1 2

&etter of Transmittal
#ate+ 1673575131 Suman Paul C%o,d%ur* Senior &e$turer BRAC Business S$%ool BRAC Universit*

BRAC UNIVERSITY

Su-8e$t+ Su-mission of Internee Re)ort' Dear Sir,

INTERNSHIP REPORT ON

It is a great pleasure and privilege to present the internshipRis! report "radin" titled Evaluation of Evaluation of Credit Assessment Credit Assessment Ris! "radin" mana"ement of #ut$% Ban"la Ban! &td ( which mana"ement of #ut$% Ban"la Ban! &td'( was assigned to me as a partial requirement for the competition of BBA Program. hroughout the stud! I have tried with the "est of m! capacit! to accommodate as much information and relevant issues as possi"le and tried to follow the instructions as !ou have Su)ervised suggested. I tried m! "est to ma#e this report as much B*+ informative as possi"le. I sincerel! "elieve that it will satisf! !our requirements. I however sincerel! "elieve that this report Suman Paul C%o,d%ur* will serve the purpose of m! internship program.

Senior &e$turer

BRAC Business S$%ool at ever! step of m! endeavor I am grateful to !ou for !our guidance and #ind cooperation BRAC Universit* on this report. I shall remain deepl! grateful if !ou #indl! ta#e some pan to go through the report and evaluate m! performance.
$! effort will "e reworded onl! if it adds value to the research literature.

Su-mitted B*+

As%fa. /ustafa An,ar I# 0 12314354

As%fa. /ustafa An,ar I# 0 12314354

#ate of Su-mission+ 1673575131

&etter of Endorsement -* t%e Su)ervisor

To 9%om It /a* Con$ern

his is to certif! that, As%fa. /ustafa An,ar & a student of BBA program, $a'or in

$ar#eting, Department of B(A) Business School, and B(A) *niversit!+ has completed the internee report titled Evaluation of Credit Assessment Ris! "radin" mana"ement of #ut$% Ban"la Ban! &td (successfull! under m! supervision.

I wish ever! success in his life. Supervisor

+++++++++++++++++++++++++++++++++++++ Suman Paul C%o,d%ur* Senior &e$turer BRAC Business S$%ool BRAC Universit*

A$!no,led"ement

-irst of all I would li#e to than# all mightil! Allah for giving me the patience and proper time to complete the internship stud! successfull!. It is pleasure to ta#e this occasion to than# a few people who have, assisted, encouraged directed and supported through out the internship program. I heartil! than# all the officials of the Dutch Bangla Ban# limited, Shantinagar Branch for their supporting as well as co+ operating me as an intern in their organi.ation. After that I especiall! than# to our manager sir AB#U&&AH A& :A;EE and m!

supervisor /AHBUB<U&<A&A/ of that "ranch for guiding me through the internship program and also /#' A& A:BAR /U&&IC: = SEO>? :A@I SAR9AR A&A/ = SEO>? RUBAYET HOSSAIN = SEO>? ;AROAUE AH/E# =SEO>? @AHI# AH/E#= SEO>? YASIN HU#A = SO>? /AHABUBU& A&A/ = O;;ICER>? @AHIRU& IS&A/ BE9E& =AO> and each / ever!one was ver! much sincere to give me the #nowledge of )redit Assessment and )redit (is# 0rading.

-inall!, I want to give m! special than#s to the Academic supervisor

Suman Paul for his

C%o,d%ur* =Senior &e$turer? BRAC Business S$%ool? BRAC Universit*>

support and enormous help throughout this Internship program, especiall! his guidelines throughout the period of preparing the report. I would li#e to conve! m! "est regards to all officials of the Shantinagar Branch of Dutch Bangla Ban# 1DBB23.

ECe$utive Summar*

his paper has attempted to highlight on an evaluation of Ris! Dradin" =CRD>

Credit Assessment

and Credit

in the conte5t of Dutch Bangla Ban# 2imited, Shantinagar Branch.

Dutch Bangla Ban# 2imited is among the leading commercial "an#s of the countr!. 2ending is one of the principal functions of the "an#. Sound lending practice therefore, is ver! important for profita"ilit! and success of a "an#. . -or the sa#e of sound lending, it is necessar! to develop a sound polic! and modern credit management techniques to ensure that loans6 advances are safe and the mone! will come "ac# within the time set for repa!ment. -or this purpose, proper and prior anal!sis of credit proposals is required to assess the ris#. )redit ris# anal!sis is one of the "asic to ris# management and control, as it is the ris# factor inherent in man! "an# "usinesses as the qualit! of credit is critical to sound "an#ing. -or the effective application of )(A, e5pertise and willingness as well as motivation of the "an#ers are needed. B! removing the road "loc#s of )($ and )(0 implication through the recommendations mentioned in this paper Dutch Bangla Ban# 2imited can open a new hori.on to "etter assess the ris#s for lending "an#ers and will "ring the accounta"ilit! in financial sector

Ta-le of Contents
itle Page 2etter of transmittal 2etter of 9ndorsement "! the Supervisor Ac#nowledgement 95ecutive summar! a"le of contents C%a)ter 3+ Introdu$tion 1.1 Bac#ground of the stud! 1.2 (ationale of the stud! 1.% Statement of the Pro"lems 1., Scope and Delimitation of the Stud! 1.4 ="'ective of the stud! 1.7 $ethodolog! of the Stud! 1.> 2imitation of the (eport C%a)ter 5+ Or"aniEational Part 2.1 )ompan! Profile at a glance 2.2)orporate Information 2.% $ission 2., ?ision 2.4 )ore ="'ectives of DBB2 2.7 he 0oal of the DBB2 2.> -eatures of DBB2 2.: =verall Ban#ing of DBB2 2.1<)orporate )ulture 2.11 Product Services Information 2.12 Ban#ing Products 2.1% 2oan / Advances 2.1,$anagement @ierarch! 2.14 $a'or units of the Ban# Page no8 1 2 % , 4 7+: ;+12 ; ; 1< 1< 1<+11 11 12 1%+24 1, 14 14 14 14 14 14 17 1> 1; 1;+2% 2%+2, 2, 2,+24 24

C%a)ter F+

Credit /ana"ement of #BB&+ Inter)retation'

A T%eoreti$al Anal*sis

>

%.1 Definition of )redit %.2 -actors (elated with )redit %.% )redit flow of DBB2 %., !pes of loans and advances offered "! DBB2 %.4 ="'ectives %.7 2ending Policies of DBB2 %.> 2ending Procedure of DBB2 %.: 0eneral Procedure for 2oans and Advances )hapter , 8 Ris!s asso$iated ,it% Credit ,.1 Ahat is (is#B ,.2 (is#s in Ban#ing Business ,.% )redit (is# ,., (ISC $ADA09$9D P(=)9SS ,.4 (is# $anagement ,.7 2ending (is# Anal!sis 12(A3 C%a)ter 2+ C SE&ECTION O;
RE#IT

2>

2: 2:

2;+%< %< %<+%2 %2+%7 %>+,7

,> ,: 4< 41 41 41 4,+47

ASSESS/ENT AN# BORRO9ER

C%a)ter G + Credit Ris! Dradin" 7.1 D9-IDI I=D =- )(0 7.2 -*D) I=DS =- )(0 7.% *S9 =- )(0 7., @=A = )=$P* 9 )(0 CHAPTER H+
INTERPRETATION O; CRE#IT RIS: /ANADE/ENT AN# CRE#IT RIS: DRA#IND O; #UTCH BAND&A BAN: &I/ITE#

4> 4> 4> 4:+4;

7<+7%

: CHAPTER I+ ;indin"s :.1 -indings :.2 (9)=$$9DDA I=DS :.% )onclusion BIB&IODRAPHY Anal*sis 7,+7> 7, 7, 74+77

7>

C%a)ter 3

3'3 Ba$!"round of t%e stud*+

)redit (is# 0rading is an important tool for credit ris# management as it helps a Ban# to understand various dimensions of ris# involved in different credit transactions. )redit (is# 0rading $anual of Bangladesh Ban# was circulated "! Bangladesh Ban# vide B(PD )ircular Do. 1: dated Decem"er 11, 2<<4 on Implementation of )redit (is# 0rading $anual which is primaril! in use for assessing the credit ris# grading "efore a "an# lend to its "orrowing clients. Since the nature of "usiness as well as leverage level of Ban#s is different from that of other "orrowing clients, the need for a separate )redit (is# 0rading $anual has "een felt. Ceeping this in mind and with a view to properl! ris# rate a Ban# in order to set up counter part! limits for providing credit products e5tended "! one "an# to another Ban# this )redit (is# 0rading $anual for the Ban# has "een produced. he )redit (is# 0rading $anual developed for a Ban# shall "e an effective tool to help a Ban# to ta#e a sound decision in anal!.ing credit ris# on another "an# and to set up a credit limit for mone! mar#et and other "usiness operations. According to Bangladesh Ban# E)redit (is# 0rading $anualF I have decided to prepare a report on Evaluation of Credit Assessment Ban"la Ban! &td(' Ris! "radin" mana"ement on #ut$%

3'5 Rationale of t%e Stud*+

Bangladesh is one of the underdeveloped countries in the world. he econom! of the countr! has a lot left to "e desired and there are lots of scopes for massive improvement. In an econom! li#e this, "an#ing sector can pla! a vital role to improve the overall social+ economic condition of the countr!. he "an#s "! pla!ing the role of an intermediar! can mo"ili.e the e5cess fund of surplus sectors to provide necessar! finance, to those sectors, which are needed to promote for the sound development of the econom!. As the "an#s provide finance or lending to its counter parts, there arises a ris# of credit ris#, which is the possi"ilit! that a "orrower or counter part! will fail to meet its o"ligations in accordance

1< with agreed terms. 9ven at present, this pro"lem is haunting man! "an#s and poses a ma'or threat towards their sound performing. So itGs ver! important to have an effective and sound credit ris# management s!stem in place which will help the "an# mitigate its ris# factors and carr! out successful financing service or lending. Aith that issue in mind, the topic E)redit (is# $anagementF has "een underta#en as m! topic for internship report.

3'F Statement of t%e Pro-lems+

o ma#e the consequence more specific we have focused different sectors. hose are8 H Ahat are the most important assessment criteria H @ow grading are done "ased on assessment H o anal!.e the )redit flow of DBB2 H o evaluate the overall credit management s!stem of DBB2 H -unctions and use of )redit (is# 0rading in DBB2

3'4 S$o)e and #elimitation of t%e Stud*+

hrough this surve! following people will "e "enefited H H Ban!s ;inan$ial institutions

3'2 O-8e$tives of t%e Stud*+

he report is prepared on the E Evaluation of Credit Assessment Ris! "radin"

mana"ement F of Dutch Bangla Ban# with the thought of getting in depth of the credit Assessment criteria and understands its importance.

Broad O-8e$tive 8 he "road o"'ective is to #now a"out S)e$ifi$ O-8e$tive+ H To %ave -etter orientation on $redit mana"ement a$tivities s)e$iall* )oli$* and )ra$ti$es? $redit a))raisal? $redit<)ro$essin" ste)s? $redit mana"ement of #ut$% Ban"la Ban! &imited =#BB&>' I $redit t%e $redit assessment and ris! "radin" )ro$ess'

11

12 H to familiariEe ,it% t%e $redit mana"ement in t%e Ban!in" arena and to "ras) C%a)ter 5 an idea a-out -an! involvement in $redit mana"ement s*stem H H Evaluation of $redit ris!' &endin" Pro$edure of #ut$% Ban"la Ban! &td Dutch+Bangla Ban# 2imited 1DBB23 is a scheduled commercial "an#. he Ban# was esta"lished under the Ban# )ompanies Act 1;;1 and incorporated as a pu"lic limited compan! under the )ompanies Act 1;;, in Bangladesh with the primar! he following methodolog! will "e followed for the stud! "ased on o"servation o"'ective to carr! on all #inds of "an#ing "usiness in Bangladesh. he Ban# is listed and interpretation. Data sources are scheduled surve!, informal discussion with with Dha#a Stoc# 95change 2imited and )hittagong Stoc# 95change 2imited. professionals and o"servation while wor#ing in different des#s. DBB2+ a Bangladesh 9uropean private 'oint venture scheduled commercial "an# he secondar! data sources are annual reports, manuals, and "rochures of Dutch commenced formal operation from June %, 1;;7. he head office of the Ban# is Bangla Ban# limited and different pu"lications of Bangladesh Ban#. located at Sena#al!an Bha"an 1,th floor3, 1;4, $oti'heel )6A, Dha#a, Bangladesh. o identif! the implementation, supervision, monitoring and repa!ment practice+ he Ban# commenced its "an#ing "usiness with one "ranch on , Jul! 1;;7. interview with the emplo!ee and e5tensive stud! of the e5isting file was and practical case o"servations were done. Ban#s are the pillars of the financial s!stem. Speciall!, in Bangladesh the health of

ORDANI@ATIONA& PART

3'G /et%odolo"* of t%e Stud*+

3'H &imitation of t%e Re)ort

the "an#ing s!stem is ver! vital "ecause the capital mar#et is little developed here. As the "an#s are still the ma'or sources of credit and e5ercise great influence on the

financial s!stem, it is e5tremel! important the"ut countr!Ks "an#ing s!stems should hough I have given utmost effort to prepare thisthat paper there are some limitations of "e in good health in the interest of investment activities meeting the needs of all the stud!. he! are as follows+ #inds ofhas finance andon related matters. 1. his paper focused the most sensitive part of the organi.ation i.e. loan and advance. So the "an# authorit! hesitated to disclose important information to maintain =ver the !ears, Dutch+Bangla Ban# 2imited has "uilt itself as one of the pillars of "usiness secrec!. BangladeshKs financial sector and is pla!ing a pivotal role in the e5tending 2. =nl! % months time is not enough to complete such a stud! in a lucid manner. the role of private sector of the econom!. he "an# has strong "ranch networ# national wide %. he whole report was prepared on the Shantinagar Branch of Dutch Bangla Ban# and so with 47 "ranches. it doesnGt focus the true picture of the )redit (is# Assessment scenario of the whole "an#ing sector in the countr!.

1%

5'3 Com)an* Profile at a "lan$e+

Dame8 Dutch+Bangla Ban# 2imited

Lear of 9sta"lishment8

1;;7

Authori.ed )apital ,<< )rore

Paid up )apital8 2<2.1, )rore

Dum"er of Branches8

4;

Dum"er of 9mplo!ees8 otal Dum"er of Shareholders8 >;<<

>:;

otal Profit -igure in 2<<>8

1,%.:7 )ore

otal Deposit of the Ban# in 2<<>8

,2,11<.14 million

otal Dum"er of 95ecutive / =fficers8 :,>

9arning per Share 8 2%>.%> ta#a

Business 2in#8 Different =rgani.ation "oth 0overnment and Don 0overnment

5'5 Cor)orate Information+

Re"istered Offi$e

Sena Cal!an Bha"an 1%

rd

-loor3, 1;4, $oti'heel )ommercial

Area, Dha#a 1<<<, Bangladesh

1,

5'F /ission
Dutch+Bangla Ban# 2imited engineers enterprise and creativit! in "usiness and industr! with a commitment to social responsi"ilit!. EProfits aloneF do not hold a central focus in the Ban#Gs operation& "ecause Eman does not live "! "read and "utter aloneF.

5'4 Vision
Dutch+Bangla Ban# dreams of "etter Bangladesh, where arts and letters, sports and athletics, music and entertainment, science and education, health and h!giene, clean and pollution free environment and a"ove all a societ! "ased on moralit! and ethics ma#e all our lives worth living. DBB2Gs essence and ethos rest on a cosmos of creativit! and the marvel+magic of a charmed life that a"ounds with spirit of life and adventures that contri"utes towards human development.

5'2 Core O-8e$tives of #ut$%<Ban"la Ban! &imited'

Dutch+Bangla Ban# "elieves in its uncompromising commitment to fulfill its customerGs needs and satisfaction and to "ecome their first choice in "an#ing. a#ing cue from its pool of esteemed clientele, Dutch+Bangla Ban# intends to pave the wa! for a new era in "an#ing that upholds and epitomi.es its vaunted marques ELour rusted PartnerF

5'G T%e Doal of t%e Ban!+

shareholders wealth.

o share a significant portion of the "an#ing sectorKs "!

utili.ing availa"le manpower and also state of the art technolog! for ma5imi.ing the

o 2ong+term goal8 o ma5imi.e the wealth of the shareholders. o Short term goal8 he earn satisfactor! rate of return on investment providing wide range of "an#ing services.

14

5'H;eatures of #ut$%<Ban"la Ban! &imited

here are so man! reasons "ehind the "etter performance of Dutch+Bangla Ban# 2imited than an! other newl! esta"lished "an#s8 @ighl! qualified and efficient professionals management the "an# Dutch+Bangla Ban# 2imited has esta"lished a core (esearch / Planning Division with efficient persons. he Ban# has esta"lished correspondent relationship more that 1<< of foreign "an#s. he computeri.ed operation s!stem in all "ranches of DBB2 has provided the frequent and prompt customer service. he inner environment and teamwor# of all "ranches in DBB2 motivated All e5perienced emplo!ees to achieve the ultimate o"'ective of DBB2. Dutch+Bangla Ban# 2imited has "ecome a mem"er of the SAI- s!stem to e5pedite foreign trade transaction. Dutch+Bangla Ban# 2imited has "ecome introduced some scheme for the purpose of saving of low income people which are not availa"le in other li#e MA'i"on Pension SchemeM he Ban# offers attractive saving rate than other financial institutes. Dutch+Bangla Ban# 2imited provides loan to the customers at lower interest with eas! and fle5i"le condition that the others do. Dutch+Bangla Ban# 2imited charges lower commission from their customer in comparison with other "an#s. Along with the profit generation Dutch+Bangla Ban# 2imited also maintains social responsi"ilities. he Ban# alwa!s guided their potential customer "! giving valua"le advises '

5'I Overall Ban!in" of #BB&+

3' 9lectronic Ban#ing + Service "ecause it is advanced, secure and afforda"le. DBB2 creates a custom "an#ing service to suit an! "usiness of an! si.e. he services have a wide range that includes cash flow services, distri"ution "an#ing and salar! accounts. If a compan! #nows what t!pe of custom and tailored "an#ing service the! need, DBB2 can provide it instantl! and at minimal cost 1usuall! free of charge3.

17 5' S$9 Ban#ing + he purpose of the loan ma! "e Seasonal -inancing of inventor! or rade (eceiva"le or "oth to the "usiness entit! Dature of Business Aholesalers, $anufacturers 6 Assem"lers and (etailers of machiner!, accessories, agriculture items, etc 2oan Amount $a5imum C. 4<<,<<<6+ Interest (ate N 1>O p.a. F' 2etter =f )redit 12)3 8Areas of =peration H Im)ort ;inan$e DBB2 e5tends finance to the importers in the form of8 1. =pening of Import 26) 2. )redit against rust (eceipt for retirement of import "ills. %. Short term / medium term loans for installation of imported machineries / production thereof. ,. Pa!ment against document H EC)ort ;inan$e 1. Pre+Shipment -inance Pre+Shipment finance in the form of8 I3 =pening of Bac#+to+Bac# 26) II3 95port )ash )redit

2. Post+Shipment -inance Post+Shipment finance in the form of8 I3 -oreign62ocal Documentar! Bills Purchase H II3 95port )redit 0uarantee III3 -inance against cash incentive 4' ;orei"n Remittan$e DBB2 provides premium qualit! service for repatriation and collection of remittance with the help of its first class correspondents and trained personnel. B! introducing on+line "an#ing service and "ecoming a SAI- Alliance Access $em"er, which ena"le its "ranches to send and receive pa!ment instruction directl! that helps provide premium services. (emittance services provided "! DBB2 are8 Inward (emittance8 Draft, =utward (emittance8 -DD, , ) and )ash 1-)3 2' Treasur* DBB2 is well equipped for treasur! operation through su"scri"ing (eutersKs terminal and operating in SAI- networ#. It is also well equipped with competent human resources for efficient dealing.

G' A$$ounts Servi$es+ DBB2 provides all the accounts services as prescri"ed "! the guidelines of )entral Ban# 1Bangladesh Ban#3. Account services are8 1. -oreign )urrenc! Account

1> 2. Don+(esident -oreign )urrenc! Deposit Account 1D-)D3 %. (esident -oreign )urrenc! Deposit Account 1(-)D3 ,. )onverti"le and Don+)onverti"le a#a Account 4. )onverti"le and Don+)onverti"le a#a Account 7. Don+(esident Bloc#ed a#a Account.

H' Cor)orate Ban!in"+ services. he! include8 H H H H H H H

Dutch+Bangla Ban# offers a wide range of corporate "an#ing

Pro'ect finance. Aor#ing )apital finance S!ndications / Structured finance rade finance 9quit! finance Social and 9nvironmental Infrastructure finance )ustom electronic+"an#ing pro'ects

I' #e-it 7 Credit Cards

Dutch+Bangla Ban# provides the de"it and credit card facilit! to their customer.

6' Internet Ban!in"+

DBB2 allows customer to do seamless internet "an#ing. his allows !ou to review account, statements, pa!ing "ills as well as ma#ing some transactions. Because of local "an#ing regulations, DBB2 is not allowed to provide some t!pes of transactions even though it is full! capa"le.

5'6 Com)etitors+

BRAC Ban!? Standard C%artered Ban! &td? Ban! Asia

5'31 Cor)orate Culture

Dutch+Bangla Ban# 2imited 1DBB23 is one of the most disciplined Ban# with a distinctive corporate culture. In this "an#, it "elieves in shared meaning, shared understanding and shared sense this "an#, it "elieves in shared meaning, shared understanding and shared sense ma#ing. h e People of "an# can see and understand events, activities, o"'ects and situation in a distinctive wa!. he! mould their manners

1: and etiquette, character individuall! to suit the purpose of the Ban# and the needs of the customers who are of paramount importance to them. he people in the Ban# see themselves as a tight #nit team6famil! that "elieves in wor#ing together for growth. he corporate culture the! "elong has not "een imposed8 it has rather "een achieved through their corporate culture.

5'33 Produ$t Servi$es Information

DBB2+D9P*S )lassic )ard 1de"it3

)ard Products8

DBB2+D9P*S $aestro card 1de"it3 DBB2+D9P*S $aestro card 1de"it3 DBB2+D9P*S Silver =D card 1credit3 DBB2+D9P*S 0old =D card 1credit3

rul! =nline Ban#ing

I Products8

Aide range of A $ / P=S Internet Ban#ing S$S / Alert Ban#ing

)lean )redit 2ines8 (etail Ban#ing Products8

1Do cash securit!, Do personal guarantee.3

DBB2 2ife 2ine8

-rom the "as#et of 2ife 2ine, DBB2 is offering a complete series of credit facilities for individual service holders, professionals and self+emplo!ed person.

@ealth 2ine8
@ospitalisation or other emergenc! medical needs& opurchase "od! fitness equipments.

9ducation 2ine8
-or @igher education purposes8 uition fees

Professionals 2ine

1;
Purchase of Professional equipments& -or =ffice renovation6decoration

$arriage 2ine
o meet marriage e5penses for himself6herself $arriages in the famil!

ravel 2ine8
-or @one!moon trip, a"road or in the countr! -or -amil! trip, a"road or in the countr!

-estival 2ine8
o en'o! festive period 0ift for the famil! 6 in laws 6 relatives

Dreams )ome rue 2ine8

o purchase ?, -ridge, -urniture, @ome heatre, $otor )!cle, A) etc. o decorate6renovate own @ome6)ar

(etail Ban#ing Products8

)are 2ine8
2oan for fulfilment of parents need6dream o purchase econom! car for the famil! 1i.e. to purchase low cost second hand car3

0eneral 2ine8
An! other legitimate purposes which do not fall under the a"ove specific lines

Auto 2ine8
Secured )redit 2ines 1fle5i"le facilit! with minimum securit!3 o purchase a new 6 re+conditioned car (efinancing of availed car

@o me 2ine8

o purchase a flat

(efinancing of owned house propert! @ome renovation 95tension 6 construction of "uilding

-ull Secured 2ines 8

2oans for famil! e5penses An! other valid purposes

2<

Secured 6 )lean =D 2ines8

1fle5i"le =D lines in De"it )ard3 =D facilit! against securit! =D facilit! against salar! DBB2 Deposit Plus Scheme 1DPS3 DBB2 Periodic Benefit Scheme 1PBS3 DBB2 Bochore Dergun Scheme 1BDS3 DBB2 )hildren 9ducation Savings Scheme 1)@9SS3 DBB2 Pension Plus 1PP3

DBB2 -uture 2ine

5'35 Ban!in" Produ$ts

Deposit Savings Deposit Account )urrent Deposit Account Short erm Deposit Account (esident -oreign )urrenc! Deposit -oreign )urrenc! Deposit )onverti"le a#a Account Don+)onverti"le a#a Account 95porterKs -) Deposit1-BPA(3 )urrent Deposit Account+Ban# Short erm Deposit Account+Ban# erm Deposit $=D @2L 9($ D9P=SI 9($ D9P=SI % $=D @S 9($ D9P=SI 7 $=D @S 9($ D9P=SI 12 $=D @S 9($ D9P=SI 12 $=D @S 9($ D9P=SI 2, $=D @S 9($ D9P=SI 2, $=D @S 1 Lear PAL=* 9($ D9P=SI %7 $=D @S 9($ D9P=SI %7 $=D @S 7 $onths PAL=* 9($ D9P=SI %7 $=D @S 1 Lear PAL=* 9($ D9P=SI AB=?9 %7 $=D @S $=D @2L 9($ D9P=SI BADCS 9($ D9P=SI % $=D @S BADCS 9($ D9P=SI 7 $=D @S BADCS 9($ D9P=SI 12 $=D @S BADCS

21 1 $=D @ D D-)D % $=D @S D D-)D 7 $=D @S D D-)D

5'3F &oan

Advan$es

H 2ife 2ine 1a complete series of personnel credit facilit!3 H 2oan angst. rust (eceipt H ransport 2oan H (eal 9state 2oan 1(es. / )omm.3 H 2oan Angst. Accepted Bill H Industrial erm 2oan H Agricultural erm 2oan H 2ease -inance H =ther erm 2oan H -$= 2ocal currenc! 2oan for S$9 H -$= -oreign currenc! 2oan H )ash )redit 1@!pothecation3 H Small Shop -inancing Scheme H =verdraft

5'34/ana"ement Hierar$%*+
)hairman Director $anaging Director Additional $anaging Director Deput! $anaging Director Senior 95ecutive ?ice President 95ecutive ?ice President Senior ?ice President -irst ?ice President ?ice President Senior Assistant ?ice President

22 -irst Assistant ?ice President Assistant ?ice President Senior 95ecutive =fficer 95ecutive =fficer Senior =fficer =fficer Assistant =fficer rainee =fficer Assistant (elationship =fficer

5'32 /a8or units of t%e Ban!+

H Board Secretariat H =ffice of the $anaging Director H =ffice of the Additional $anaging Director H =ffice of the Deput! $anaging Director 1=peration3 H =ffice of the Deput! $anaging Director 1Administration3 H Accounts Division H )redit Division H )ard Division H )redit Administration Division H )redit $onitoring / (ecover! Division H )orporate Ban#ing Division H 0eneral Services Division H @uman (esource Division H Information echnolog! Division H International Division 1 reasur! Bac# =ffice3 H Internal )ontrol And )ompliance Division H International Division 1-ront =ffice3 H $edical )onsultant H (etail / S$9 Division H raining Aing

2%

C%a)ter F

Credit /ana"ement of #ut$% Ban"la Ban! &td + A T%eoreti$al Anal*sis Inter)retation+

F'3 #efinition of Credit+ he word credit comes from the 2atin word E)redoF meaning EI "elieveF. It is a lenderGs trust in a personGs6 firmGs6 or compan!Gs a"ilit! or potential a"ilit! and intention to repa!. In other words, credit is the a"ilit! to command goods or services of another in return for promise to pa! such goods or services at some specified time in the future. -or a Ban#, it is the main source of profit and on the other hand, the wrong use of credit would "ring disaster not onl! for the "an# "ut also for the econom! as a whole. he o"'ective of the credit management is to ma5imi.e the performing asset and the minimi.ation of the non+performing asset as well as ensuring the optimal point of loan and advance and their efficient management. )redit management is a d!namic field where a certain standard of long+range planning is needed to allocate the fund in diverse field and to minimi.e the ris# and ma5imi.ing the return on the invested fund. )ontinuous supervision, monitoring and follow+up are highl! required for ensuring the timel! repa!ment and minimi.ing the default. Actuall! the credit portfolio is not onl! constituted the "an#s asset structure "ut also a vital factor of the "an#Gs success. he overall success in credit management depends on the "an#s credit polic!, portfolio of credit, monitoring, supervision and follow+up of the loan and advance. F'5 ;a$tors Related ,it% Credit+ H (is# H ime H Interest rate H Securit! or )ollateral H =perating 95pense H 2egal )onsiderations

2, H Inflation H -inance )harge

F'F Credit flo, of #BB&+

)redit (is# $anagement is "asic to ris# management and controlling, as it is the ma'or ris# factor in most "an# "usiness. herefore, a "an# should assess the degree of ris# associated with each loan and its profita"ilit!. In this connection prior assessment of and follow up on a loan transaction constitute essential ingredients of the credit ris# control process. An in+depth anal!sis of the "orrower financial conditions, e5pected usage of funds, a"ilit! to repa!, willingness to repa! and sources of repa!ment all together constitute step one in the ris# control processes. )ontinuous supervision, monitoring and follow+up are highl! required for ensuring the timel! repa!ment and minimi.ing the default. Actuall! the credit portfolio is not onl! constituted the "an#s asset structure "ut also a vital factor of the "an#Gs success. he overall success in credit management depends on the "an#s credit polic!, portfolio of credit, monitoring, supervision and follow+up of the loan and advance.

F'4 T*)es of loans and advan$es offered -* #BB&+ he ma#ing of loan and advance is alwa!s profita"le to a "an#. As the "an# mo"ili.es savings from the general people in the form of deposit, the most important tas# of it is to dis"urse the said deposit as loan or advance to the mass people for the development of commercial, industrial who are in need of fund for investment. 2i#e other "usiness firm, the main purpose of the commercial "an# is to ma#e profit. he profita"ilit! of the "an#s depends on the efficient manner and avenues in which the resources are emplo!ed. DBB2 has made so far efficient use of the deposit and has the classified rates under control. he Ban# dis"urses loan in different form. It varies in purpose wise, mode wise and sector wide. he varieties used "! DBB2 are "riefl! descri"ed "elow with the common terms and condition and performance in each mode.

24 Classifi$ation of Advan$e+ Commer$ial F'43 )orporate )redit Scheme. F'45 (etail )redit Scheme Industrial Credit+

F'4'3 Cor)orate Credit S$%eme+ he "an# is entrusted with the responsi"ilit! of providing short, medium and long term loans and other financial assistance for promotion of industrial sectors. here are % t!pes of corporate credit scheme8 H )ash )redit H =ver Draft H Secured =ver draft

F'4'5 Retail Credit S$%eme+ he "an# also provides retail loan to individual customer. here are different t!pes of retail loan which helps customer to fulfill their dream. 2i#e car loan, educational loan, travel loan etc

F'G &endin" Poli$ies of #ut$% Ban"la Ban! &td+ A loan polic! gives loan officers, relationship managers and the Ban#Gs management specific guidelines in ma#ing individual loan decisions and in shaping the Ban#Gs overall loan portfolio. =ne of most important wa!s a Ban# can ma#e sure its loans meet regulator! standard and are profita"le is to esta"lish a written loan polic!. Dutch Bangla Ban# 2td. also has a good loan polic! and the most important elements of the polic! arc stated "elow8 A goal statement for the Ban#Gs loan portfolio 1in terms of t!pes, maturities, si.es, and qualit! of loans3. Specification of the lending authorit! given to each loan officer and loan committee 1measuring the ma5imum amount and t!pes of loan that each person and committee can approve.3 2ines of responsi"ilit! in ma#ing assignments and reporting information within the loan department.

27 =perating procedures for soliciting, reviewing, evaluating, and ma#ing decisions on customer loan applications. he required documentation that is to accompan! each loan application and what must "e #ept in the Ban#Gs credit files 1required financial statements, securit! agreements etc.3 2ines of authorit! within the "an# regarding who is responsi"le for maintaining and reviewing the Ban#Gs credit files. 0uidelines for ta#ing, evaluating and perfecting loan collateral. A presentation of policies and procedures for setting loan interest rates and fees and the terms for repa!ment of loans. A statement of qualit! standards applica"le to all loans. A statement of the preferred upper limit for total loans outstanding 1i.e. the ma5imum ratio to total loans to total assets allowed.3 A description of the Ban#Gs principal trade area, from which most loans should come. A discussion of the preferred procedures for detecting, anal!.ing and wor#ing out pro"lem loan situations. A written loan polic! statement carries a num"er of advantages for the "an# adopting it. It communicates to emplo!ees wor#ing in the loan department what procedures the! must follow and what their responsi"ilities are. It helps the Ban# moves forward a loan portfolio that can successfull! "lend multiple o"'ectives such as promoting the "an#Gs profita"ilit!, controlling its e5posure and satisf!ing regulator! requirements. F'H &endin" Pro$edure of #ut$% Ban"la Ban! &td+ he lending procedure starts with "uilding up relationship with customer through account opening. he stages of credit approval are done "oth at the "ranches and at the corporate office level. he various stages of credit approval are descri"ed sequentiall!8 Ste)<3 A loan procedure starts with a loan application from a client who must have an account with the Ban#. At first it starts from the "ranch level. Branch receives application from client for a loan facilit!. In the application client mention what t!pe of credit facilit!

2> he6she wants from the "an# including his6her personal information and "usiness information. Branch $anager or the =fficer+in+charge of the credit department conducts the initial interview with the customer. Ste)<5 After receiving the loan application from the client, the "an# sends a letter to )redit Information Bureau of Bangladesh Ban# for o"taining a credit inquir! report of the customer from there. his report is called )1B 1)redit Information Bureau3 report. his report is usuall! collected the credit information of customer. he purpose of this report is to "e informed that whether or not the "orrower has ta#en loans and advances from an! other "an#s and if so, what is the status of those loans and advances i.e. whether those loans are classified or not. Ste)<F If Bangladesh Ban# sends positive )IB report on that particular "orrower and if the Ban# thin#s that the prospective "orrower will "e a good one, then the "an# will scrutini.e the documents. (equired documents are8 H Incase of corporate client, financial documents of the compan! for the last three to five !ears. If the compan! is a new one, pro'ected financial data for the same duration is required. H Personal net worth of the "orrower1s3. H In this stage, the "an# will require whether the documents are properl! filled up and dul! signed. )redit in charge of the relevant "ranch is responsi"le enquire a"out the ins and outs of the customerGs "usiness through discussing with him6them. Ste)<4 Ban# officials of the credit department will inspect the pro'ect for which the loan is applied. Pro'ect e5istence, its distance from the "an# originating the loan, monitoring cost and possi"ilities are e5amined.

Ste)<2

2: An! loan proposal needs to "e evaluated on the "asis of financial information provided "! the loan applicant. -inancial spread sheet anal!sis which consists of a series of quantitative techniques is emplo!ed to anal!.e the ris#s associated with a particular loan and to 'udge the financial soundness and worthiness of the "orrower. Besides lending ris# anal!sis is also underta#en "! the "an# to measure the "orrowerGs a"ilit! to pa! considering various ris#s associated the loan. hese quantitative techniques supported with qualitative 'udgment are the most important and integral part of the credit approval process used "! DBB2. his is the credit anal!sis phase. Ste)<G ="tain legal opinion on the collateral provided "! the applicant, whether those are properl! su"mitted+ regular and up to date or else those documents will "e as#ed to regulari.e "! the applicant. Ste)<H he "ranch starts processing the loan at this stage. Based on the anal!ses 1credit anal!sis3 done "! the "ranch, the "ranch prepares a loan proposal. he proposal contains following important and relevant information8 Dame of the "orrower 1s3. Dature of credit. Purpose of the credit. 95tent of the credit. )ollateral. $argin. (ate of interest. (epa!ment schedule ?alidit!

Ste)<I

2; If the proposal meets DBB2Gs lending criteria and is within the managerGs discretionar! power, the credit line is approved. he manager and the sponsoring officer sign the credit line proposal and issue a sanction letter to the client. If the value of the credit line is a"ove the "ranch managerGs limit then it is send to head office or .onal office for final approval with detailed information regarding the client 1s3, credit anal!sis and securit! papers. Ste)<6 @ead office processes the credit proposal and afterwards puts forward an office notice if the loan is within the discretionar! power of the head office credit committee or "oard memorandum if the loan requires approval from the "oard of directors. Ste)<l1 If the .onal office, credit committee of the head office or the "oard as the case ma! "e approves the credit line, an approval letter is sent to the "ranch. he "ranch then issues a sanction letter to the "orrower with a duplicate cop!. he duplicate cop! dul! signed "! the "orrower is returned to the "ranch of the "an#. Ste)<33 After issuing the sanction advice, the "an# will collect necessar! charge documents. )harge documents var! on the "asis of t!pes of facilit!, t!pes of collateral. Ste)<35 -inall! loan is dis"ursed "! the "ranch through a loan account in the name of the "orrower and monitoring of the loan starts formall!.

T%ere must -e a de)t% stud* on t%e follo,in" )oints+ Ahen the loan is to "e given& @ow the loan is to "e given& Ahat ma! happen after dis"ursement of the loan& 0enerall! what happens 1from past e5perience3 after dis"ursement of the loan& Is it hopeful that the loaner will repa! the loan& In which sector, private or pu"lic, trading or industrial, the loan will "e given&

%< he loan will "e short term or long term. A manager will do the possi"le efforts to minimi.e the ris# of the Ban#.

F'I Deneral Pro$edure for &oans and Advan$es+

)ustomer Application

2oan Processing

Branch =ffice

Approved

@ead =ffice

)redit Proposal

(eport )ollection 2oan Dis"urse o )ustomer -rom BB )IB

Approval o )ustomer

)ustomer Document

Branch )redit

-ormalities 2oan pra!er

F'I'3 ;irst information s%eet =;IS> -irst information sheet 1-IS3 is the prescri"ed from provided "! the respective "ranch that contains "asic information of the "orrower. It contains following particulars. 1. Dame of the concern with its factor! location, office address and el no. 2. Dame of the main sponsors with their educational qualification.

%1 %. Business e5perience of the sponsors, details of past and present "usiness, its achievement and failures, name of ill the concerns wherein the sponsors have involvement. ,. Income ta5 registration no. Aith the amount of ta5 paid for the last three !ears. 4. Details of unencum"ered assets 1mova"le / immova"le3 personall! owned "! the sponsors. 7. Details of lia"ilities with other "an#s and financial institutions including securities held there against. >. Purpose of loan sought from DBB2. :. 9stimated cost of the pro'ect / means of finance.

F'I'5 A))li$ation for $redit line After receiving the first information sheet from the "orrower Ban# official verifies all the information carefull!. @e also chec#s the account maintains "! the "orrower with the Ban#. If the official "ecome satisfied then he gives application to the "an# prescri"e format supplied "! the "an# called )redit for request limit 1)(-23. F'I'F Credit San$tion A))raisal Pro$ess

Borrowers )redit Aorthiness Anal!sis "! DBB2 following 7 E)Fs8 he question that must "e dealt with "efore an! other whether or not the customer can service the loan that is pa! out the loan when due with a comforta"le margin of error. his usuall! involves a detailed stud! of si5 aspects of the loan application8 character, capacit!, cash, collateral, conditions and control. All must "e satisfied for the loan to "e a good one from the lenderGs 1DBB23 point of view. C%ara$ter+ he loan officer must "e convinced that the customer has a well

defined purpose for requesting credit and a serious intention to pa!. (esponsi"ilit!, truthfulness, clean past record, true purpose and honest intention to repa! the loan ma#e up what a loan officer calls character. Ca)a$it*+ he customer requesting credit must have the authorit! to request such

and the legal standing to sign a "inding loan agreement.

%2 Cas%+ he "orrower should have the a"ilit! to generate enough cash flow to repa! the loan. his cash flow can "e generated from sales or income from the sales or income, from the sale of liquidation of assets or funds raised through de"t or equit! securities. Collateral+ he "orrower must possess adequate net worth or enough qualit!

assets to provide adequate support for the loan. he value of the collateral securit! must cover the loan e5posure. Conditions+ he recent trend of "orrowerGs line of wor# or industr! must "e ta#en

into considerations "! the lender. Control+ he lender should "e careful a"out whether changes in law and regulations could adversel! affect the "orrower and whether loan request meets the Ban#Gs and regulator! authoritiesG standards for loan qualit!.

F'I'4 Colle$tin" CIB Re)ort from Ban"lades% Ban! After receiving the application for credit line, Ban# sends a letter to Bangladesh Ban# for o"taining a report from there. his report is called )IB 1)redit Information Bureau3 report. Basicall! "ranch see#s this report from the head office for all #inds of loans. he purpose of this report is to "eing informed that whether the "orrower the "orrower has ta#en loan from an! other "an#& if Q!esG, then whether the part! has an! overdue amount or not.

F'I'2 /a!in" Credit )ro)osal =CP> Branch then has to find the right "orrower "! considering the following 7 )Gs. hese are character, capital, capacit!, cash, collateral, condition 1economic3. If the "ranch thin#s that the pro'ect is feasi"le then he will prepare a Proposal. Ban# prepares the proposal in a specific from called credit proposal. Significance the proposal "ranch sends it to head office for approval. F'I'G Credit assessment

A thorough credit and ris# assessment should "e conducted prior to the granting of loans, and at least annuall! thereafter for all facilities. he results of this assessment should "e presented in a credit application that originates from the (elationship $anager, and is

%% recommended "! Branch )redit )ommittee 1B))3. he ($ should "e the owner of the customer relationship, and must "e held responsi"le to ensure the accurac! of the entire credit application su"mitted for approval. ($s must "e familiar with the "an#Gs 2ending 0uidelines and should conduct due diligence on new "orrowers, principals and guarantors.

)redit Applications should summari.e the results of the ($s ris# assessment and include as a minimum, the following details8

H Amount and t!pe of loan1s3 proposed H Purpose of loans H 2oan structure 1 enor, )ovenants, (epa!ment Schedule, Interest3 H Securit! arrangements In addition, the following ris# areas are anal!.ed8 H Borrower anal!sis H Industr! anal!sis H Supplier6 Bu!er anal!sis H @istorical financial anal!sis H Pro'ected financial performance H Account conduct H Adherence to lending guidelines H $itigating factors H 2oan structure H Securit! F'I'H Ris! Dradin" All Ban#s should adopt a credit ris# grading s!stem. he s!stem should define the ris# profile of "orrowerGs to ensure that account management, structure and pricing are commensurate with the ris# involved. (is# grading is a #e! measurement of a Ban#Gs asset qualit!, and as such, it is essential that grading is a ro"ust process. All facilities should "e assigned a ris# grade. Ahere deterioration in ris# is noted, the (is# 0rade assigned to a "orrower and its facilities should "e immediatel! changed. Borrower (is# 0rades should "e clearl! stated on )redit Applications.

%, F'I'I Pro8e$t A))raisal It is the pre+investment anal!sis done "! the officer "efore approval of the pro'ect. Pro'ect appraisal in the "an#ing sector is needed for the following reasons8 1. o 'ustif! the soundness of an investment 2. o ensure repa!ment of "an# finance %. o achieve organi.ational goals ,. o recommend if the pro'ect is not designed properl!

F'I'6 Head Offi$e A))roval he respective officer of @ead =ffice appraises the pro'ect "! preparing a summar! named E op SheetF or E95ecutive Summar!F. hen he sends it to the @ead =ffice )redit )ommittee 1@=))3 for the approval of the loan. he @ead =ffice )redit )ommittee 1@=))3 considers the proposal and ta#es decision whether to approve the loan or not. If the loan is approved "! the @=) ), the @= sends the approval to the concerned "ranch with some conditions. hese are li#e. Drawing will not e5ceed the amount of "ill receiva"les. he tern over in the account during the tenure of the limit should not "e less than four times of the credit limit. All other terms and conditions, as per polic! and practice of the "an# for such advance to safeguard the "an#erGs interest shall also "e applica"le for this sanction also. Branch shall not e5ceed the sanctioned limit. (equired charge documents with dul! stamped should "e o"tained. Drawing shall "e allowed onl! after completion of mortgage formalities and other securit! arrangement.

%4 F'I'31 San$tion letter After getting the approval from the @=, the "ranch issues the sanction letter to the "orrower. he "orrower receives the letter and returns a cop! of this letter dul! signed "! him as a to#en of having understood and acceptance of the terms and conditions a"ove.

#ia"rammati$all* t%e ,%ole loan a))raisal and a))roval )ro$ess is

(equest for credit from the client to a "ranch )redit application from filled up "! the customer / collection of document

Scrutini.ing the document

Anal!.ing the information

Preparing the proposal he proposal& goes to the head office through other necessar! steps

Sanctioning the credit

Information the client, loan dis"ursement, supervision and monitoring

;i"+ &oan a))raisal and a))roval )ro$ess

F'I'33 #o$umentation of loans and advan$es In spite of the fact that "an#er lends credit to a "orrower after inquiring a"out the character, capacit! and capital of the "orrower, he must o"tain proper documents e5ecuted from the "orrower to protect him against willful defaults. $oreover, when mone! is lent

%7 against some securit! of some assets, the document must "e e5ecuted in order to give the "an#er a legal and "inding charge against those assets. Documents contain the precise terms of granting loans and the! serve as important evidence in the law courts if the circumstances so desire. hat is wh! all approval procedure and proper documentation shall "e completed "efore the dis"ursement of the facilities. he documents for loans and advances can "e classified into two categories, namel! )harge documents / Securit! documents. F'I'35 #is-ursement After verif!ing all the documents the "ranch dis"urses the loan to the "orrower. A loan repa!ment schedule is also prepared "! the "an# and given to the "orrower. F'I'3F ;ollo,<u) After the dis"ursement of the loan "an# officials time to time monitor the loan "! ph!sical o"servation of the activities of the part!. It is done in the following manner. )onstant supervision Aor#ing capital assessment Stoc# report anal!sis.

F'I'34 &oan $lassifi$ations Classifi$ations S$ale 1. Un$lassified+ (epa!ment is regular 2. Su-standard+ (epa!ment is irregular or stopped "ut has reasona"le prospect of improvement. %. #ou-tful #e-t+ *nli#el! to "e repaid "ut special collection efforts ma! result in partial recover!. ,. Bad7loss+ ?er! little chance of recover!.

F'I32 Credit /onitorin" $onitoring is a process of ta#ing case of loan cases starts from the selection of the "orrower and remains live throughout the life of a loan.

%> o minimi.e credit losses, monitoring procedures and s!stems should "e in places that provide an earl! indication of the deteriorating financial health of a "orrower. At a minimum, s!stems should "e in place to report the following e5ceptions to relevant e5ecutives in )($ and ($ team8 Past due principal or interest pa!ments, past due trade "ills, account e5cesses, and "reach of loan covenants& 2oan terms and conditions are monitored, financial statements are received on a regular "asis, and an! covenant "reaches or e5ceptions are referred to )($ and the ($ team for timel! follow+up. imel! corrective action is ta#en to address findings of an! internal, e5ternal or regulator inspection6audit. All "orrower relationships6loan facilities are reviewed and approved through the su"mission of a )redit Application at least annuall!. wo possi"le solutions to minimi.e the credit loss8

F'I3G Earl* Alert Pro$ess Despite a prudent credit approval process, loans ma! still "ecome trou"led. herefore, it is essential that earl! identification and prompt reporting of deteriorating credit signs "e done to ensure swift action to protect the Ban#Gs interest.

F'I'3H Credit Re$over* )ommercial Ban#s sanction loan to different categories of "orrowers for various purposes. Before sanctioning of loans and advances 1short term loan, long term loan3 "an# appraises a loan proposal and anal!.e information relating to the "orrower and purpose of the loan to determine via"ilit! of the loan proposal. If the proposal is found via"le and safe for lending, loan is sanctioned and dis"ursed. At the time of sanctioning loan, along with all other terms and conditions repa!ment period and installment is fi5ed. (ecover! of loan starts 'ust after the maturit! of grace period. But more e5haustive appraisal of the loan proposal in the pre+sanction stage is not the guarantee to recover the loan mone! with interest unless a "uilt in s!stem of

%: supervision / follow up is applied and proper treatment is given as and when pro"lem arises. he (*Gs primar! functions are8 H Determine Account Action Plan6(ecover! Strateg! H Pursue all options to ma5imi.e recover!, including placing customers into receivership or liquidation as appropriate. H 9nsure adequate and timel! loan loss provisions arc made "ased on actual and e5pected losses. H (egular review of grade ; or worse accounts. he loan classification procedure for all t!pes of loan is governed "! the guidelines contained in B(PD )ircular no 17 dated <7.12.;: issued "! Bangladesh Ban# and su"sequentl! revised partiall! through B(PD )ircular no ; and 1< dated 1,.<4.2<<<, According to this circular if an! "orrower fails to repa! his amount or installment within the following time period then it will fall under the following classification status.

%;

C%a)ter 4
Ris!s asso$iated ,it% Credit

4'3 9%at is Ris!J

H (is# is the pro"a"ilit! that the reali.ed return would "e different from the
anticipated6e5pected return on investment.

H (is# is a measure of li#elihood of a "ad financial outcome. H All other things "eing equal ris# will "e avoided. H All other things are however not equal and that a reduction in ris# is accompanied
"! a reduction in e5pected return.

he uncertainties associated with ris# elements impact the net cash flow of an!

"usiness or investment. *nder the impact of uncertainties, variations in net cash flow ta#e place. his could "e favora"le or un+favora"le. he un+favora"le impact is Q(ISCG of the "usiness.

,< 4'5 Ris!s in Ban!in" Business Ban#ing "usiness is "roadl! grouped under following ma'or heads from (is# $anagement point of view8 1. he Ban#ing Boo# 2. he rading Boo# %. =ff+Balance+sheet 95posures

,1

4'F3 Business Ris!

Business (is# is concerned with whether the "orrowing compan! would fail to generate sufficient cash out of "usiness to repa! the loan. Business (is#, the main component of lending ris#, consists of the Industr! (is# and the )ompan! (is#. A. Industr* Ris! 8 Due to some e5ternal reasons a "usiness ma! fail and the ris#, which arrives from e5ternal reasons of the "usiness, is called industr! ris#. It has two components8 13 Su))l* ris! 8 It indicates the ris# of failure of the "usiness due to disruption in the suppl! of inputs resulting from their price, quantit! or qualit!. It is difficult to o"tain right qualit! of supplies, when it is difficult to o"tain required qualit! of raw materials and when there is a shortage of necessar! s#illed la"or. 5> Sales ris! 8 It is another component of industr! ris#. Ahen the "usiness fails for disruption in sales, this t!pe of ris# would generate. Sales ma! "e disrupted due to changes in mar#et si.e, increased competition, changes in regulations, losing of a single large customer etc. B. Com)an* Ris! 8 9ach and ever! compan! holds a position within an industr!. his position is ver! much competitive. Due to wea#ness in the compan!Gs position in its industr!, a compan! ma! fail and the ris# of failure is called compan! position ris#. It depends on compan! performance. 4'F5 /ana"ement ris! 8 If the management of a compan! fails to e5ploit the compan!Gs position effectivel!, the compan! can fail to and this ris# of failure is called management ris#. 4'FF Se$urit* Ris!+ Securit! (is# is the ris# that the reali.ed value of the securit! does not cover the e5posure of loan. 95posure means principal plus outstanding interest. Securit! ris# can "e divided into two parts.

,2 4'4 RIS: /ANADE/ENT PROCESS

H H H H H

= ID9D I-L = $9AS*(9 = $=DI-L = $ADA09 = $=DI =(

4'2 Ris! /ana"ement+ )redit ris#, arises from the "an#Gs dealings with or lending to corporate, individuals, and other "an#s or financial institutions. )redit ris# management needs to "e a ro"ust process that ena"les "an#s to proactivel! manage loan portfolios in order to minimi.e losses and earn an accepta"le level of return for shareholders. )entral to this is a comprehensive I s!stem, which should have the a"ilit! to capture all #e! customer data, ris# management and transaction information including trade / -ore5. 0iven the fast changing, d!namic glo"al econom! and the increasing pressure of glo"ali.ation, li"erali.ation, consolidation and dis+intermediation, it is essential that DBB2 have a ro"ust credit ris# management policies and procedures that arc sensitive and responsive to these changes. he purpose of this document is to provide directional guidelines that will improve the ris# management culture, esta"lish minimum standards for segregation of duties and responsi"ilities, and assist in the ongoing improvement of our Ban#Gs performances. )redit ris# management is of utmost importance, and as such, policies and procedures should "e endorsed and strictl! enforced.

4'G &endin" Ris! Anal*sis =&RA> =ne of the important functions of an! "an# is considered to "e lending. his is the main source of income for the "an#. he modem concept of lending has shifted from the ,2

,% securit!+oriented approach to "usiness via"ilit! one. he emphasis is given on the li#elihood of repa!ment, "usiness via"ilit!, management competence and management integrit! of the proposed de"tor. As the prevailing legal s!stem of the countr! often favors the "orrower "! ma#ing it difficult for the Ban# to foreclose on collateral, the ultimate securit! of the Ban# is the )ommercial success of the "orrower. Adequate emphasis of "usiness ris# is more important than anal!sis of securit! ris#. Colle$t #ata Anal*Ee

H )ollect all data availa"le from pu"lished source

H Prepare financial spreadsheet H Anal!.e spreadsheet H (atio H )omplete

H ?isit compan! to collect compan! specific data that is not pu"lished, interview management to assess their a"ilit! and integrit! view the securit! from !our own impressions of compan! operations H Prepare supplementar!

lending ris# anal!sis form

,%

,, 95perienced people of the credit department of DBB2 Ban# do this sort of anal!sis. It is a ran#ing whose total score are 1,<. Among these scores 12< is for total "usiness ris# and 2< for total securit! ris#. It is a four+scale rating. In case of "usiness ris#, if the point falls "etween 1% to 1; then poor ris#& if the score falls "etween 2< to 27 then accepta"le ris#& if the score falls "etween 2> to %, then marginal ris# and if the score is over %, then good ris#. In ease of securit! ris#, if the score falls "etween +2< to +1 4 then poor ris#& if the score falls "etween +1, to < then accepta"le ris#& if the score calls "etween < to 1< then marginal ris# and if the score is over 1< then good ris#.

,,

,4

C%a)ter 2

C RE#IT A SSESS/ENT AN#

SE&ECTION O;

BORRO9ER

)redit assessment helps the "an#er to ensure selection of right t!pe of loan proposals6pro'ects6ventures6enterprise and right t!pe of "orrower. -or selecting the "orrower securit! should not the onl! thing to "e relied upon. So responsi"ilities of the "an#ers to investigate the client from different view point i.e. the strength and wea# ness of the client so that the client will "e a"le to repa! the "an# loan as repa!ment schedule with profit.

)redit ris# assessment should "e conducted prior to the granting of loans, and at least annuall! thereafter for all facilities. he result of this assessment should "e presented in a credit application that originates from the (elationship $anager 1($3, and is approved "! )redit (is# $anagement 1)($3. )redit applications should summaries the results of the ($s ris# assessment and include, as a minimum, the following details8 H Amount and t!pe of loan1s3 proposed H Purpose of loans H 2oan Structure 1 enor, )ovenants, (epa!ment Schedule, Interest3 H Securit! Arrangements In addition, the following ris# areas should "e addressed8

H Borro,er Anal*sis+

he ma'orit! shareholders, management team and group or

affiliate companies should "e assessed. An! issues regarding lac# of management depth, complicated ownership structures or inter+group transactions should "e addressed, and ris#s mitigated.

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,7 H Industr* Anal*sis+ he #e! ris# factors of the "orrowerGs industr! should "e assessed.

An! issues regarding the "orrowerGs position in the industr!, overall industr! concerns or competitive forces should "e addressed and the strengths and wea#ness of the "orrower relative to its competition should "e identified.

Su))lier7Bu*er Anal*sis+

An! customer or supplier concentration should "e

addressed, as these could have a significant impact on the future via"ilit! of the "orrower.

Histori$al ;inan$ial Anal*sis+

An anal!sis of a minimum of % !ears historical

financial statements of the "orrower should "e presented. Ahere reliance is placed on a corporate guarantor, guarantor financial statements should also "e anal!.ed. he anal!sis should address the qualit! and sustaina"ilit! of earnings, cash flow and the strength of the "orrowerGs "alance sheet. Specificall!, cash flow, leverage and profita"ilit! must "e anal!.ed.

Pro8e$ted ;inan$ial Performan$e+

Ahere term facilities 1tenor R 1 !ear3 are "eing

proposed, a pro'ection of the "orrowerGs future financial performance should "e provided, indicating an anal!sis of the sufficienc! of cash flow to service de"t repa!ments. 2oans should not "e granted if pro'ected cash flow is insufficient to repa! de"ts.

A$$ount Condu$t+

-or e5isting "orrowers, the historic performance in meeting

repa!ment o"ligations 1trade pa!ments, cheques, interest and principal pa!ments, etc3 should "e assessed.

Ad%eren$e to &endin" Duidelines+

)redit applications should clearl! state whether

or not the proposed application is in compliance with the "an#Gs 2ending E0uidelines. he Ban#Gs @ead of credit or $anaging Director6)9= should approve )redit Applications that do not adhere to the "an#Gs 2ending 0uidelines.

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,> H /iti"atin" ;a$tors+ $itigating factors for ris#s in the credit assessment should "e

identified. Possi"le ris#s include, "ut are not limited to8 margin sustaina"ilit! and6 or volatilit!, high de"t load 1leverage6gearing3, overstoc#ing or de"tor issues& rapid growth, acquisition or succession issues& customer or supplier concentrations& and lac# of transparenc! or industr! issues.

&oan Stru$ture+

he amounts and tenors of financing proposed should "e 'ustified

"ased on the perfected repa!ment a"ilit! and loan purpose. 95cessive tenor or amount relative to "usiness needs increases the ris# of fund diversion and ma! adversel! impact the "orrowerGs repa!ment a"ilit!.

Se$urit*+ A current valuation of collateral should "e o"tained and the qualit! and

priorit! of securit! "eing proposed should "e assessed. 2oans should not "e granted "ased solel! on securit!. Adequac! and the e5tent of the insurance coverage should "e assessed.

Name &endin"+ )redit proposals should not "e undul! influenced "! an over reliance

on the sponsoring principalGs reputation, reported independent means, or their perceive willingness to in'ect funds into various "usiness enterprises in case of need. hese situations should "e discouraged and treated with great caution. (ather, credit proposals and the granting of loans should "e "ased on sound fundamentals, supported "! a thorough financial and ris# anal!sis.

-acilities will onl! "e provided after anal!sis of the ris#s associated with the counter parties. here are numerous ris#s attached to ever! transaction6relationship "ut there is a need for certain fundamental ris# aspects to "e considered for ever! relationship. )ertain of these ris#s have "een identified which will "e required to "e commented upon on a mandator! "asis.

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C%a)ter G
CRE#IT RIS: DRA#IND
2'3 #E;INITION O; CRE#IT RIS: DRA#IND =CRD> H he )redit (is# 0rading 1)(03 is a collective definition "ased on the pre+ specified scale and reflects the underl!ing credit+ris# for a given e5posure. H A )redit (is# 0rading deplo!s a num"er6 alpha"et6 s!m"ol as a primar! summar! indicator of ris#s associated with a credit e5posure. H )redit (is# 0rading is the "asic module for developing a )redit (is# $anagement s!stem. 2'5 ;UNCTIONS O; CRE#IT RIS: DRA#IND Aell+managed credit ris# grading s!stems promote "an# safet! and soundness "! facilitating informed decision+ma#ing. 0rading s!stems measure credit ris# and differentiate individual credits and groups of credits "! the ris# the! pose. his allows "an# management and e5aminers to monitor changes and trends in ris# levels. he process also allows "an# management to manage ris# to optimi.e returns. 2'F USE O; CRE#IT RIS: DRA#IND H he )redit (is# 0rading matri5 allows application of uniform standards to credits to ensure a common standardi.ed approach to assess the qualit! of individual o"ligor, credit portfolio of a unit, line of "usiness, the "ranch or the Ban# as a whole. H As evident, the )(0 outputs would "e relevant for individual credit selection, wherein either a "orrower or a particular e5posure6facilit! is rated. he other decisions would "e related to pricing 1credit+spread3 and specific features of the credit facilit!. hese would largel! constitute o"ligor level anal!sis. H (is# grading would also "e relevant for surveillance and monitoring, internal $IS and assessing the aggregate ris# profile of a Ban#. It is also relevant for portfolio level anal!sis.

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2'4 HO9 TO CO/PUTE CRE#IT RIS: DRA#IND he following step+wise activities outline the detail process for arriving at credit ris# grading.

Ste) I + Identif* all t%e Prin$i)al Ris! Com)onents Ste) II + Allo$ate ,ei"%t a"es to Prin$i)al Ris! Com)onents Ste) III 8 Esta-lis% t%e :e* Parameters

Ste) IV + Assi"n ,ei"%t a"es to ea$% of t%e !e* )arameters' Ste) V + In)ut data to arrive at t%e s$ore on t%e !e* )arameters' Ste) VI + Arrive at t%e Credit Ris! Dradin" -ased on total s$ore o-tained'

Prin$i)al Ris! Com)onents+ :e* Parameters+ ;inan$ial Ris! 21K

9ei"%t+

2everage 14O 2iquidit! 14O Profita"ilit! 14O )overage Business7Industr* Ris! 3IK Si.e of Business Age of Business Business =utloo# Industr! growth 4O %O %O %O 2O 2O 4O

$ar#et )ompetition 9ntr!695it Barriers

/ana"ement Ris!

35K 95perience Succession eam Aor# 4O ,O %O

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4< Se$urit* Ris! 31K Securit! coverage )ollateral coverage Support Relations%i) Ris! 31K Account conduct *tili.ation of limit 4O 2O 2O ,O ,O

)ompliance of covenants 6condition Personal deposit 2O 1O

he following is the proposed )redit (is# 0rade matri5 "ased on the total score o"tained "! an o"ligor.

Num-er Ris! Dradin" S%ort Name S$ore 1 Superior S*P 1<<O cash covered 0overnment guarantee International Ban# guarantees 2 0ood 0D :4S % Accepta"le A))P , $arginal6Aatch list 4 Special $ention 7 Su"+standard SS ,4+4, > Dou"tful D- %4+,, : Bad / 2oss B2 T%4 S$ 44+7, >4+:, $06A2 74+>,

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41 2'2 ELCEPTIONS TO CRE#IT RIS: DRA#IND @ead of )redit (is# $anagement ma! also downgrade6classif! an account in the normal course of inspection of a Branch or during the periodic portfolio review. In such event, the )redit (is# 0rading -orm will then "e filled up "! )redit (is# $anagement Department and will "e referred to )orporate Ban#ing62ine of Business6)redit Administration Department6(ecover! *nit for updating their $IS6records. (ecommendation for upgrading of an account has to "e well 'ustified "! the recommending officers. 9ssentiall! complete removal of the reasons for downgrade should "e the "asis of an! upgrading. In case an account is rated marginal, special mention or unaccepta"le credit ris# as per the ris# grading score sheet, this ma! "e su"stantiated and credit ris# ma! "e accepted if the e5posure is additionall! collaterali.ed through cash collateral, good tangi"le collaterals and strong guarantees. T%ese are eC$e)tions and s%ould -e

eC$e)tionall* a))roved -* t%e a))ro)riate a))rovin" aut%orit*' Ahenever required an independent assessment of the credit ris# grading of an individual account ma! "e conducted "! the @ead of )redit (is# $anagement or "! the Internal Auditor documenting as to wh! the credit deteriorated and also pointing out the lapses. If a Ban# has its own well esta"lished ris# grading s!stem equivalent to the proposed credit ris# grading or stricter, then the! will have the option to continue with their own ris# grading s!stem.

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42

CHAPTER+ H
IN TERPRETATION O; C RE#IT RIS: /ANADE/ENT AN#
=BASE# ON THE &AST ;IVE YEARS #ATA

CRE#IT RIS: D RA#IND O;

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#UTCH BAND&A BAN: &I/ITE# +

his ta"le is showing the last five !ears few particulars. Such as total loan amount, he income come from the investment, the rate of the defaulter, then the total num"er of the customers of the Dutch Bangla Ban# limited. =In million ta!a>

Parti$ulars

5116

511I

511H

511G

5112

T%e &oans

4I431'66

43G6I'F5

5641F'35

F142G'F5

55265'5H

In$ome ;rom Investment

515'15 45I'6H GF1'IG G53'HF 3FF4'3H

Num-er Of $ustomers

3 21 &a$ 52 &a$ 51 &a$ 52 &a$

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4% H'3 &OANS O; #BB& ;RO/ THE 5112 TO 5116

21111 42111 41111 F2111 F1111 52111 51111 32111 31111 2111 1 5116 511I 511H 511G 5112

&oans

Inter)retation+
In t%e *ear 5112 t%e loan amount ,as 55265'5H million and t%en at t%e *ear 511G It in$reased to F142G'F5 million )er *ear and t%en in t%e *ear 511H it de$reased to 5641F'35 million t%en in t%e *ear 511I t%e loan amount %as rea$%ed to t%e almost %i"%est level as 43G6I'F5 and in t%e re$ent *ear 5116 t%e loan amount is 4I431'66 million )er *ear'

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4, H'5 INCO/E ;RO/ INVEST/ENT O; #BB& O; THE YEAR 5112 To 5116+

3411 3511 3111 I11 G11 411 511 1 5112 511G 511H 511I 5116 In$ome In million

Inter)retation+
T%e in$ome from t%e investment or t%e loan is "iven -elo,+ At t%e *ear 5112 t%e in$ome from revenue ,as 515'15 million )er *ear and to t%e neCt *ear t%e in$ome %as -een in$reased to 45I'6H in t%e *ear 511H t%e in$ome ,as a"ain in$reased to GF1'IG 'After t%at *ear in t%e neCt *ear t%e in$ome slo)ed do,n a little -it to G53'HF million' And in t%e last *ear 5116 t%e in$ome is in t%e %i"%est num-er t%at means at 3FF4'3H million ta!a )er *ear'

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H'F

Inter)retation of &oans and advan$es Of t%e leatest *ear 5116 of

#ut$% Ban"la Ban! &imited + SHANTINADAR BRANCH +

&oan? Advan$e And dis$ounted

lease in$ludin" t%e -ills )ur$%ased

S%ort term =,it% in one to t%ree mont%s> /id term =,it% in t%ree to t,elve mont%s> &on" term =,it% in one to five *ears> &on" term =for s)e$ials )ur)ose /ore t%an five *ear> <<<<<<<<<<<<<<<<<<<<<< GH212G665'32 52G5665'F1

5435F35GG'F6 5526G315I'1I

512F13H12'FI

F21111111 F11111111 521111111 511111111 321111111 311111111 21111111 1 &oan S%ort term /id term &on" term

In theses three sectors Dutch Bangla Ban# provides the loan to the customers among the all the! provide more emphasis to the long term loan sessions. he! earn more profit from these sectors.

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C%a)ter+ I
;indin"s I'3 Anal*sis+
SU2 no
Strongl! Agree 113 Agree 123 Deither Agree nor Disagree 1%3 Disagree 1, 3 Strongl! Disagree 143

Anal*sis

Vuestions

1 DBB2 increasing the economic and political environments through long term "usiness opportunities. 2 (etail product 1loan3 creates enough satisfaction. % 0ood num"ers of retail products 1loan3 are offered "! DBB2. , DBB2 retail loans offer minimum pricing structure.

F 3 F 3 F

2 I 2 2 G

2 F G H 4

3 F 1 5 3

3 1 3 1 3

4 DBB2 offer to customers ><O term loan 7 arget customers of DBB2 smart cash credit are small or medium entrepreneur. Are !ou ag reeing with usB

> Processing fees .>4O of DBB2 smart loan for customers which are afforda"le. : (epa!ment s!stem comforta"le for customers "ecause of auto de"it installment from customersG deposit account. ; )ustomers satisfied with DBB2 smart S$9. 1< 1%O interest rate on term loan, ver! cheap for customers. 11 DBB2 gives customers afforda"le offer for term loan to purchasing motor vehicle interest rate onl! 14O 12 )ustomers satisfied with cash overdraft 1)=D3, securit! must "e 2.4O of loan amount 1% )ustomers satisfied with DBB2 auto line repa!ment tenor 112 to 7< months3. 1, )ustomers give %<O down pa!ment to the DBB2 for term loan. Are !ou agreeing with this

2 6

G 2

3 1

3 1

3 3

F 5 F

H G I

2 2 3

1 5 5

1 1 3

5 F 1

4 6 H

5 3 F

G 3 2

3 3 1

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conditionB 14 DBB2 clean credit line interest rate 1>.4<O for no cash securit! customer. Interest rate are high than other "an#.

I'5 ;indin"s+
Bases on o"servation and interpretation I found some positive and negative side in DBB2. hose are given "elow8

H Ban# -ollow the overall credit assessment and ris# grading process according to Bangladesh Ban# ma5imum time. H 2oan and the advances are vital to finance the pro'ects. An appropriate credit distri"ution s!stem and monitoring will ultimatel! lead to the profit ma5imi.ing of "an#s. It is evident from that the si.e of DBB2 loans and advances are increasing over the !ears. It indicates mire earning for the "an#. It shows a positive growth rate. H DBB2 has a positive growth rate in Det profit.

I'5 PROB&E/ I#ENTI;ICATIONS

he Ban# does not go through "ac# ground investigation all parties. Some time the loan documentation is not fairl! done. Some time the document verification is done after loan sanction. he S$9 loan section is ver! poor "ecause the! focused on corporate loan.

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4: I'F RECO//EN#ATIONS

he Ban# can organi.e more training program and wor#shop to ma#e the emplo!ees more efficient in their sector. he Ban# has to esta"lish a strong E)redit $anualF. he Ban# has to go through "ac# ground investigation of all part!Gs. All the loan documentations have to done honestl!. All the document verifications have to done "efore loan sanction. he Ban# has to construct a long term strong investment polic!. he 2oan and Advance section has to ma#e strong and the emplo!ees have to "e devoted to the Ban#. he Ban# has to give emphasis the S$9 loan section. he Ban# should introduce more loan section.

Con$lusion
It goes without sa!ing that credit polic! cannot "e isolated from the "roader monitor! polic! of the countr!. 2i#e an! other segment of the economic polic!, credit is ver! important for an! financial institution as it generates profit and gear up economic activities of the countr!. In other words, credit is "usiness and it is input in the production process of the countr!. Since credit has an inherent ris#, therefore proper utili.ation of the loans are essential to meet the requirements of the "orrower. he loan applied for "! the "orrower must not "e emplo!ed for unproductive purpose. In this regard, the Dutch Bangla Ban# 2td. must closel! follow the progress of the loan and the wa! the "orrower

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4; is utili.ing the funds. In this wa! the Dutch Bangla Ban# 2td. will deter an! fraudulent activities on the part of the "orrower. )redit evaluation s!stem of Dutch Bangla Ban# 2td. is ver! length! process. It has "een revised time to time in response to the respective circular of Bangladesh Ban#. he overall credit activit! of Dutch Bangla Ban# 2td. is composed of corporate credit division and credit administration. he credit management s!stem of Dutch Bangla Ban# 2td. is more or less effective as recover! position of classified loan is high and classified loan has "een decreasing graduall! during the !ear. he! alwa!s tr!ing to improve their credit polic! for minimi.ing loss and ma5imi.ing profit and various measures are underta#en to develop the credit management s!stem. =verall, Dutch Bangla Ban# 2td. fairs ver! highl! in the e!es of the clients as can "e seen from the frequenc! distri"ution "rea#down given in )hapter >. his means that the Dutch Bangla Ban# 2td. is well W placed to further increase their presence in the credit mar#et and thus increase their profits in the future.

BIB&IODRAPHY+ 1. Article ,, *)PD), I)) Pu"lications D 4<<. 2. Dutch Bangla Ban# 2td. Annual (eport 2<<;, %. Dutch Bangla Ban# 2td. Ae" site1www.DBB2com3 ,. )redit $anagement Polic! =rder8 2<<: X 2<<; 4. 0uidelines for )redit $anagement of Bangladesh Ban# X 1;;7. 7. www."angladesh+"an#.org6mediaroom6...6cregradn""an#'un<>.pdf >. www."angladesh+"an#.org6mediaroom6core :. www.thefinanciale5press+"d.com ris! s6$reditris! s.pdf

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