Acknowledgement

First of all I want to pay my gratitude to the almighty Allah for helping me in
preparing this internship paper successfully. Internship report is an essential part of
MBA program as one can gather practical knowledge within the period of time by
observing and doing the daily works of chosen organization .In this regard my
internship has been arranged at Social Islami Bank Limited ,GEC Branch.

I want to express my gratefulness to my supervisor, Mr. Tasnim Uddin

Chawdhury for providing me continuous support and guideline to prepare my
Internship Report.

I am thankful to Mr. Muhammed Zubair Sadik ,Branch Manager of Social Islami

Bank Limited ,GEC Branch ,for permitting me to conduct my internship program
in this branch.

My sincere thanks goes to Mr. Muhiuddin ,SAVP & operation manager of Social
Islami Bank Limited GEC Branch for the cooperation.

Furthermore, I want to convey my heartiest thanks to Mr. Ajoy Chowdhury &

Minhajun Nesa who have helped me a lot with their kind views, assistance and
encouragement. Without their help I could not even think of preparing this report.

I truly believe that saying ,Thank You” to all individuals of Social Islami Bank
Limited ,GEC Branch not good enough to honour their support that I have been
provided in preparing my report. Finally , I would like to give thanks to all the
respondents for their participation to assist me sincerely.

1
 Executive summary

This report is divided into five parts. Part one is “Introductory part” which includes
introduction, rationale of the study, objectives of the study, scope of the study,
methodology of the study & limitations of the study. In this part I focus the process
of my study.

Part two focuses on the “Theoretical Aspect” of credit risk management . This part
includes concept of credit Risk, credit risk assessment procedures, basis of credit
risk, risk grading, credit risk management process.

Part three is the “Practical Aspect”. This part covers the company profile, various
departments, corporate information, sister concern of Social Islami Bank Limited.
Overall performance Social Islami Bank Limited, Analysis of credit risk, SWOT
analysis of Social Islami Bank Limited.

Last part is consist of the “Recommendations,Conclusion & Referance” which

includes recommendations, conclusion. Suggestions can be taken to overcome the
problems of Social Islami Bank Limited. In an overall sense, this study finds a very
promising and positive tone of Manage credit risk for the Social Islami Bank
Limited.

2
 Chapter 01
INTRODUCTION

Background of the study

Social Islami Bank Limited (SIBL) is a private owned bank. SIBL is a second
generation Islami bank operating since 22 November, 1995 based on Shariah
Principles. Now SIBL has 95 branches all over the country with two subsidiary
companies-SIBL securities ltd. And SIBL investment ltd. The bank opened 10
branches in 2013 to bring more people under the coverage of banking service.
SIBL is a capitalized new generating Bank with an authorized capital of Taka
10,000,000,000 in 2013 and paid up capital of Taka 7,031,415,640 in 2013 and
also taka 6,393,925,700 respectively as of December 2012.
For coordinating my internship I have been placed in Social Islami Bank
Limited, Mohakhali Branch, Dhaka. There are 03 sections in Mohakhali
Branch. They are:
1) General Banking.
2) Investment Department
3) Foreign Exchange Department.
Accordingly I shall work mainly on general banking sections. I shall devote my
utmost effort and attention to learn banker’s functions. After completion of the
internship, I will render my all knowledge to present the report on Overall
banking System of Social Islami Bank Limited- A Special Focus on general
banking.. In the organizational part will briefly describe overview of the
organizations historical background, functions, business philosophy, ownership
pattern, foreign correspondents and overseas operations and benefits provided
to customers by the organization. Branch operation part will describe the
product and service provided to the customers by a branch.

OBJECTIVE OF THE STUDY

The objectives of this study are as follows:
3
 i) To have a sound understanding of credit risk management system and
procedure followed in the Social Islami Bank Limited.
ii) To gain knowledge about the credit related operations and maintenance
in this bank.
iii) To analyze in detail the credit risk management process of the bank and
to make recommendations if needed.
iv) To focus on the credit risk grading system for analyzing the credit
assessment procedure of Social Islami Bank Limited.
v) To have a general idea about the credit risk management performance of
this bank

Methodology

Methodology indicates that from where I gathered data about my topics. There are
two types of data: Primary Data and Secondary Data. I have used both types of
information.

Primary Data: Data has been collected primarily through correspondence with the
personnel working in different departments of Social Islami Bank Limited, and
also Practical working exposures from the different desks of the different
departments of the branch, and relevant file and documents.

Secondary Data:

Source Validity Reliability Practicality

Annual Report Of 2016 & Moderate High High
2017
Internet High High High
Text book High High High
Statement of affairs 2017 Moderate High High

TABLE: SOURCES OF SECONDARY INFORMATION

4
LIMITATION
The present study was not out of limitations. But as an intern it was a great
opportunity for me to know the banking activities of Bangladesh specially National
Bank. Some constraints are as follows:

The main constraints of the study are inadequate access to information,

which has hampered the scope of analysis required for the study.
Due to time limitations many of the aspects could not be discussed in the
present report.
Available data of emergency cannot be found for their internal construction,
This study is limited to Credit Risk Management (CRM) of SIBL only rather
than all commercial banks of Bangladesh. So the researcher could not have
the view on total picture of CRM practice by the commercial banks and
financial institutions of Bangladesh, which limits the generalization of the
findings.

5
 CHAPTER 02
Theoritical Aspects

Contemporary banking organizations are exposed to a diverse set of market and

non-market risks, and the management of risk has accordingly become a core
function within banks. Banks have invested in risk management for the good
economic reason that their shareholders and creditors demand it. But bank
supervisors, such as the Bangladesh Bank, also have an obvious interest in
promoting strong risk management at banking organizations because a safe and
sound banking system is critical to economic growth and to the stability of
financial markets. Indeed, identifying, assessing, and promoting sound risk
management practices have become central elements of good supervisory practice.

What is credit?
In banking terminology, credit refers to the loans and advances made by the bank
to its customers or borrowers. Bank credit is a credit by which a person who has
given the required security to a bank has liberty to draw to a certain extent agreed
upon. It is an arrangement for deferred payment of a loan or purchase. (Wikipedia
dictionary)
Credit means a provision of, or commitment to provide, funds or substitutes for
funds, to a borrower, including off-balance sheet transactions, customers’ lines of
credit, overdrafts, bills purchased and discounted, and finance leases. (Guideline
on credit risk management, Bank of Mauritius)

What is credit risk?

Risk means the exposure to a chance of loss or damage. Risk is the element of
uncertainty or possibility of loss that exist in any business transaction. Credit risk

6
is the likelihood that a borrower or counter party will be unsuccessful to meet its
obligation in accordance with agreed terms and conditions. (Wikipedia dictionary)
Credit risk means the risk of credit loss those results from the failure of a borrower
to honor the borrower’s credit obligation to the financial institution. (Guideline on
credit risk management, Bank of Mauritius). Credit risk is most simply defined as
the potential that a bank borrower or counterparty will fail to meet its obligations
in accordance with agreed terms (Basel Committee on Banking Supervision,2000).
The constituent elements of credit risk can be viewed from the following
flowchart:
Figure 3.1: Flowchart of credit risk
What is the risk that the bank
does not fully recover the loan?

7
 Business risk Security Risk
What is the risk that the business fails to generate sufficient cash
What
to repay
is thethe
riskloan?
that the realized value of the security does not cov

Industry risk Company risk Control risk Cover risk

Supplies risk Sales risk

Position risk Management risk

Performance risk

Management competence risk Management integrity risk

Source: Chowdhury, L.R., (2002), A Text Book on Banker's Advances, 2nd edition

C REDIT R ISK M ANAGEMENT - B RIEF D ESCRIPTION OF THE S YSTEM

A comprehensive and accurate appraisal of the risk in every credit proposal of the
Bank is mandatory. No proposal can be put on place before approving authority
unless there has been a complete analysis. In order to safeguard Bank’s interest
over the entire period of the advance, a comprehensive view of the capital,
capacity, integrity of the borrower, adequacy, nature of security, compliance with
all regulatory /legal formalities, condition of all documentation and finally a
continuous and constant supervision on the account are called for. It is absolute
responsibility of the Credit Risk Manager / RM to ensure that all the necessary

8
documents are collected before the proposal is placed for approval. Where
Loans/Advances/Credit facilities are granted against the guarantee of the third
party, that guarantor must be subject to the same credit assessment as made for the
principal borrower.

CBL performs the following steps in credit risk management division-

 Loan administration
 Loan disbursement
 Project evaluation
 Processing and approving credit proposals of the branches
 Documentation, CIB (Credit Information Bureau) report etc
 Arranging different credit facilities
 Providing related statements to the Bangladesh Bank and other
departments
2.3 C REDIT R ISK A SSESSMENT P ROCEDURE
A thorough Credit and Risk assessment shall be conducted for all types of credit
proposals. The results of this assessment to be presented in the approved Credit
Appraisal Form that originates from the Credit Risk Manager / Relationship
Manager (RM) and is to be approved by the Credit Committee / Executive
Committee of the Board of Directors / Board of Directors. The Credit Risk
Manager / RM are the owner of the customer relationship and must be held
responsible to ensure the accuracy of the entire credit application / proposal
submitted for approval. The Credit Risk Manager / RMs must be familiar with
Bank’s Lending Guidelines and should conduct due diligence on new borrowers,
principals and guarantors in line with policy guidelines.
Credit Appraisal should summarize the results of Credit Risk Managers / RMs
risks assessment and includes, as a minimum, the following details:
 Amount and type of loan(s) proposed
 Purpose of Loan(s)
 Results of Financial analysis
 Loan structure (Tenor, Covenants, Repayment schedule, Interest)
 Security Arrangements

9
KYC Concept:
The Credit Risk Managers / RM must know their customers and conduct due
diligence on new borrowers, principals and guarantors to ensure such parties are in
fact who they represent themselves to be i.e., Know Your Customer (KYC).

The Banker – Customer relationship would be established first through opening of

CD/ STD / SB accounts. Proper introduction, photographs of the account holders /
signatories, passport, Trade License, Memorandum and Articles of the Company,
certificate of incorporation, certificate of commencement of business, List of
Directors, resolution, etc. i.e. all the required papers as per Bank’s policy and
regulatory requirements are to be obtained at the time of opening of the account. A
declaration regarding approximate transaction to the account is to be obtained
during opening of account. Information - regarding business pattern, nature of
business, volume of business, etc. to be ascertained. Any suspicious transaction
must be timely addressed and brought down to the notice of Head Office /
Bangladesh Bank as required and also appropriate corrective measures to be taken
as per the direction of Bank Management / Bangladesh Bank.

2.3 B ASICS OF C REDIT R ISK

The following risk areas shall be considered for analyzing a credit proposal.

 Borrower Analysis (Management/Ownership/Corporate Structure

Risk):

The majority shareholders, management teams and group or affiliate companies

shall be assessed. Any issues regarding lack of management depth, complicated
ownership structures or inter-group transactions shall be addressed, and risks to
be mitigated.
 Industry Analysis (Business and Industry Risk):

10
 The key risk factors of the borrower’s industry shall be assessed. Any issues
regarding the borrower’s position in the industry, overall industry concerns or
competitive forces (demand supply gap) shall be addressed and the strengths and
weaknesses (SWOT Analysis) of the borrower relative to its competition to be
identified. For the above purpose the Credit Risk Managers/RM may obtain /
collect data from the statistical year book / economic trends of Bangladesh Bank /
public report / newspaper/ journals etc

 Supplier/Buyer Analysis/Market Risk:

Any customer or supplier concentration shall be addressed, as these could have a
significant impact on the future viability of the borrower.

 Market Risk:
The sufficient market data is to be obtained to identify clients/borrowers’ market
share in the industry/demand-supply gap in the market.
 Technological Risk :
The product that is manufactured must be technologically viable i.e. whether the
technology applied is updated. The product’s stage in its life cycle must be
understood. Technical Aspects of the products must be addressed. The Credit Risk
Manager / RM must be satisfied with the mitigating factors of technical and
technological risk, associated with the products.

 Financial Analysis (Historical / Projected):

An analysis of a minimum of 3 years historical financial statements of the
borrower should be presented. Where reliance is placed on a corporate guarantor,
guarantor’s financial statement should also be analyzed. The analysis should
address the duality and sustainability of earnings, cash flow and the strength of the
borrower’s balance sheet. Specifically, cash flow, leverage and profitability must
be analyzed. In this regard the Credit Risk Manager / RM must look into the status
of chartered accountant audit firm.
Where term facilities (tenor > 1 year) are being proposed, a projection of the
borrower’s future financial performance should be provided, indicating an
analysis of the sufficiency of cash flow to service debt repayments. Loans shall

11
 not be granted if projected cash flow is insufficient to repay debts. In this regard
the possibilities of cost overrun and sensibility analysis shall be done.
 Account Conduct:
For existing borrowers, the historic performance in meeting repayment obligations
(trade payments, cheque, interest and principal payments, etc.) shall be assessed. In
this regard the Credit Risk Manager / RM may look into the account turnover like
debt summation / credit summation / highest debit balance/ highest credit balance
(or lowest debit balance), no. of debit entries/ no. of credit entries for last three
years (year-wise)
 Adherence to Lending Guidelines :
The Credit Applications/ Appraisals must be prepared in line with Bank’s lending
guidelines. It must be clearly stated whether or not the application/proposal is in
compliance with Bank’s Credit Policy lending guidelines.

 Interest Rate Risk :

The interest rate must be fixed based on different risk factors associated with the
type of business such as liquidity risk, commodity risk, equity risk, and loan
period risk. Interest rate also arises from the movements of interest rate in the
market. In assessing the pricing and profitability, the Credit Risk Manager/RM
must consider the income from ancillary business like foreign exchange business,
group business, volume of business etc.
 Foreign Exchange Risk :
The foreign exchange transaction is associated with foreign currency fluctuation
risk. Therefore the Credit Risk Manager/RM must take care of for the Foreign
exchange risk.
 Cost overrun Risk :
This type of risk is generally involved in taking project finance decision. A high
degree of cost overrun may cause the failure of the project. Therefore the Credit
Risk Manager must consider the cost components of the project and their chance
of devaluation.
 Mitigating Factors :
The Credit Risk Manager/RM must address to different risks associated with the
proposal. The possible risk include but not limited to market risk, financial risk,
12
foreign exchange risk, risk of cost overrun, 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. Mitigating factors for risks identified in the credit
assessment shall have to be described and understood.
The Bank must assess the critical risks of facilities given / to be given and ways /
factors of mitigation of those risks. Some of the critical factors are:
 Volatility
 High debt
 Overstocking
 Rapid growth
 Acquisition
 Debtors issues
 Succession

 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 increase the risk of fund diversion and may adversely impact the
borrower’s repayment ability. Related questions to be addressed are:

 Are facilities justified by the borrower’s business?

 Are any capital / long term expenditure being financed by short time
borrowing (either OD or TR)?
 What is the amount required? Is it sufficient or excess for the purpose
mentioned?

 Security :
A current valuation of collateral must be made by Bank’s approved enlisted
surveyors and the quality and priority of security being proposed shall be assessed
properly.

13
Loan shall not be granted solely on security consideration. Adequacy and the
extent of the insurance coverage shall be assessed. The Credit Risk Manager/RM
must look into the client’s interest / dependability on the collateral offered as
security.
 Name lending (Relationship Assessment) :
Credit proposals shall not be unduly influenced by an over reliance on the
sponsoring principal’s reputation, reported independent means, or their perceived
willingness to inject funds into various business enterprises in case of need. These
situations shall be discouraged and treated with great caution. Rather, credit
proposals and the granting of loans will be based on sound fundamentals supported
by a thorough financial and risk analysis.
2.4 R ISK G RADING
Risk grading is a key measurement of a Bank’s asset quality and as such, it is
essential that grading is a robust process. All facilities should be assigned a risk
grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower
and its facilities should be immediately changed. Borrower Risk Grades should be
clearly stated on Credit Applications.

2.5 Significance of Credit Risk Grading (CRG)

Credit risk grading is an important tool for credit risk management as it helps
the Banks & financial institutions to understand various dimensions of risk
involved in different credit transactions. The aggregation of such grading across
the borrowers, activities and the lines of business can provide better assessment
of the quality of credit portfolio of a bank or a branch. The credit risk grading
system is vital to take decisions both at the pre-sanction stage as well as post-
sanction stage.

 At the pre-sanction stage, credit grading helps the sanctioning authority to

decide whether to lend or not to lend, what should be the loan price, what
should be the extent of exposure, what should be the appropriate credit
facility, what are the various facilities, what are the various risk mitigation
tools to put a cap on the risk level.

14
  At the post-sanction stage, the bank can decide about the depth of the review
or renewal, frequency of review, periodicity of the grading, and other
precautions to be taken.

Having considered the significance of credit risk grading, it becomes imperative

for the banking system to carefully develop a credit risk grading model which
meets the objective outlined above.

2.6 Definition of Credit Risk Grading (CRG)

 The Credit Risk Grading (CRG) is a collective definition based on the pre-
specified scale and reflects the underlying credit-risk for a given exposure.
 A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary
summary indicator of risks associated with a credit exposure.
 Credit Risk Grading is the basic module for developing a Credit Risk
Management system.
2.7 F UNCTIONS OF CREDIT RISK GRADING
Well-managed credit risk grading systems promote bank safety and soundness by
facilitating informed decision-making. Grading systems measure credit risk and
differentiate individual credits and groups of credits by the risk they pose. This
allows bank management and examiners to monitor changes and trends in risk
levels. The process also allows bank management to manage risk to optimize
returns.

2.8 Use of Credit Risk Grading

 The Credit Risk Grading matrix allows application of uniform standards to

credits to ensure a common standardized approach to assess the quality of
individual obligor, credit portfolio of a unit, line of business, the branch or
the Bank as a whole.
 As evident, the CRG outputs would be relevant for individual credit
selection, wherein either a borrower or a particular exposure/facility is rated.
The other decisions would be related to pricing (credit-spread) and specific

15
 features of the credit facility. These would largely constitute obligor level
analysis.
 Risk grading would also be relevant for surveillance and monitoring, internal
MIS and assessing the aggregate risk profile of a Bank. It is also relevant for
portfolio level analysis.
2.9 Number and Short Name of Grades Used in the CRG

The CRG scale consists of 8 categories with Short names and Numbers are
provided as follows:

Grading Short Name Number

Superior SUP 1
Good GD 2
Acceptable ACCPT 3
Marginal/Watch MG/WL 4
list
Special Mention SM 5
Sub standard SS 6
Doubtful DF 7
Bad & Loss BL 8

2.10 R EGULATORY D EFINITION ON G RADING OF C LASSIFIED

A CCOUNTS

Irrespective of credit score obtained by a particular obligor, grading of the

classified names should be in line with Bangladesh Bank guidelines on classified
accounts, which is extracted from “Prudential Regulations for Banks: Selected
Issues” (updated till August 07, 2005) by Bangladesh Bank are presently as
follows:

Basis for Loan Classification:

(A) Objective Criteria:

16
 □ Any Continuous Loan if not repaid/renewed within the fixed expiry date for
repayment will be treated as irregular just from the following day of the
expiry date. This loan will be classified as Sub-standard if it is kept irregular
for 6 months or beyond but less than 9 months, as `Doubtful' if for 9 months
or beyond but less than 12 months and as `Bad & Loss' if for 12 months or
beyond.
□ Any Demand Loan will be considered as Sub-standard if it remains unpaid
for 6 months or beyond but not less than 9 months from the date of claim by
the bank or from the date of forced creation of the loan; likewise the loan
will be considered as ‘Doubtful' and ‘Bad & Loss’ if remains unpaid for 9
months or beyond but less than 12 months and for 12 months and beyond
respectively.
□ In case any installment(s) or part of installment(s) of a Fixed Term Loan is
not repaid within the due date, the amount of unpaid installment(s) will be
termed as `defaulted installment'.
2.11 C OMPUTATION OF C REDIT R ISK G RADING

The following step-wise activities outline the detail process for arriving at credit
risk grading.
Step I: Identify all the Principal Risk Components
Credit risk for counterparty arises from an aggregation of the following:
 Financial Risk
 Business/Indust
ry Risk
 Management
Risk
 Security Risk
 Relationship
Risk

Each of the above mentioned key risk areas require be evaluating and aggregating
to arrive at an overall risk grading measure.

17
a) Evaluation of Financial Risk:
Risk that counterparties will fail to meet obligation due to financial distress. This
typically entails analysis of financials i.e. analysis of leverage, liquidity,
profitability & interest coverage ratios. To conclude, this capitalizes on the risk of
high leverage, poor liquidity, low profitability & insufficient cash flow.

b) Evaluation of Business/Industry Risk:

Risk that adverse industry situation or unfavorable business condition will impact
borrowers’ capacity to meet obligation. The evaluation of this category of risk
looks at parameters such as business outlook, size of business, industry growth,
market competition & barriers to entry/exit. To conclude, this capitalizes on the
risk of failure due to low market share & poor industry growth.

c) Evaluation of Management Risk:

d) Risk that counterparties may default as a result of poor managerial ability

including experience of the management, its succession plan and team work.

e) Evaluation of Security Risk:

Risk, that the bank might be exposed due to poor quality or strength of the security
in case of default. This may entail strength of security & collateral, location of
collateral and support.

f) Evaluation of Relationship Risk:

These risk areas cover evaluation of limits utilization, account performance,
conditions/covenants compliance by the borrower and deposit relationship.

18
 Figure: Different Risk Factors for Credit Risk Assessment.

Step II: Allocate weightings to Principal Risk Components

According to the importance of risk profile, the following weightings are proposed
for corresponding principal risks.

Principal Risk Components: Weight:

 Financial Risk 50%
 Business/Industry Risk 18%
 Management Risk 12%
 Security Risk 10%
 Relationship Risk 10%

Step III: Establish the Key Parameters

Principal Risk Components: Key Parameters:

19
  Financial Risk Leverage, Liquidity, Profitability & Coverage
ratio.
 Business/Industry Risk Size of Business, Age of Business, Business
Outlook,Industry Growth, Competition &
Barriers to Business.
 Management Risk Experience, Succession & Team Work.
 Security Risk Security Coverage, Collateral Coverage and
Support.
 Relationship Risk Account Conduct ,Utilization of Limit, Compliance of
Covenants/conditions & Personal Deposit.

Step IV: Assign Weightings to each of the Key Parameters

Principal Risk Components: Key Parameters: Weight:

 Financial Risk
50%
 Leverage 15%
 Liquidity 15%
 Profitability 15%
 Coverage 5%
 Business/Indus
try Risk 18%
 Size of Business 5%
 Age of Business 3%
 Business Outlook 3%
 Industry growth 3%
 Market Competition 2%
 Entry/Exit Barriers 2%
 Management
Risk

12%

20
  Experience 5%
 Succession 4%
 Team Work 3%

 Security Risk

10%

 Security coverage 4%
 Collateral coverage 4%
 Support 2%

 Relationship
Risk

10%

 Account conduct 5%
 Utilization of limit 2%
 Compliance of covenants
/condition 2%
 Personal deposit 1%

Step V: Input data to arrive at the score on the key parameters.

After the risk identification & weight age assignment process (as mentioned above)
the next steps will be to input actual parameter in the score sheet to arrive at the
scores corresponding to the actual parameters.
There is a MS Excel based credit risk scoring sheet to calculate the total score on
each borrower. The excel program requires inputting data accurately in particular
21
cells for input and will automatically calculate the risk grade for a particular
borrower based on the total score obtained.

Step VI: Arrive at the Credit Risk Grading based on total score obtained.

The following is the proposed Credit Risk Grade matrix based on the total score
obtained by an obligor.

Number Risk Grading Short Score

Name
01 Superior SUP 


guarantees
02 Good GD 85+
03 Acceptable ACCPT 75-84
04 Marginal/Watch list MG/WL 65-74
05 Special Mention SM 55-64
06 Sub-standard SS 45-54
07 Doubtful DF 35-44
08 Bad & Loss BL <35

Credit Risk Management Process

Credit processing/appraisal

Credit approval/sanction

Credit documentation

22
 Credit administration

Disbursement

Monitoring and control of individual credits

Monitoring the overall credit portfolio (stress testing)
Credit classification

Managing problem credits/recovery

Collection objectives
The collector’s responsibility will commence from the time an account becomes
delinquent until it is regularized by means of payment or closed with full payment
amount collected. The goal of the collection process is to obtain payments
promptly while minimizing collection expense and write-off costs as well as
maintaining the customer’s goodwill by a high standard of service. For this reason
it is important that the collector should endeavor to resolve the account at the first
time worked. Collection also protects the assets of the bank. This can be achieved
by identifying early signals of delinquency and thus minimizing losses. The
customers who do not respond to collection efforts - represent a financial risk to
the institution. The Collector’s role is to collect so that the institution can keep the
loan on its books and does not have to write-off / charge off.

Identification and allocation of accounts

When a customer fails to pay the minimum amount due or instalment by the
payment due date, the account is considered in arrears or delinquent. When
accounts are delinquent, collection procedures are instituted to regularize the
accounts without losing the customer’s goodwill whilst ensuring that the bank’s
interests are protected.

Collection Steps
To identify and manage arrears, the following aging classification is adopted:

23
For all products other than credit cards

Table: Credit recovery steps

Days Past Due Collection Action
(DPD)
1-14 Letter, Follow up & Persuasion over phone
(Annexure V)
15-29 1st Reminder letter & Sl. No. 1 follows
30-44 2nd reminder letter + Single visit
45-59  3rd reminder letter (Annexure VI)
 Group visit by team member
 Follow up over phone
 Letters to Guarantor, Employer, Reference all
above effort follows
 Warning on legal action by next 15 days
60-89  Call up loan (Annexure VII)
 Final Reminder & Serve legal notice
 legal proceedings begin
 Repossession starts
90 and above  Telephone calls/Legal proceedings continue
 Collection effort continues by officer & agent
 Letter to different banks/Association
Source: (Prudential regulations for consumer financing 2010, Bangladesh Bank)
For credit cards:
Table: Credit recovery steps for credit card
Days Past Due Collection Action
(DPD)
X  Letter reminding payment past due
 Soft call requesting payment
30-59  Block card with “decline” response
 Call insisting payment
 Letter advising account status (blocked)
60-89  Block card with “decline” response

24
  Call insisting payment
 Letter advising a/c status (blocked) and
threatening card cancellation if not regularized
90-119  Call insisting immediate payment
 Letter advising cancellation & surrender of card
 Hot-list & circulate within the merchants
 Employ recovery agent where appropriate
120-149  Call threatening litigation
 Threatening letter to employer (for salaried only)
 Publish name & photograph in newspaper
 Personal visitation by recovery agent
 Set-off SCB Account(s), if any
 Serve legal notice where appropriate
150+  Bad debt allocation
 Account handed over to recovery agency
 Stop interest accrual
 Personal visitation by recovery agent
 Legal action

Source: (Prudential regulations for consumer financing 2014, Bangladesh Bank)

Legal actions could be taken on the basis of Artha Rin Adalat Ain 2003 which
has been enacted to encourage speedy settlement of legal cases. It provides support
for both the financial institutions and the borrower.
Chapter 3
Practical Aspects

25
An overview of SIBL
The SOCIAL ISLAMI BANK LTD (SIBL), a second-generation commercial bank,
operating since 22nd November, 1995 based on Shariah' Principles, has now 135 branches
all over the country with two subsidiary companies - SIBL Securities Ltd. & SIBL
Investment Ltd. Targeting poverty, SOCIAL ISLAMI BANK LTD, is indeed a concept of
21st century participatory three sector banking model in one. In the formal sector, it works
as an Islamic participatory commercial bank with human face approach to credit and
banking on the profit and loss sharing. It has a Non-formal banking sector too with informal
finance and investment package that empowers and humanizes real poor family and create
local income opportunities and discourages internal migration. The bank has another sector
to monetize the voluntary sector and management of Waqf, Mosque properties and has
introduced cash Waqf system for the first time in the history of banking. In the formal
corporate sector, this Bank, among others, offers the most up-to-date banking services
through opening of various types of deposit and investment accounts, financing trade,
providing letters of guarantee, opening letters of credit, collection of bills, leasing of
equipment and consumers' durable, hire purchase and instalment sale for capital goods,
investment in low-cost housing and management of real estates, participatory investment in
various industrial, agricultural, transport, educational and health projects and so on. 

The Bank has taken a renewed drive aiming at consolidating its business in more focused
areas covering SME and Agro-finance with emphasis on searching for alternative delivery
channel under which SMS banking and mobile based remittance payment systems and by

26
gradually introducing the same to disseminate the SIBL services to the doorsteps of the
customers. The Bank has already introduced Internet Banking and launched some new
products to strengthen its business. The products are Sonali Din, Sommridhir Sopan,
Sonchoy Protidin, Swopner Shiri, Shukher Thikana, Sabuj Chhaya, Sabuj Shayanho,
Subarnolata, Subornarekha, Sanchita etc. and Zameel ATM Debit card. . 

SIBL is a pioneer in introducing on-line banking among all the Islami Banks of the country
with state-of-the-art banking software. The state-of-the-art banking software enables the
Bank to provide any branch real time banking service to the clients. SIBL is supported by
core banking solutions and our products & services are strongly backed by IT infrastructure,
which are upgraded & expanded on continuous basis. 

SIBL has set its strategy to convert all its banking activities from traditional branch-based
banking system to an ideal blending of both centralized processing unit (CPU) and effective
operation of branch that is based on modern essence of banking. 

The Bank is running its payment system successfully through BACPS, BEFTN under
BACH in order to boost its businesses in multiple dimensions. By adopting BACH System
as per guidelines of Bangladesh Bank, SIBL ensures security, safety and hassle free faster
transactions from end to end. Moreover, the Bank is effectively adopting regulatory
guidelines on IT risk management. 

SIBL is quite conscious of its social business responsibilities and is always trying to
participate in various social programme in the country under its CSR portfolio giving
special emphasis on health, habitat & education. The Bank ensures to provide better
integrated idea of formal, informal & voluntary banking in the same platform. SIBL has its
unique feature to mobilize capital through CASH WAQF programme. 

SIBL lays emphasis on employment generating, environment friendly and green banking
based investment keeping an eye on equitable distribution of resources over geographical
territory for sustainable growth of macro economy of the country. 

The Corporate Governance system in SIBL ensures transparency and accountability at all

27
levels in conducting business. The Bank's continuous effort has been to increase the
shareholders' value and to be valued as a compliant organization.

SIBL Mission, Vision and Core Values

Our Vision
Working together for a caring society 

Our Mission
Establishing Three Sector Banking Model
Transformation to a service oriented technology driven profit earning Bank
Fast, accurate and satisfactory customer service
Balanced & sustainable growth strategy
Optimum return on shareholders’ equity
Introducing innovative Islamic Banking Products
Attracting and retaining high quality human resources
Empowering real poor families and creating local income opportunities
Providing support for social benefit organizations by way of mobilizing funds and social
services

Our values
Honesty

28
To be honest is ordained by the scripture – we stick to this value in all our service
provision.
Transparency
Remaining transparent in all acts is a virtue that's builds trust - we adhere to it.
Efficiency
Efficiency implies perfection in any job done - we strive to render full satisfaction with it.
Accountability
To be accountable is to be responsible and above any suspicion - we are dutifully there.
Religiousness
SIBL enhances economic well being with regard to the bliss of religious ethics.
Innovation
Our minds and eyes are open to the evolution in quality of life to innovate further benefits
for the service takers.
Flexibility
Flexibility leads to better understanding and greater satisfaction - we pursue the quality.
Security
Customers must feel secure with all our products and services - we keep on ensuring it.
Technology
Modern life is technology dependent - we keep looking for the latest development to
provide the best in ease to our clients.

OBJECTIVES

OUR STRATEGIC OBJECTIVES OUR COMMITMENTS to the Shariah to the

Regulators to the Shareholders to the Nation to the Customers to the Employees to
the other Stakeholders to the Environment. Transformation into a service-oriented
technology-driven profit earning bank. Ensure fast, accurate and best-in-class
customer services with customers’ satisfaction. Balanced and sustainable growth
strategy. Optimum return on shareholders’ equity. Introducing innovative Islamic
Banking Products. Attract, motivate and retain high quality human resources.
29
Empowering real poor families and create local income opportunities. Providing
support for social benefit organizations-by way of mobilizing funds and social
services To achieve global standards in Islamic Banking To invest in the priority
sector for the overall economic development Ensure best CSR (Corporate Social
Responsibilities) practices Ensure Green Banking.

CORPORATE PROFILE

Social Islami Bank Limited (SIBL) was established in the year 1995 as a public
limited company which is engaged in Shariah based commercial banking in the
country and its modus-operandi are substantially different from other conventional
banks. This is the second-generation pioneer Islamic Bank in this country to
introduce online banking facilities to its customers.

 Name of the Company : Social Islami Bank Limited

 Legal Form : Public Limited Company Company
 Registration No : C-28763(44)/95
 Authorized Capital : Taka 10,000,000,000
 Paid up Capital : Taka 7,382,986,420
 Registered Office : City Center, Level 19, 20, 21 & 22,28,29 90/1 Motijheel
C/A, Dhaka-1000 Phone PABX: +88-09612001122 FAX 88-02-9568098
 Email: info@sibl-bd.com
 Website: www.siblbd.com SWIFT : SOIVBDDH
 Tax Payer Identification No: 144050147394
 VAT Registration No: 19031074504
 Area Code 190103
 Credit Rating Agency : Emerging Credit Rating Ltd.
 Auditors : M/S Syful Shamsul Alam & Co.
 Chartered Accountants, Paramount Heights, Level-6, 65/2/1 Box Culvert
Road, Purana Paltanm Dhaka-1000
 Chairman : Major (Retd) Dr. Md. Rezaul Hoque Managing
 Director & CEO (cc) : Ihsanul Aziz

30
 Company Secretary : Md. Humayun Kabir,
 FCA Chief Risk Officer : Md. Yunus Ali
 Chief Financial Officer : Walid Mahmud Sobhani,
 FCMA Chief Compliance Officer : Abdul Mottaleb,
 Senior Vice President Number of Employees : 2363
 Number of Branches : 125 (one hundred twenty five)
 Number of Shares : 738,298,642
 Investors’ Enquiry : Share Division City Center, Level-19,90/1 Motijheel
C/A, Dhaka-1000 Phone PABX 88 02 09612001122
 For Offshore Banking : Off Shore Banking Department City Center, Level-
19,90/1 Motijheel C/A, Dhaka-1000
 For SIBL Securities Limited : Chief Executive Officer (a subsidiary of
SIBL) 3rd floor, 15 Dilkusha C/A ,Dhaka-1000
 For SIBL Investment Limited : Chief Executive Officer (a subsidiary of
SIBL) 7th floor, 68 Dilkusha C/A ,Dhaka-1000
 Listing Status (Shares) : DSE (Dhaka Stock Exchange) Symbol SIBL,
Listing Date 18.11.2000 CSE (Chittagong Stock Exchange) Symbol SIBL,
Listing Date 04.10.2005
 Market Price as on 31.12.2016
 DSE Taka 18.40 Category A,
 CSE Taka 18.40 Category A.

31
FUNCTION OF SOCIAL ISLAMI BANK LIMITED

Activities of SIBL

32
Risk Management
To ensure sustainable and consistent growth, SIBL has developed sound risk
management policies and framework as per Bangladesh Bank guidelines. All the
risk management policies and frameworks were reviewed by the Board of
Directors of SIBL during the year 2016. A Risk Management Committee (RMC)
was formed consisting of 5 (five) members of the Board of Directors in 2013. Main
objectives of the RMC are to ensure proper and timeliness risk management in
every sphere of the bank. The Board has been made responsible for identifying the
risks and formulation of appropriate strategies to control inherent banking risks.
The Committee submits decisions and recommendations to the Board on quarterly
basis for further reviews and guidance in the interest of the stakeholders. To
streamline the risk management system of the bank, a separate division called
“Risk Management Division” has been formed where a Deputy Managing Director
is working as Chief Risk Officer (CRO). The Division is staffed with some
brilliant and young professionals for consolidated risk management. Besides that, a
Management level Risk Management Committee is actively working to focus the
entire risk management system of the bank.

Green Banking
The concept of Green Banking has emerged from global warming issue. Social
Islami Bank Ltd. has declared to prefer eco-friendly business and energy efficient
industries at the time of selecting Investment clients. Adoption of Green Banking
Policy by the bank has been reducing paper-work to a great extent. More and more
Green-Banking activities during the year 2016 have successfully been recorded.
The bank has disbursed an amount of Tk. 19,824.23 million under green banking
finance in 2016 against Tk. 8,977.34 million in 2015.

Corporate Governance
Social Islami Bank Limited has given highest priority to develop and ensure
corporate governance. SIBL strictly adhere to the compliance requirements of
Bangladesh Bank relating to the Directors. Duties and responsibilities along with
code of conduct of the Chairman, Director, Managing Director, Company
Secretary, Chief Financial Officer and Head of Internal Control & Compliance of

33
Social Islami Bank limited are specifically defined by the Board of Directors of
SIBL and all such personnel have singed under their own hand to abide by their
code of conduct. SIBL has separate code of conduct for its employees and as you
will note from the Directors’ Report, also the compliance of the code of conduct
set by the Bangladesh Securities & Exchange Commission. During the year under
report, SIBL closely observed all compliance issues including Shariah and ensured
timely all regulatory compliances.

Branding & Team spirit A division called “Branding & Communication Division”
has been formed headed by a Additional Managing Director which is mainly
engaged in image building activities using all modern concepts & tools so that the
messages of our bank easily reach the grassroots level of the nation and abroad. To
support the total activities and efforts of the bank, this division is always planning
and generating ideas which have really made us confident in our day to day
working schedule. The bank formally declared its Branding & Communication
policy in 2010 and since then many ideas have been implemented stimulating us
towards building of team spirit with new and visionary zeal. The activities of SIBL
Branding have brought many procedural changes in a developed way which is
clearly visible. Now, SIBL is undoubtedly gaining momentum in its day to day for
his blessings. SIBL Foundation Hospital is indeed another success story of Social
Islami Bank Limited towards its journey of excellence. Corporate Social
Responsibility (CSR) activities of the Bank expended Taka 61.44 million against
Taka 57.70 million in 2015 under Health, Education, Sports, Disaster Management
and Environmental programs—mostly belonging to social utilities and reaffirm our
commitment to help many sectors. Operating Expenses, Profit of Cash Waqf Fund,
Compensation Fund, Doubtful Income and Zakat Fund are the main source of CSR
activities of the bank.

Human Resources & Development To provide developed and quick services to

customers with full satisfaction is a very challenging job in the competitive
banking era. Keeping this challenge in view, we have focused on the development
of human resources and best HR practices in our Bank. To this end, recruitment of
fresh blood and retention of competent personnel are our number one priority.

34
SIBL always tries to sort out all possible ways it deems beneficial to promote its
employees’ professional skill and efficiency. It has its own Training Institute,
which rendered useful training to 1721 employees last year compared to 1270 in
2015 and 402 employees from the Bank obtained training from outside including
BIBM in 2016 compared to 431 in 2015. The Training Institute of SIBL conducted
9 foundation training courses for total 340 nos. of fresh employees in 2016 against
4 foundation course for 102 nos. of employees in 2015. 16 workshops were
conducted on different burning issues related to banking industries where 658 nos.
different Officers and executives had participated against 27 workshops and 839
nos. of participants in 2015. We recognize our personnel by awarding most
competitive pay scale and incentives including different types of long-term
benefits like Provident Fund, Gratuity, Supper Annuity Fund (the then Social
Insurance), Leave Encashment etc. Depending on the market and growth of the
Bank, we review the pay structure on a regular interval basis. Performance of the
employee is determined on the basis of annual employee rating (Annual
Confidential Report—ACR) system along with meeting key performance
indicators. Deserving employees are rewarded under a performance-linked award
system with accelerated promotion.

PRODUCTS & SERVICES

SIBL is looking forward to expand its area of operation from urban to rural by
introducing new customized products and services that are tailored to different
economic class of people of the society in order to bring the un-banked people into
banking channels. During the year 2016, many Products and Services were
invented by the bank. Enormous emphasis was given to create a technology based
banking environment realizing the facts that spending on widespread technology
would be an Investment to support our growth and accordingly your bank has been
relentlessly pushing to popularize technology driven products and services.
Product & Services are as follows:

• Mudaraba Term Deposit

35
• Mudaraba Savings Deposit
• Al-Wadia Current Account
• Mudaraba Notice Deposit
• Mudaraba Scheme Deposit
• Mudaraba Hajj Savings Deposit
• Mudaraba Monthly Savings Scheme
• Mudaraba Special Deposit Pension Scheme (5 Years)
• Mudaraba Monthly Profit Deposit Scheme

• Mudaraba Education Deposit Scheme

• Mudaraba Home Saving Scheme
• Mudaraba Millinery Deposit Scheme
• ATM Service
• Locker Service
• Online Banking

Agent Banking To bring the unbanked people into banking from remote area of
Bangladesh, SIBL has successully launched Agent Banking Operation on 25th
October 2015. SIBL is offering (i) Cash Deposit facility (ii) Cash withdrawal
facility (iii) Foreign Remittance Disbursement facility (iv) Fund Transfer facility
(v) Balance Inquiry (vi) Mini Statement (vii) Opeining of MTDR , DPS accounts
services etc. to the grassroots and unbanked peopole through its Agent Banking
Operation. As on 31st December, 2016 the number of our Agent Banking outlets
was increased to 60 (sixty) and an amount of Taka 6.38 million was procured
through 10,047 numbers of accounts. An amount of Tk. 0.79 million was disbursed
as remittance and Tk. 0.70 million was earned from Agent Banking activities in the
year 2016. We have targeted to open more 200 new outlets of Agent Banking in
the year 2017 insha Allah.

Marketing Mix:
 Product: Product means customer solution. SIBL introduces some products
for their respective customers

36
 Price: Price means customer cost for the products. SIBL’s pricing system is
also satisfactory.
 Place: Place means convenience. Its channels, coverage’s is also
satisfactory.
 Promotion:Promotion refers to communication. There is a lacking for the
advertisement activities.

SIBL SWOT Analysis:

Strength: Strength means the positive internal factor that a company can use
to accomplish it mission, goals,& objectives. They might include:

 Customer satisfaction
 Service quality
 Pricing effectiveness
 Special skill &
 knowledge Positive public image.

Weakness: Weakness means the negative internal factors that inhibit or

restrict the accomplishment of company’s mission goal & objectives. They
might include:

 Market share
 Shortage of skill work force.
 SIBL has lack of ATM booth.

Opportunity: Opportunities are the external option that a firm can exploit to
accomplish its mission. They might include:

 Sales force effectiveness

 Customer retention
 Innovation effectiveness

37
 SIBL Threat: Threats are negative external forces that restrict a company’s
ability to achieve its mission goal & objectives. Threat to the business can
take variety type of forms such as:

 Promotion effectiveness
 Competitors entering the market
 Economic recession
 Technological advantages

38
 Chapter 4

Conclusionary Aspects

1 Findings
The findings of this study are summarized below:
a) The credit risk management process of Social Islami Bank Limited is quite
commendable. Systematic and timely monitoring and appropriate
documentation are tried to be maintained.
b) Customer satisfaction level is quite good. Informal conversation with some
customers reveals that they approve the credit evaluation and management
process of Social Islami Bank Ltd.
c) Filing procedure is not maintained in a definite and clear manner. It is
difficult to locate the documents in a chronological and sequential manner.

39
 A definite practice, though mentioned in the credit policy is not always
maintained by the credit officials.

d) The credit sanction and disbursement procedure is quite lengthy.

e) Networking system in Social Islami Bank Limited has to be improved.

Network gets disconnected several times a day which causes delays in the
overall process and other operations of the bank.

40
41
42
R ECOMMENDATION :
For effective Credit Risk Management of SIBL, credit monitoring & judgmental
decision after efficient analysis is important that would result in good customer
relationship with greater profit earning for the institution with fulfilling NPL
target. Some Researchers have also drawn a sort of recommendations that should
be considered necessary for effective credit risk management; these are as follows:

 Introduce an easy understandable Credit Policy:

The Credit Policy of the Bank is very complicated. It should be easy
understandable and user friendly. So that all the credit concerns can understand the
instruction and follow it meticulously at the time of credit risks management.

43
  Improvement of Credit Risk Grading Systems:
An industry wise integrated Credit Risk Grading system should be developed. So
that risk can measure for different industry of business.

 Sufficient Workforce & allocate a standard Risk Assessment time:

Sufficient risk managers should recruit in Credit Risk Management Division and a
standard time should allocate for a credit proposal analysis. So that, risk managers
could go through the credit proposal for risk managers and have sufficient time for
better analysis and assessment.

 Development of tools and techniques for Credit Risk Management:

Banks has a few numbers of tools and techniques for credit risk assessment i.e.
CRG, FSS, CIB which are not sufficient for all kinds of risk management. So, new
and effective credit risk management tools and techniques should be introduced by
the help of IT Division.

 Reduce of Political pressure & influence of the Directors and

Management:
It is unavoidable of Political pressure & influence of the Directors and
Management. Consequently some techniques should introduce so that those
pressure and influence will be reduced.
 Financial Analysis:
An analysis of a minimum of 3 years historical financial statements of the
borrower should be presented. Where reliance is placed on a corporate guarantor,
guarantor’s financial statement should also be analyzed. The analysis should
address the duality and sustainability of earnings, cash flow and the strength of the
44
borrower’s balance sheet. Specifically, cash flow, leverage and profitability must
be analyzed. In this regard the Credit Risk Manager / RM must look into the status
of chartered accountant audit firm. Financial ratios and important financial figures
should be provided as summarize format. So that risk managers could analyze the
financials in an easy way.

 Industry Analysis (Business and Industry Risk):

The key risk factors of the borrower’s industry shall be assessed. Any issues
regarding the borrower’s position in the industry, overall industry concerns or
competitive forces (demand supply gap) shall be addressed and the strengths and
weaknesses (SWOT Analysis) of the borrower relative to its competition to be
identified. For the above purpose the Credit Risk Managers/RM may obtain /
collect data from the statistical year book / economic trends of Bangladesh Bank /
public report / newspaper/ journals etc.

 Follow-up and monitoring:

Credit quality depends on close follow-up and monitoring of loans. The follow-up
and monitoring of loans is not strong here. As a result Special Mention Accounts
and deteriorating credit are increasing day by day.

45
 Conclusion

Credit risk management is becoming more and more important in today's

competitive business world. It is all the more important in the context of
Bangladesh. The tools for improving management of consumer credit risk have
advanced considerably in recent years. Therefore, as a responsible and reputed
Social Islami bank limited, SIBL has instituted a contemporary credit risk
management system. From the study, it is evident that the bank is quite sincere in
their approach to managing the consumer credit risk though there are rooms for
improvement. They have to be more cautious in the recovery sector and
preferential treatments to some big clients should also be stopped. However, they
follow an in-depth procedure in assessing the credit risk by using the credit risk
grading techniques which provides them a solid ground in the time of any
settlement.

From the discussion in this report, it has become clear that credit risk management
is a complex and on going process and therefore financial institutions must take a
serious approach in addressing these issues. They have to be up to date in
complying with all the required procedures and must employ competent people
who have the ability to deal with these complex matters. Utmost importance should
be given to the improvement of the networking system which is essential for
modern banking environment and obviously for efficient and effective credit risk
management process.

46
 CHAPTER 5
Reference and Bibliography

47