaling Taka 109 crore, which is almost half of the previous two years.
:E
implementation.
Fr
ed
% of Classified Loan
ct
le
16.00%
ol
14.00%
C
12.00%
10.00%
% 8.00%
6.00%
4.00%
2.00%
0.00%
1997 1998 1999 2000 2001 2002 2003 2004
Years
- 125 -
Sector wise Portfolio Analysis:
EBLs total loans and advances and classified loans and advances are scattered over 31
different sectors. If we calculate the amount of outstanding corporate loans and
classified loans in these sectors, we get the following portfolios of Total Loans and
Advances and Classified Loans and Advances.
Table 4: Sector wise % distribution of total loans & classified loans (March 03)
% Share of Total % Share of Classified
Sector Name
Loans and Advances Loans and Advances
M
Textile 11.47% 3.25%
O
.C
Steel Products 4.57% 5.83%
Cement SU
1.09% 0.00%
Ship Breaking 7.65% 13.25%
-N
- 126 -
% Share of Total % Share of Classified
Sector Name
Loans and Advances Loans and Advances
Construction 6.51% 6.07%
Trading 5.83% 12.46%
Service 1.13% 1.74%
Clinic, Hospital & NGOs 0.05% 0.38%
Educational Institution 0.14% 0.00%
Financial Institution 4.44% 0.00%
Individual 0.17% 0.24%
Others 2.77% 11.09%
Total 100.00% 100.00%
M
O
In the table, the bold-faced sectors represent the sectors which constitutes relatively
.C
higher % of classified loans and advances than of total loans and advances. These
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sectors include steel products, ship breaking, chemical & plastic products, edible oil,
leather, jute, brick & ceramics, shipping & transport, trading, service, hospitals &
-N
NGOs and others. The relatively higher exposure of these sectors to Classified Loans
:E
and Advances implies that these sectors are inherently more risky for investment. The
om
following graphs show the portfolio distributions of total loans and advances and
classified loans and advances.
Fr
ed
Trading, 12.46%
C
Service, 1.74%
Construction, 6.07%
Clinic, Hospital & NGOs,
Commodity Import, 0.38%
9.31%
Individual, 0.24%
Shipping & Transport,
1.85%
Others, 11.09%
RMG, 8.98%
- 127 -
Figure 6: Sector wise % share of classified loans and advances (March 03)
M
2.43%
Electronic Goods, 3.16%
O
Poultry & Hatchery, 1.53% Textile, 11.47%
.C
Power, Gas & Oil, 4.63%
Figure 7: Sector wise % share of total loans and advances (March 03)
ed
ct
If we calculate the respective amount of classified loans and advances in each of these
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sectors as % of loans and advances in that sector, we get the following table:
ol
C
Table 5: Sector wise % of classified loans and advances to total loans and
advances (March 03)
Total loans Classified
% of loans
loans and
Sector Name and advances and advances
advances (in
Classified
(in 000 TK) 000 TK)
- 128 -
Total loans Classified
% of loans
loans and
Sector Name and advances and advances
advances (in
Classified
(in 000 TK) 000 TK)
M
O
Poultry & Hatchery 163,383 1,683 1.03%
.C
Electronic Goods 337,445 7,035 2.08%
Brick & Ceramics SU
8,543 2,859 33.47%
Soap & Detergents 11,747 0 0.00%
-N
Here we see that the mean classification rate was 15.44% for the total portfolio. The
sectors which had higher classification rate than the mean rate are steel products, ship
- 129 -
breaking, chemical & plastic products, edible oil, leather, jute, brick & ceramics,
shipping & transport, trading, service, hospitals & NGOs, individual and others, again
implying higher risk in these sectors for the bank. The risky sectors identified through
this calculation matches very well with those identified in the previous analysis. The
sector that are found to have very high classification rate (above 30%) are edible oil,
leather, jute, brick & ceramic, shipping, trading, hospitals, and others. The 142.89%
and 116.57% classification rate in leather and hospital sector is due to the fact that
almost all the disbursed loans and advances in these two sectors became classified.
Classified loans in these two sectors became higher than the disbursed amount because
of the interest accrued on the disbursed loans before classification.
M
Sector wise analysis of number of accounts:
O
.C
In terms of number of classified accounts, if we calculate the respective number of
classified clients in each of these sectors as % of total clients in that sector, we get the
SU
following table:
-N
Table 6: Sector wise % of classified clients to total clients in the sector (March
:E
2003)
om
Textile 23 4 17.39%
ct
Cement 3 0 0.00%
C
- 130 -
Sector Name Number Number of % of Client
of Clients Classified Classified
Clients
Brick & Ceramics 7 2 28.57%
Soap & Detergents 1 0 0.00%
Printing & Packaging 16 2 12.50%
RMG 42 14 33.33%
Shrimp - Export 1 0 0.00%
Media 3 0 0.00%
Information Technology 2 0 0.00%
Telecommunication 2 0 0.00%
M
Shipping & Transport 18 7 38.89%
O
Commodity Import 22 5 22.73%
.C
Construction 76 7 9.21%
Trading 156
SU 54 34.62%
-N
Service 24 4 16.67%
:E
Individual 42 9 21.43%
ed
Here, we see that out of total clients of 722, 180 were classified as on March 31, 2003.
ol
C
This means that 24.93% of all loans and advances clients of EBL were classified. The
sectors, which had higher classification rate than this among its clients, are again
found to be steel products, ship breaking, chemical & plastic products, edible oil,
leather, jute, brick & ceramics, RMG, shipping & transport, trading, service, hospitals
& NGOs, and others.
So we see that in all the 3 types of analysis, we continuously find the following 12
sectors to have higher than usual classification level:
Steel products
Ship breaking
Chemical & plastic products
- 131 -
Edible oil
Leather
Jute
Brick & ceramics
Shipping & transport
Trading
Service
Clinics & NGOs
Other
We can therefore assume the above 12 sectors to be risky for investment for EBL.
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Table 18: Table of Comparison Shifted Emphasis of Loan Exposure (as on
.C
September 2004)
Sector Name
SU
September 2004 March 2003
Textile 13% 11.47%
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Cement - 1.09
om
Leather - 0.69
C
Jute - 0.31
Poultry & Hatchery - 1.53
Electronic Goods 3 3.16
Brick & Ceramics - 0.08
Soap & Detergents - 0.11
Paper, Printing & Packaging - 2.43
RMG 10 9.13
Shrimp Export - 0.12
Media - 0.29
Information Technology - 0.02
- 132 -
Sector Name September 2004 March 2003
Telecommunication 10 5.27
Shipping, Airline & Transport 0.66
Commodity Import 8 9.38
Construction - 6.51
Trading 2 5.83
Service - 1.13
Clinic, Hospital & NGOs - 0.05
Educational Institution - 0.14
Financial Institution 5 4.44
Individual - 0.17
M
Others 11 2.77
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Total 100% 100
.C
SU
Here we see, Eastern Bank Limited management could understand their flaws. We saw
this in the previous three tables. But, in this above table of comparison we find out the
-N
fact that EBL has become very much choosy about borrowers. This is made possible
:E
because of
om
Another noticeable matter is that, there are two important external factors have
helped in achieving such position. The two reasons are as follows:
All the above factors have made the EBL existing and potential clients to comply with
the rules and regulations as desired by the Bank. Such compliance and disclosure of
information meticulously; help a Bank Official to go through a detailed analysis of the
credit risk. In this way,
- 133 -
1. With good choice of Clients and
If we divide the total outstanding and classified outstanding figures according to their
respective branches, we get the following table:
Table 8: Branch wise distribution of classified loans and total loans (March 2003)
Classified outstanding CL O/S as
Total
M
Classified of Branch as % of % of
Branch Branch
O
Outstanding Total Classified Branch
.C
Advances
Outstanding Advances
Agrabad 262,295
SU
15.91% 3,428,961 7.65%
Bogra 10,738 0.65% 98,184 10.94%
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- 134 -
Uttara 2,938 0.18% 12,010 24.46%
Total 1,648,440 100.00% 10,678,655 15.44%
Here, we see that most of the classified loans and advances are concentrated in 4
branches Agrabad (15.91%), Jubilee Road (29.86%), Gulshan (9.80%) and Principal
Branch (25.49%). Therefore, we may tend to assume that the performances of these
branches in loan evaluation, monitoring and recovery are not very effective. But that
is not necessarily true. The high share of classified loans in these branches is mainly
due to the fact that these 4 branches carry out most of the lending activities of EBL.
A better indicator of the performance of these branches will be the amount of branch
classified outstanding as % of branch loans and advances. The last column gives us that
M
figure. Here we see that the performances of Chawkmughultuly, English Road,
O
.C
Gulshan, Jubilee Road, laldighirpar, Moulvibazar, Rajshahi, and Uttara branches are
quite unsatisfactory as they have at least 25% of their total outstandings as classified,
SU
which is way above the average classification rate of 15.44%. Especially, the
-N
performance of Chawkmughultuly, English Road and Jubilee Road branches are
:E
completely unacceptable as they have 65 85% classification rate. There were serious
deficiencies in the performances of these branches employees in terms of loan
om
Classified outstanding
ct
of Branch as % of CL O/S as % of
le
- 135 -
Khatunganj 1836222 0.20% 297,509,630 0.62%
Khulna 14,322,297 1.55% 152,446,850 9.39%
Laldighirpaar 0 0.00% 41,438,679 0.00%
Mirpur 0 0.00% 38,866,301 0.00%
Motijheel 0 0.00% 107,880,307 0.00%
Moulvibazar 28,058,270 3.03% 69,694,470 40.26%
O R Nizam Road 13,322,652 1.44% 213,894,635 6.23%
Principal 312,985,664 33.76% 2,517,954,456 12.43%
Rajshahi 1,592,576 0.17% 19,524,085 8.16%
Shantinagar 0 0.00% 24,523,452 0.00%
Sonargaon Road 13,322,652 1.44% 260,368,475 5.12%
M
O
Station Road 5,759,227 0.62% 92,675,962 6.21%
.C
Uttara 0 0.00% 54,122,333 0.00%
Total 927,002,347 100.00% SU 6,514,472,952 14.23%
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In this above table of September 2004, which is procured from the Credit
:E
Notable that, from the previous year, Eastern Bank Limited has followed a strict
Fr
strategy to classify any account. EBL Credit Department has set various rigorous
ed
Even after all such restriction and strict policies the Branch wise classification is here
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5.3 Manpower
After the restructuring of the bank and its processes, manpower requirement in various
areas has been decreased significantly. Before change, there were one credit officer in
each branch (total of 22) to handle the credit risk. But after the restructuring,
necessity of these officers ends. Now, only 12 persons are handling all the portfolios
sitting in the head office. The whole process is thus centralized. According to the last
- 136 -
snapshot taken from the bank, it was found that only 12 person are managing the
credit risk of Tk. 1500 crore loans and advances.
6.0 CONCLUSION
M
EBL is the first local Private Bank in Bangladesh, which has implanted the strategy of
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Centralization. The ultimate goal of following this strategy is to maximizing the profit
.C
and also reduces the amount of bad debts. All the major decisions about providing the
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facilities to the clients will be taken by the head office. Only head office has the
authority of providing the funded and non-funded facilities to the corporate clients.
-N
Corporate Banking division is liable to do the marketing of the corporate clients and
:E
Credit Administration division is responsible for the monitoring and scrutinizing of the
om
daily transactions of the corporate clients. Head Office credit will decide whether any
facility will be provided to the existing clients and also to the new clients. Trade
Fr
Services division will control all the import/export business of Eastern Bank Limited.
ed
Now EBL is concentrating on increasing the portion of good assets so that it can reduce
ct
its losses. This decision had an immediate impact on the Banks profitability, because
le
as the portion of good asset is rising EBL is earning less interest income. To solve this
ol
problem EBL is trying to increase the volume of good assets and also increase the
C
volume of the business by providing funded and non-funded facilities to the strong
companies and group of companies in the market. Very soon EBL is going to introduce
credit card and debit card facilities to its clients, which will be a major feature of the
year 2003. EBL already signed a contract with the Banking software giant IFLEX which
is a sister concern of the CITI Group. IFLEX will provide all the necessary banking
software to the EBL and all the branches will be connected by the networking facility.
So, it can be said that with its new and improved features and unique Banking system
EBL is going to increase its competitiveness in the industry and satisfy its customers
more than before.
- 137 -
APPENDIX I Risk Grading by Bangladesh Bank
M
government bonds or a counter guarantee from a top
O
.C
tier international bank. All security documentation
SU
should be in place.
Good Satisfactory Risk 2 The repayment capacity of the borrower is strong. The
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- 138 -
conditions affecting the borrower, the industry or the
economic environment. These borrowers have an
above average risk due to strained liquidity, higher than
normal leverage, thin cash flow and/or inconsistent
earnings. Facilities should be downgraded to 4 if the
borrower incurs a loss, loan payments routinely fall past
due, account conduct is poor, or other untoward
factors are present. An Aggregate Score of 65-74 based
on the Risk Grade Scorecard.
Special Mention 5 Grade 5 assets have potential weaknesses that deserve
managements close attention. If left uncorrected,
M
these weaknesses may result in a deterioration of the
O
repayment prospects of the borrower. Facilities should
.C
be downgraded to 5 if sustained deterioration in
financial
SU
condition is noted (consecutive losses,
negative net worth, excessive leverage), if loan
-N
Scorecard.
ct
- 139 -
Doubtful and Bad 7 Full repayment of principal and interest is unlikely and
(non-performing) the possibility of loss is extremely high. However, due
to specifically identifiable pending factors, such as
litigation, liquidation procedures or capital injection,
the asset is not yet classified as Loss. Assets should be
downgraded to 7 if loan payments remain past due in
excess of 90 days, and interest income should be taken
into suspense (non-accrual). Loan loss provisions must
be raised against the estimated unrealizable amount of
all facilities. The adequacy of provisions must be
reviewed at least quarterly on all non-performing loans,
M
and the bank should pursue legal options to enforce
O
security to obtain repayment or negotiate an
.C
appropriate loan rescheduling. In all cases, the
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requirements of Bangladesh Bank in CIB reporting, loan
rescheduling and provisioning must be followed. An
-N
Scorecard
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- 140 -
APPENDIX II Obligor Risk Rating (ORR)
M
O
.C
RATING Short No CRITERIA SU STRATEGY
-N
GOOD GD 1 Growing Industry (Growth 15%+) Retain and grow with
Among top 20 in the Industry client
:E
turnover
ed
information
C
- 141 -
Leverage 1.5X and below
Timely submission of financial
information
Acceptable Parent/Sister Office
Guarantee
Acceptable collateral
MARGI-NAL/ MG/WL 3 Problem in Industry No increase in credit
WATCHLIST Loosing market share limit
Thin management with no succession Close monitoring thru
Unreliable sales/operating profit. clear action plan
Unsatisfactory payment Ensure 100%
record/account turnover completion of loan
M
Liquidity below 1X doc.
O
High Leverage Semi-annual review
.C
Perpetual delay in submission of Follow up for
financial information SU settlement of past
Incomplete Loan Documentation dues
-N
Drop in collateral value or collateral
:E
shortfall
Past due over 60 days
om
- 142 -
Clear exit plan to be in
place
Quarterly review
Follow up for
settlement of past
dues
M
dues
O
Legal action
.C
BAD & LOSS BL 7 All criteria of Doubtful SU Credit limit for
Past due over 360 days adjustment purpose
-N
Quarterly review
:E
Follow up for
settlement of past
om
dues
Fr
Legal action
NOTE: No 1 to 4 usually noted by Bank itself.
ed
- 143 -
C
ol
le
ct
ed
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:E
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SU
.C
O
M