Credit Management Policy on AB Bank Ltd

8/10/2019 Credit Management Policy on AB Bank Ltd

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Credit Management Policy

ofAB bank Limited

Submitted by

WWW.ASSIGNMEN P!IN .C!M

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INTRODUCTION:

Risk is inherent in all aspects of a commercial operation, however for Banks and

financial institutions, credit risk is an essential factor that needs to be managed.

Credit risk is the possibility that a borrower or counter party will fail to meet its

obligations in accordance with agreed terms. Credit risk, therefore, arises from the

banks dealings with or lending to corporates, individuals, and other banks or

financial institutions.

Credit risk management needs to be a robust process that enables banks to

proactively manage loan portfolios in order to minimize losses and earn anacceptable level of return for shareholders. Central to this is a Comprehensive IT

system , which should have the ability to capture all key customer data, risk

management and transaction information including trade & ore!. "iven the fast

changing, dynamic global economy and the increasing pressure of globalization,

liberalization, consolidation and dis# intermediation, it is essential that banks have

robust credit risk management policies and procedures that are sensitive and

responsive to these changes.

$he purpose of this document is to provide directional guidelines to the banking

sector that will improve the risk management culture, establish minimum standards

for segregation of duties and responsibilities, and assist in the ongoing improvement

of the banking sector in Bangladesh.



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ORIGINS OF THE REPORT:

$he Report $itled %Credit anagement 'olicy( ) Case *tudy +n )B Bank s ) 'artial

Re-uirement +f $he BB) 'rogram. $he nternship 'rogram as Carried +ut n Commercial

Credit /ivision ain Branch +f )B Bank 0nder $he *upervisor. /uring $he nternship $he

*tudent )re Re-uired $o 'repare ) Report +n $he +rganization here 1e 1as Been

)ttached.

)ssigned By $he "uide $eacher $his Report s 'repared )s 'artial fulfilment +f BB)

Re-uirement

OBJECTIVE OF THE REPORT

$he 'rincipal ntent +f $his Report s $o 2!amine Credit 'olicy 3f )b Bankltd. n 'articular$he +b4ectives )re ollws5

6 $o 1ave ) "lance )t $he Commercial Banking *ystem n Bangladesh.

7 $o 2!amine $he 'resent Banking *ystem n Bangladesh.

8 $o "et )-uainted ith $he 9oan *tructure *ize 'rofile +f *ector ise +utstanding'osition +f 9oans )nd *ystem +f 9oan Classification +f )B Bank .

: $o ;now $he /eposit Behavior +f


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SCOPE OF THE STUDY

)B Bank 9td. s one of the leading and first commercial Bank in Bangladesh. $hescope of the study is limited to the Board Bazar Branch#"azipur only. $he report

covers the organizational structure,background,functions and the performance of the

bank

LIMITATIONS OF THE STUDY

$he following limitations are apparent in the report5

/eficiencies in data re-uired for the study.

naccurate or contradictory information.

ield practice varies with the standard practice that also created problem.

METHODOLOGY

To prepare the report following methodology is adopted: or the procedure of

different banking operations had observed the operations and worked with the

officers at the same time had interviewed the

)B bank officials for getting more information. or the analysis part data have been

collected from

/ifferent statement and the annual reports of the bank.

arious files and documents of credit and industrial credit division of )B bank

9td.



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')R$#$ +

B)


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Bangladeshs


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'rivate Commercial Banks

'rivate banks are the highest growth sector due to the dismal performances of

government banks DaboveE. $hey tend to offer better service and products.

6. )B Bank 9td

7. BR)C Bank 9imited

8. 2astern Bank 9imited

:. /utch Bangla Bank 9imited

=. /haka Bank 9imited

?. slami Bank Bangladesh 9td

@. 'ubali Bank 9imited

A. 0ttara Bank 9imited

. C Bank 9imited

63.


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73. 2!im Bank 9imited

76. ercantile Bank 9imited

77. Bangladesh Commerce Bank 9imited

78. utual $rust Bank 9imited

7:. irst *ecurity slami Bank 9imited

7=. $he 'remier Bank 9imited

7?. Bank )sia 9imited

7@.$rust Bank 9imited

7A. *hah4alal slami Bank 9imited

7 . Iamuna Bank 9imited

83. CB slami Bank

86. oon Bank 9imited

87. Bank 9imited

oreign Commercial Banks

1. Citibank na

2. 1*BC

3. *tandard Chartered Bank

4. Commercial Bank of Ceylon

5. *tate Bank of ndia

6. 1abib Bank

7.


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*pecialized /evelopment Banks

+ut of the specialized banks, two DBangladesh ;rishi Bank and Ra4shahi ;rishi

0nnayan BankE were created to meet the credit needs of the agricultural sector while

the other two D Bangladesh *hilpa Bank DB*BE & Bangladesh *hilpa Rin *angtha

DB*R*E are for e!tending term loans to the industrial sector G6H. $he *pecialized banks

are5

"rameen Bank $he /haka ercantile Co#operative Bank ltd

Bangladesh ;rishi Bank

Bangladesh /evelopment Bank 9td

Ra4shahi ;rishi 0nnayan Bank

Basic Bank 9td DBank of *mall ndustries and CommerceE

Bangladesh *omobay Bank 9imited DCooperative BankE

)nsar /' 0nnyan Bank

http://en.wikipedia.org/wiki/List_of_banks_in_Bangladesh#cite_note-bbk1-0http://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/w/index.php?title=The_Dhaka_Mercantile_Co-operative_Bank_ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Krishi_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Bangladesh_Development_Bank_Ltdhttp://en.wikipedia.org/wiki/Rajshahi_Krishi_Unnayan_Bankhttp://en.wikipedia.org/w/index.php?title=Basic_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Somobay_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/List_of_banks_in_Bangladesh#cite_note-bbk1-0http://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/w/index.php?title=The_Dhaka_Mercantile_Co-operative_Bank_ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Krishi_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Bangladesh_Development_Bank_Ltdhttp://en.wikipedia.org/wiki/Rajshahi_Krishi_Unnayan_Bankhttp://en.wikipedia.org/w/index.php?title=Basic_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Somobay_Bank_Limited&action=edit&redlink=1


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')R$# $1R22

)< + 2R 2 + )B B)


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B)C;"R+0


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re4uvenate its past identity J an identity that the bank carried as )rab Bangladesh

Bank 9imited for twenty five long years. )s a result of this decision, the bank chose

to rename itself as )B Bank 9imited and the Bangladesh Bank put its affirmative

stamp on


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and females wear *haree or *alwar ;amiz, all the dresses are consisted with the

uni-ue )B Bank logo.

)B is recognized as the peoples choice, catering to the satisfaction of its cliental.$heir satisfaction is )Bs success.



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Vision & Mission

Vision State entL$o be the trendsetter for innovative banking with e!cellence & perfectionL

Mission State entL$o be the best performing bank in the countryL



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Mana!e ent Co ittee

;aiser ). Chowdhury'resident & anaging /irector

azlur Rahman )dditional anaging /irector

a4edur Rahman )dditional anaging /irector

aru- )hmed/eputy anaging /irector

*hamim )hmed Chaudhury/eputy anaging /irector

Badrul 1. ;hanChief inance +fficer

CORPORATEINFORMATION OF ABBAN"

Na e o# t$e Co %an )B Bank 9td

Le!a' Fo( : ) public limited company incorporatedon 86st /ecember, 6 A6 under the Companies )ct,6 68 and listed in the /haka *tock 2!change 9td



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and Chittagong *tock 2!change 9td.

Co en)e ent o# B*siness7@th ebruary 6 A7

Re!iste(e+ O##i)eBC C Bhaban, 83#86, /ilkusha CM)/haka 6333, Bangladesh.$el5NAA#37# =?3867 NAA#37# =?3867

a!5 NAA#37# =?:677, 78* $5 )BB9B//12#mail5 infoOabbank.com.bd

eb5 www.abbank.com.bd

A*+ito(s*. . )hmed & Co.Chartered )ccountants

Ta, Cons*'tant;. . 1assan & Co.Chartered )ccountants

Le!a' Retaine( ). Rouf & )ssociates

C$itta!on! Re!iona' O##i)e*pensers Building, 7? )grabad CM), Chittagong$el5 @688A6#A8,@688A=#A?D386E

a!5 @688A: D386E2#mail5 agrmgOabbank.com.bd

S '$et Re!iona' O##i)eBiswa Road, *hah4alal 0poshohor 'oint, *ylhet8633$el5 D3A76E@7=3:7 D3A76E@7=3:7, A6=3A=

a!5 @7=3:72#mail5 gdntmgOabbank.com.bd

"$*'na Re!iona' O##i)eollick *hopping Comple! 9imited, ;han )

*abur Road, ;hulna$el5 D3:6E @73866 D3:6E@73866, @783?7, @7:3 3

obile5 366 #??33@=a!5 D3:6E @73866

2#mail5 khlnmgOabban

Ra-s$a$i Re!iona' O##i)e637#638 *haheb Bazar, Ra4shahi$el5 @@87?6, @@:7A8 D3@76E a!5 @@87?6 D3@76E

Me()$ant Ban.in! /in! 0MB/1BC C Bhaban D@th loorE

83#86, /ilkusha CM), /haka 6333

$el5 NAA#37# =???AA NAA#37# =???AAa!5 NAA#37# =??AA2#mail5 mbwOabbank.com.bd

AB Ban. Fo*n+ation 0ABBF1BC C Bhaban D@th loorE

83#86, /ilkusha CM), /haka 6333$el5 NAA#37# ==8 8 NAA#37# ==8 8

a!5 NAA#37# ==8@@82#mail5 abbfOabbank.com.bd

AB Ban. Li ite+2 Is'a i Ban.in! B(an)$A7, ;akrail, Ramna, /haka

$el5 NAA#37#A88778= NAA#37#A88778=, 8@, 8Aa!5 NAA#37#A88778?

2#mail5 ibbOabbank.com.bd

O3e(seas B(an)$M* 4ai B(an)$

9iberty Building:6#:7, *ir ithaldas, $hackerse arg


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O%e(atin! Pe(#o( an)e

Board of /irectors of AB Ban. Li ite+ 0ABBL1 takes immense pleasure in

presenting the 7=th )nnual Report of the Bank to you. t is also the privilege of the

Board to present the audited accounts of the Bank for the year ended 86st /ecember,733? and the )uditorsP Report thereon.

Qour Bank reached a milestone on 56t$ o# A%(i'2 6757 when )B reached 7A years of

its 4ourney which started with a single Branch operation at ;arwan Bazar, /haka way

back in 6 A7. )B being the pioneer in private sector banking in Bangladesh will be the

first to achieve this milestone. +ver the years, your Bank has contributed in many

ways towards development of the private sector banking in the country. any of thebig industries in different fields of the economy has )BPs name attached and your

Bank remains a proud development partner of these industrial houses over the years.

)B thrived on customer service and relationship banking which brought new

dimensions to this particular service sector and many more new entrants to banking

sector followed )B.

)BPs *ponsors set a vision for the Bank which reads5 8To 4e t$e T(en+sette( #o(inno3ati3e 4an.in! 9it$ e,)e''en)e an+ %e(#e)tion8 . $hroughout these 7A years

your Bank raised the bar for itself through services, initiatives, products, customer

support and performance towards that visionary path.

)t the beginning of the year 733=, Board took the mission for the year as La year of

consolidation and growthL. n line with that, ea( 677 9as i+enti#ie+ to 4e t$e ea(

o# 8#inan)ia' (e;st(*)t*(in! an+ !(o9t$8 . *ponsors of the Bank remain committed to

take )B into ne!t higher level of banking on a strong financial footing and with

appropriate systems and processes in place.

Being a financial institution, your Bank is e!posed to the entire gamut of economic

developments and activities both within and outside the country. 1ence to start with,

we will throw some brief insights in to the economic scenario of the year 733?.

G'o4a' E)ono


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orld economic growth strengthened in the year 733? as the global gross domestic

product D"/'E registered a growth of 8. percent compared to 8.= percent in 733=.

/espite rising oil prices Dthat topped @= a barrel during the course of the yearE, risingshort#term interest rates, and a bout of volatility of financial market, the global growth

accelerated in the overall. $his strong global performance was driven by very rapid

e!pansion in developing economies, which grew by @ percent # more than twice as

fast as high income countries D8.6 percentE. n the overall, 8A percent of the increase

in global output originated in developing countries which far e!ceeded these

economies 77 percent share in world "/'.

)lthough broadly based, strong performance by China D63.: percent growthE played a

significant role in the recent e!pansion of developing economies which grew by @

percent. t is of significance that e!cluding China and ndia DA.@ percent growthE,

developing countries grew by =.= percent thereby playing important roles in the global

economic performance.

ast growth of developing countries over the past five years has been fueled by low

interest rates and abundant global li-uidity. $his has led to rising commodity prices

and over#heating in some high#income and developing countries. $his, in turn, has

provoked a tightening of monetary policy that is in part is responsible for slowdown at

the global level towards the later part of the year. 1owever, in most countries strong

productivity growth, due in part to the absorption of China and the former 2astern

Block countries into the global economy, has checked inflationary pressures.

n the 0nited *tates, the acceleration of industrial output began at a torrid pace of =.?

percent during the year. )s a result 0* "/' had a positive growth in 733?. 1owever,

responding to higher short#term interest rates, spending in the housing sector declined

and also had a moderating effect on the consumer demand. $his resulted in the

slowing down of the economy to 6.? percent annualized growth rate in the third

-uarter of 733?. 1owever, profit, foreign investment and consumption remained robust

while inflation and unemployment remained low. Conse-uent upon all these factors,

0* economy is e!pected to grow by 8.7 percent as a whole.


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2uropean economy also e!perienced growth in 733? after several years of weakness.

"rowth accelerated in the first half of the year as "/' e!panded by about 8.8 percent

over that period. $his is mostly driven by private consumption and increasedinvestment spending. 1owever, slower growth in the third -uarter for rance had an

impact on the overall growth but the full year "/' growth in 2urope is estimated to be

7.= percent.

n Iapan, the "/' was estimated to have e!panded by 7. percent in 733?. )

slowdown in e!ports contributed to weaker growth in the second -uarter of the year,

but growth rebounded in the third -uarter led by a surge in investment spending.

1igh oil prices and the rapid pace of global growth have contributed to a gradual

increase in inflation among developing countries. $hese countries e!perienced rising

inflation in response to higher oil prices, but it has since declined, reflecting both solid

productivity growth and the impact of more credible monetary policies. n contrast, in

high#income economies inflation rose to about 7.@ percent from 6.8 percent before

falling towards the end of the year matching with the falling oil prices.

n the overall, limited inflationary pressures and high savings among oil e!porters and

in 2urope are e!pected to keep long term interest rates low. oreover, improved

fundamentals have boosted growth rates in many developing countries. )ll these

factors cumulatively suggest the continuation of robust economic performance in 733@

barring unanticipated reversals.

So*t$ Asian E)ono

*outh )sian region e!perienced A.7 percent growth during the year 733?. $his marked

the fourth year of consecutive "/' growth of over @.= percent for the region. 'rivate

sector # led growth backed#up by improved macro management and greater

integration in the economy were the contributing factors. 9oose monetary and fiscal

policies and strong remittance inflows also played a role, providing a boost to

domestic demand.


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registered at ?.@ percent in the year 733?.

"rowth performance of the economy was led by the post#flood recovery of the

agriculture sector which was :.= percent in 733? compared to 7.7 percent in the yearbefore. *trong growth in crops, horticulture and fishing were mainly responsible for

such growth. )t the same time, industrial sector attained .? percent growth during the

year which is way above the previous yearPs growth of A.8 percent. $his higher growth

rate was sustained through strong performances in the manufacturing arena facilitated

by strong and sustained growth in e!port oriented manufacturing activities and

e!pansion of domestic demands. n the overall, service sector of the economy grew

by ?.= percent. $he growth was fairly spread in different sub#sectors which in turnwere related to increase in industrial out put and increase in trade related activities.

*tructural transformation of economy was aimed at through giving new focus on the

development of the *mall & edium 2nterprises D* 2sE sector. ) credit line was

established in the Bangladesh Bank with the support of the )sian /evelopment Bank

D)/BE and the orld Bank D BE, respectively. n the year 733?, * 2 sector

e!perienced sizeable growth in the field of rice mills, dairy products, knitwear, leather

products, paper and paper products, light engineering, etc.

CountryPs foreign e!change reserve crossed the 0* :.3 billion mark for the first time

in the history at the beginning of the year 733@. 'resent level of reserves covers for

over three months of imports of the country. 2!ports and remittances from the


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percent over the year 733=. ore significantly, country is gradually shifting towards a

diversified e!port base. Bangladesh has been included in the Lne!t elevenL a group of

nations having economic growth potential by "oldman *achs.

Relative slowdown of total import was mainly attributable to the reduced import of food

grains, milk products, spices and most other edible products. 1owever, import of

industrial raw materials and capital machineries increased signifying the dynamism in

investment activities in the country. $he commodities whose import payments,

however, increased significantly include crude petroleum and '+9 reflecting the

volatile international market for those.

$he overall balance of payments recorded a significant surplus of 0* 8?= million

D0* ?@ million in 733=E at the end of the year 733? reflecting a notable improvement

in the current account balance and a larger surplus in the capital account. /espite

noteworthy performance of the e!ternal sector, the foreign e!change market

e!perienced substantial pressure in the year 733?. 'ressures on $aka#0* /ollar

e!change rate generated by continued price hike for import of petroleum and many

other ma4or commodities coupled with higher growth of lending to the private sector

D6A.8 percentE created all such pressure situation. n 733?, the nominal $aka#0*

/ollar e!change rate depreciated by A.? percent in the overall. 1owever, the real

effective e!change rate of $aka depreciated by =.8 percent providing a boost to the

countryPs e!ternal competitiveness.

nflation in the economy showed upward trend in 733?. 'ressures on consumer prices

emerged mainly through rising import prices of fuel, food items, other consumer items

and production inputs feeding into domestic prices. /epreciation of $aka further

contributed to rising consumer prices. $he annual average inflation increased to @.7

percent in Iune, 733?.

Bangladesh Bank continued to pursue a restrained monetary policy stance with a view

to curb e!cess demand from inflationary e!pectations while supporting the sustainable

real "/' growth. /uring the year, the Cash Reserve Re-uirement DCRRE and the

*tatutory 9i-uidity Ratio D*9RE were raised from :.= and 6?.3 percent respectively to


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=.3 and 6A.3 percent towards slowing down of the growth of domestic credit. Besides,

repo and reverse repo interest rates and treasury bills M bond yield rates were kept at

an uptrend towards slowing down the credit growth rate.

Broad money D 7E grew by 6 .8 percent during the year which was much higher than

733= growth of 6?.@ percent and far e!ceeded the pro4ection of 6:.8 percent growth.

'ublic sector credit grew substantially by 83.? percent mainly to finance higher cost of

imports of fuel. $otal domestic credit grew by 76.6 percent, while credit to private

sector grew by 6A.8 percent reflecting acceleration of economic activities. $he

declining trend of interest rates that persisted over a period till year 733= reversed in

733? keeping pace with the tightened monetary policy. CountryPs revenue collectionscenario through the


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registered a record low of ? percent, the four


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"etail BankingUnse)*(e+ Loans

P(o+*)t Na e 'ersonal 9oanTa(!et C*sto e( 2mployees of reputed 9ocal Corporate,


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P(o+*)t Na e 2asy 9oan D or 2!ecutivesETa(!et C*sto e( $he loan is specially designed for salaried people who are employed in

different reputed companiesP*(%ose arriages in the family, 'urchase of office e-uipment M accessories,

'urchase of miscellaneous household appliances, 'urchase of 'ersonalComputers, 'urchase of audio#video e-uipment, 'urchase of furniture, )dvance rental payment, $rips abroad, )dmissionM2ducation fee ofChildren etc.

Loan A o*nt inimum $k. =3,333.33a!imum $k. 8,33,333.33

C$a(!es )pplication fee5 $k. =33.33'rocessing fee5 6F on the approved loan amount or $k. 6333.33whichever is higher

Teno( in 67 monthsa! 8? months

Rate o# Inte(est 6?.33F p.a.Se)*(it 9etter of confirmation from the employer. +ne personal guarantee Das

per our list of eligible guarantorsE

P(o+*)t Na e "old "race # Iewellery 9oanTa(!et C*sto e( Both female & male employees may apply viz. employees of reputed

Banks & 9easing companies, reputed 9ocal Corporate,


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Ta(!et C*sto e( 2!patriate Bangladeshi nationals who are in business or serviceholders. 2mployees of reputed Banks & 9easing companies, reputed9ocal Corporate,


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S inimum )ge5 6@ years S a!imum )ge5 :3 years S 2ducational Tualification5 inimum 1*CM)#9evel 'ass.'arents Criteria5 *ervice 1older5 S ndividuals with ranks e-uivalent to *enior )ssistant *ecretary orhigher would -ualify guarantor S Bank officials D2-uivalent to *enior 'rincipal +fficer of


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C$a(!es 'rocessing fee5 $k. 6333.33Teno( Revolving with annual reviewRate o# Inte(est 68.=3F p.a. # 6?.=3F p.a. Dsub4ect to type of the securityE. 7F spread

must be maintained in case of own bank /R

Se)*(it 9ien over /R, B*', CB 0nit Certificate, R C/, < C/, C/ accountDsEetc. +ne personal guarantee in case of third party cash collateral Das per our list of eligible guarantorsE

Co(%o(ate Ban.in! )t )B Bank we provide complete range of solutions to meet Corporate CustomersPre-uirement. +ur Corporate Banking solutions include a broad spectrum of productsand services backed by proven, modern technologies.

Co(%o(ate Len+in!+ur specialist teams offer a comprehensive service providing finance to large andmedium#sized businesses based in Bangladesh. or more information as to how wemight best meet your corporate debt needs, please contact us at our Corporate 1ead+ffice.

St(*)t*(e+ Finan)ee have a specialist *tructured inance $eam who arrange and underwrite finance

solutions including /ebt and 2-uity *yndication for financial sponsors, managementteams and corporates. )lso we provide corporate advisory services.

e aim to provide tailored financing solutions with a dedicated team who can rapidlyrespond to client needs.

ollowing are some of the products and financial tools of Corporate Banking5

'ro4ect inance orking Capital inance

$rade inance

Cash anagement *yndicated inance, both onshore & off#shore

2-uity inance, both onshore & off#shore

Corporate )dvisory *ervices

SME Ban.in!SME Loan


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Considering the volume, role and contribution of the * 2s, in the last two decades )BBank has been patronizing this sector by e!tending credit facilities of different typesand tenor. )s of now =:F of the banks total loan portfolio is segmented to the * 2swhich deserve all out attention in our plans, pro4ections and forecasting.

)s such the bank has emphasized on the following issues5

$o provide the best services to the * 2 sector $o increase the * 2 portfolio of )BB9 significantly

$o improve the -uality of )BB9s portfolio

* 2 *ectors in which )B Bank has participated so far5

)gro machinery 'oultry

)nimal eed

/airy 'roduct

ruit 'reservation

1otel & Restaurants

"arments )ccessories

9eather products

'lastic product

urniture 5 ooden & etal

nk

'aint

'rinting & 'ackaging

ire & Cable

)luminum

Cement and 9ime 'laster

Clinics and 1ospitals

2ngineering & *cientific nstruments


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La(!e Loan & P(o-e)t Finan)e n order to cater the demand of client )B Bank has segmented its portfolio in

terms of loan size. )s per this segmentation any loan over $k. 63.33 Crore fallsunder the purview of 9arge 9oan 0nit.

n )B Bank, there is also a separate 'ro4ect inance unit who evaluate thebusiness. $he unit is entrusted to handle the portfolio in a focused manner. )BBank is always in fore front to support establishment of new pro4ects ofdiverse nature which will help to broaden the manufacturing arena vis#U#vis togenerate to employment.

)t the moment )B Bank Vs e!posure in 9arge 9oan & 'ro4ect inance portfoliois distributed in the following sectors5

SL Se)to( ABBL E,%os*(e0Li it1D ig. in 9ac $k.E

6 )gro# Business 67,@6@.=?

7 Cement 'ower, "lass 8A,? 6. 7

8 Consumer 'roducts 76,A==.33

: 2dible +il 8?,3=@.=8

= 2ngineering & Construction 6A,63?.:7

? inancial nstitution 6,:6:.@3@ ood & Beverage 7@,3::.7:

A 1otel 7,=3=.7?

1ealth Care 8, 7A.?7

63 'rinting & 'ackaging 66,A?@.?6

66 Real 2state 63,:=6.:

67 icro#finance =,@?8.6=

68 2!port ,::6.?8

6: R " & Backward 9inkage :,A7?.68

6= *hip Breaking 6A,37 .73

6? *teel :7,A7:. @6@ $elecom & Computer )ccessories 66,:@ .A

6A $rading @@,=@ .A

Tota' D including s n+i)ate+ e,%os*(e E :::,=A=.76

Less *yndicated 2!posure =6,=?3.7

Tota' La(!e Loan & P(o-e)t Finan)e%o(t#o'io 9it$o*t s n+i)ate+ e,%os*(e


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Balance sheet

AB Bank Limited & its Subsidiary

Consolidated Balance SheetAs at 31 December !!" 2< 52? < 52 ?62 772 7 2 77 Mone at )a'' an+ on s$o(t

noti)e?DaE 5 2< >2


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'rofit and loss account

AB Bank Limited & its SubsidiaryConsolidated Pro#t and Loss Account

$or the year ended 31 December !!"!!" !!% otes

'aka 'aka(P)*A'+ , + C(-)Interest income 20( ! 9"111"374"896 7"368"464"534Interest # i$ on$e#osits n$%orro&in's" etc.

21( ! (6"147"007"707! (5"347"854"381!

et interest income "/0 3/ 1%" ! ! /1! 120In estment income 22( ! 2"923"537"225 2"152"888"463)ommission"e*c+ n'e n$

%ro,er 'e

23( ! 2"282"732"477 1"820"010"163

Ot+er o#er tin'income

24( ! 203"640"150 224"080"645

2 0!" "!" %2 0 1"/ " " !'otal o erating income4a5

% 3 0 !01 / 1 2%" 0 0

(P)*A'+ , )6P) S)S- r/ n$

o& nces25( ! 1"218"368"066 1"028"859"386

Rent" t *es"ins r nce"e ectricit/" etc.

26( ! 240"745"272 178"544"409

e' e*#enses 27( ! 4"049"492 4"597"546Post 'e" st m#s"

te ecomm nic tion"etc.

28( ! 90"017"259 62"409"532

-t tioner/" #rintin'"$ ertisement" etc.

29( ! 120"877"254 65"255"938

)+ie e*ec ti e s s r/ n$ees

8"484"960 7"341"452

irectors ees 30( ! 2"374"492 2"378"949A $itors ees 31( ! 2"396"811 1"739"946)+ r'es on o n osses

e#reci tion n$re# irs o n, s

ssets

32( ! 203"429"372 155"634"865

Ot+er e*#enses 33( ! 613"908"448 380"720"539'otal o erating e7 enses

4b5

2!0 /21 0 / 1 %% 0% 2/!

Pro#t be8ore ro9ision 4c: a;b5

2 %/" / 2 /12 0 33! 1!/ %/3

Pro ision ' insto ns n$ $ nces

34( ! 436"600"000 281"266"515

Pro ision or$imin tion in eo in estments

35( ! 117"153"000

Ot+er #ro isions 36( ! 162"419"861 299"347"000'otal ro9ision 4d5 2"" !1" %/1 /" // 212Pro#t be8ore ta7ation 4c;d5

2 ! /!2 23 3 /3 30! 30%

Pro ision or t * tion 1"853"420"642 1"300"000"000) rrent t * 1"725"296"976 1"381"655"684

e erre$ t * 128"123"666 (81"655"684!et ro#t a8ter ta7ation 3 01 1%2 111 33 30! 30%

A ro riations


37/81

-t t tor/ reser e 37 1"031"118"234 726"468"070ener reser e i i$en$s" etc

1 !31 11% 30 / 0/% ! !*etained sur lus 3%/ !// % 1 /!2 % ")arnings PerShare 4)PS5

38( ! 133. / "!."/


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Cash flow statement

AB Bank Limited & its SubsidiaryConsolidated Cash $low Statement$or the year ended 31 December !!"677> !!% otesTa.a 'akaCas$ F'o9s #(o O%e(atin! A)ti3ities

nterest receipts 9"047"170"150 7"368"464"534nterest payments (6"144"951"652! (5"347"854"381!

/ividend receipts 122"671"920 140"634"071ee and commission receipts 1"860"530"448 1"820"010"163

Recoveries on loans previouslywritten off

43"203"720 63"229"802

'ayments to employees (1"226"853"026! (1"028"859"386!'ayments to suppliers (123"087"216! (256"798"574!

ncome ta!es paid (1"330"452"291! (896"758"330!Receipts from otheroperating activities

8 DaE 3"445"645"368 2"518"909"953

'ayments for otheroperating activities

:3DaE (978"414"900! (642"835"747!

O%e(atin! %(o#it 4e#o(e)$an!es in o%e(atin! assets &'ia4i'ities

0 12 0/ 2 1 3 3% 10 1!2

In)(ease +e)(ease in o%e(atin! assets an+ 'ia4i'ities9oans and advances tocustomers

(14"401"799"551! (16"473"950"662!

+ther assets :6DaE (1"469"815"516! (502"638"763!/eposits from other banks (5"061"482"546! 3"119"680"194/eposits from customers 19"583"636"903 12"065"445"738$rading liabilities Dshort#termborrowingsE

2"835"940"291 1"129"199"203

+ther liabilities :7DaE 850"330"083 320"343"330622 4301 " ! "2"5Net )as$ #'o9 #(o o%e(atin!a)ti3ities 0a1

!2 1%2 3 3"/ 1 10/

Cas$ F'o9s #(o In3estin! A)ti3itiesD'urchaseEM sale of governmentsecurities

(2"517"553"101! (1"114"457"700!

D'urchaseEM sale of tradingsecurities, shares, bonds, etc.

(2"457"083"963! (1"207"421"131!

D'urchaseEM sale of property,plant and e-uipment

(90"771"297! (181"621"991!

Net )as$ *se+ in in3estin!a)ti3ities 041

42 !/2 0!% 3/15 4 2!3 2!! % 5

Cas$ F'o9s #(o Finan)in! A)ti3itiesncreaseMDdecreaseE of long#term

borrowings26"332"604 191"960"407

/ividend paid (334"467"810! Net )as$ 0*se+ in1 #'o9 #(o#inan)in! a)ti3ities 0)1

43!% 132 !/5 1"1 "/! 0!


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')R$# +0R

"0 /29


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5= POLICY GUIDELINES

$his section details fundamental credit risk management policies that are

recommended for adoption by all banks in Bangladesh. $he guidelines contained

herein outline general principles that are designed to govern the implementation ofmore detailed lending procedures and risk grading systems within individual banks.

Len+in! G*i+e'ines

)ll banks should have established Credit 'olicies D%9ending "uidelines(E that clearly

outline the senior managements view of business development priorities and the

terms and conditions that should be adhered to in order for loans to be approved.

$he 9ending "uidelines should be updated at least annually to reflect changes in theeconomic out look and the evolution of the banks loan portfolio, and be distributed to

all lendingMmarketing officers. $he 9ending "uidelines should be approved by the

anaging /irectorMC2+ & Board of /irectors of the bank based on the endorsement

of the banks 1ead of Credit Risk anagement and the 1ead of

CorporateMCommercial Banking. D Section 2.1 of these guidelines refers E

)ny departure or deviation from the 9ending "uidelines should be e!plicitly identified

in credit applications and a 4ustification for approval provided. )pproval of loans thatdo not comply with 9ending "uidelines should be restricted to the banks 1ead of

Credit or anaging /irectorMC2+ & Board of /irectors. $he 9ending "uidelines

should provide the key foundations for account officersMrelationship managers DR E

to formulate their recommendations for approval, and should include the following5

In+*st( an+ B*siness Se! ent Fo)*s

$he 9ending "uidelines should clearly identify the businessMindustry sectors that

should constitute the ma4ority of the banks loan portfolio. or each sector, a clear

indication of the banks appetite for growth should be indicated Das an e!ample,

$e!tiles5 "row, Cement5 aintain, Construction5 *hrinkE. $his will provide necessary

direction to the banks marketing staff.

T %es o# Loan Fa)i'ities


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$he type of loans that are permitted should be clearly indicated, such as orking

Capital, $rade inance, $erm 9oan, etc.

Sin!'e Bo((o9e( G(o*% Li its S n+i)ation/etails of the banks *ingle BorrowerM"roup limits should be included as per

Bangladesh Bank guidelines. Banks may wish to establish more conservative criteria

in this regard. )ppendi!#8.:.8 provides brief description of financing under

syndicated arrangement.

Len+in! Ca%s

Banks should establish a specific industry sector e!posure cap to avoid over

concentration in any one industry sector.

Dis)o*(a!e+ B*siness T %es

Banks should outline industries or lending activities that are discouraged. )s a

minimum, the following should be discouraged5 ilitary 2-uipmentM eapons inance

1ighly 9everaged $ransactions

inance of *peculative nvestments

9ogging, ineral 2!tractionM ining, or other activity that is

2thically or 2nvironmentally *ensitive

9ending to companies listed on C B black list or known defaulters

Counterparties in countries sub4ect to 0< sanctions

*hare 9ending

$aking an 2-uity *take in Borrowers

9ending to 1olding Companies

Bridge 9oans relying on e-uityMdebt issuance as a source of repayment.

Loan Fa)i'it Pa(a ete(s


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acility parameters De.g., ma!imum size, ma!imum tenor, and covenant and security

re-uirementsE should be clearly stated. )s a minimum, the following parameters

should be adopted5

Banks should not grant facilities where the banks security position is inferiorto that of any other financial institution.

)ssets pledged as security should be properly insured.

aluations of property taken as security should be performed prior to loans

being granted. ) recognized 8rd party professional valuation firm should be

appointed to conduct valuations.

C(oss Bo(+e( Ris.Risk associated with cross border lending. Borrowers of a particular country may be

unable or unwilling to fulfill principle andMor interest obligations. /istinguished from

ordinary credit risk because the difficulty arises from a political event, such as

suspension of e!ternal

payments *ynonymous with political & sovereign risk

$hird world debt crisisor e!ample, e!port documents negotiated for countries like


44/81

t is essential that R s 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. )ll banks should have established ;now Qour Customer

D;QCE and oney 9aundering guidelines which should be adhered to at all times.Credit )pplications should summaries the results of the R s risk assessment and

include, as a minimum, the following details5

# )mount and type of loanDsE proposed.

# 'urpose of loans.

# 9oan *tructure D$enor, Covenants, Repayment *chedule, nterestE

# *ecurity )rrangements

n addition, the following risk areas should be addressed5

; Bo((o9e( Ana' sis . $he ma4ority shareholders, management team and group or

affiliate companies should be assessed. )ny issues regarding lack of management

depth, complicated ownership structures or intergroup transactions should be

addressed, and risks mitigated.

; In+*st( Ana' sis= $he key risk factors of the borrowers industry should be

assessed. )ny issues regarding the borrowers position in the industry, overall

industry concerns or competitive forces should be addressed and the strengths and

weaknesses of the borrower relative to its competition should be identified.

; S*%%'ie( B* e( Ana' sis= )ny customer or supplier concentration should be

addressed, as these could have a significant impact on the future viability of the

borrower.

; Histo(i)a' Finan)ia' Ana' sis . )n analysis of a minimum of 8 years, mhistorical

financial statements of the borrower should be presented. here reliance is placed

on a corporate guarantor, guarantor financial statements should also be analysed.

$he analysis should address the -uality and sustainability of earnings, cash flow and

the strength of the borrowers balance sheet. *pecifically, cash flow, leverage and

profitability must be analyzed.


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; P(o-e)te+ Finan)ia' Pe(#o( an)e= here term facilities Dtenor X 6 yearE are being

proposed, a pro4ection of the borrowers future financial performance should be

provided, indicating an analysis of the sufficiency of cash flow to service debt

repayments. 9oans should not be granted if pro4ected cash flow is insufficient torepay debts.

; A))o*nt Con+*)t= or e!isting borrowers, the historic performance in meeting

repayment obligations Dtrade payments, che-ues, interest and principal payments,

etcE should be assessed.

; A+$e(en)e to Len+in! G*i+e'ines . Credit )pplications should clearly state

whether or not the proposed application is in compliance with the banks 9ending

"uidelines. $he Banks 1ead of Credit or anaging /irectorMC2+ should approve

Credit )pplications that do not adhere to the banks 9ending "uidelines.

; Miti!atin! Fa)to(s . itigating factors for risks identified in the credit assessment

should be identified. 'ossible risks include, but are not limited to5 margin

sustainability andMor volatility, high debt load

DleverageMgearingE, overstocking or debtor issuesK rapid growth, ac-uisition or

e!pansionK new business lineMproduct e!pansionK management changes or

succession issuesK customer or supplier concentrationsK and lack of transparency or

industry issues.

; Loan St(*)t*(e= $he amounts and tenors of financing proposed should be 4ustified

based on the pro4ected repayment ability and loan purpose. 2!cessive tenor or

amount relative to business needs increases the risk of fund diversion and may

adversely impact the borrowers repayment ability.

; Se)*(it . ) current valuation of collateral should be obtained and the -uality and

priority of security being proposed should be assessed. 9oans should not be granted

based solely on security. )de-uacy and the e!tent of the insurance coverage should

be assessed.


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)cceptable Jair Risk

8 )de-uate financial condition though may not be able tosustain any ma4or or continued setbacks. $hese borrowersare not as strong as "rade 7 borrowers, but should stilldemonstrate consistent earnings, cash flow and have agood track record.

) borrower should not be graded better than 8 if realisticaudited financial statements are not received. $heseassets would normally be secured by acceptable collateralD6st charge over stocks M debtors M e-uipment M propertyE.Borrowers shouldhave ade-uate li-uidity, cash flow and earnings. )n

)ggregate *core of @=# : based on the Risk "rade*corecard.

arginal #atch

: "rade : assets warrant greater attention due to conditionsaffecting the borrower, the industry or the economicenvironment. $hese borrowers have an above average riskdue to strained li-uidity, higher than normal leverage, thincash flow andMor inconsistent earnings. acilities should bedowngraded to : if the borrower incurs a loss, loanpayments routinely fall past due, account conduct is poor,or other untoward factors are present. )n )ggregate *coreof ?=#@: based on the Risk "rade*corecard.

*pecial

ention

= "rade = assets have potential weaknesses that deservemanagements close attention. f left uncorrected, theseweaknesses may result in a deterioration of the repayment

prospects of the borrower. acilities should be downgradedto = if sustained deterioration in financial condition is notedDconsecutive losses, negative net worth, e!cessiveleverageE, if loan payments remain past due for 83#?3days, or if a significant petition or claim is lodged againstthe borrower. ull repayment of facilities is still e!pectedand interest can still be taken into profits. )n )ggregate*core of ==#?: based on the Risk "rade *corecard.

*ubstandard ? inancial condition is weak and capacity or inclination torepay is in doubt. $hese weaknesses 4eopardize the fullsettlement of loans. 9oans should be downgraded to ? if

loan payments remainpast due for ?3# 3 days, if the customer intends to create alender group for debt restructuringpurposes, the operation has ceased trading or anyindication suggesting the winding up or closure of theborrower is discovered.


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/oubtful andBadDnon#performingE

@ ull repayment of principal and interest is unlikely and thepossibility of loss is e!tremely high. 1owever, due tospecifically identifiable pending factors, such as litigation,li-uidation procedures or capital in4ection, the asset is notyet classified as 9oss. )ssets should be downgraded to @ if loanpayments remain past due in e!cess of 3 days, andinterest income should be taken into suspenseDnonaccrualE. 9oan loss provisions must be raised againstthe estimated unrealisable amount of all facilities. $heade-uacy of provisions must bereviewed at least -uarterly on all non#performing loans,and the bank should pursue legal options to enforcesecurity to obtain repayment or negotiate an appropriateloan rescheduling. n all cases, the re-uirements ofBangladesh Bank in C B reporting,loan rescheduling and provisioning must be followed. )n

)ggregate *core of 8=#:: based on the Risk "rade*corecard

9ossDnon#performingE

A )ssets graded A are long outstanding with no progress inobtaining repayment Din e!cess of 6A3 days past dueE or inthe late stages of wind upMli-uidation. $he prospect ofrecovery is poor and legal options have been pursued. $heproceeds e!pected from the li-uidation or realization ofsecurity may be awaited. $he continuance of the loan as abankable asset is not warranted, and the anticipated loss

should have been provided for. $his classification reflectsthat it is not practical or desirable to defer writing off thisbasically worthless asset even though partial recovery maybe effected in the future. Bangladesh Bank guidelines fortimely write off of bad loans must be adhered to.

)n )ggregate *core of 8= or less based on the Risk "rade*corecard

)t least top twenty five clientsMobligors of the Bank may preferably be rated by an

outside

credit rating agency. $he 2arly )lert Report should be completed in a timely manner

by the R and forwarded to CR for approval to affect any downgrade. )fter

approval, the report should be forwarded to Credit )dministration, who is responsible

to ensure the correct facilityMborrower Risk "rades are updated on the system. $he

downgrading of an account should be done immediately when adverse information is

noted, and should not be postponed until the annual review process.

A%%(o3a' A*t$o(it


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50/81

t is essential that e!ecutives charged with approving loans have relevant training

and e!perience to carry out their responsibilities effectively. )s a minimum, approving

e!ecutives should have5

At least 5 years experience working in corporate/commercial banking as a

relationship manager or account executive.

raining and experience in financial statement! cash flow and risk analysis.

A thorough working knowledge of Accounting.

A good understanding of the local industry/market dynamics.

Successfully completed an assessment test demonstrating ade"uate

;nowledge of the following areas5 ntroduction of accrual accounting.

ndustry M Business Risk )nalysis

Borrowing Causes

inancial reporting and full disclosure

inancial *tatement )nalysis

$he )sset ConversionM$rade Cycle

Cash low )nalysis

'ro4ections

9oan *tructure and /ocumentation

9oan anagement.

.

Y ) monthly summary of all new facilities approved, renewed, enhanced, and a

list of proposals declined stating reasons thereof should be reported by CRto the C2+M /.

Se!(e!ation o# D*ties

Banks should aim to segregate the following lending functions5

# Credit )pprovalMRisk anagement

# Relationship anagementM arketing

# Credit )dministration


51/81

$he purpose of the segregation is to improve the knowledge levels and e!pertise in

each department, to impose controls over the disbursement of authorized loan

facilities and obtain an ob4ective and independent 4udgment of credit proposals.

Inte(na' A*+it

Banks should have a segregated internal auditMcontrol department charged with

conducting audits of all departments. )udits should be carried out annually, and

should ensure compliance with regulatory guidelines, internal procedures, 9ending

"uidelines and Bangladesh Bank re-uirements.

PREFERRED ORGANISATIONAL STRUCTURE & RESPONSIBILITIES

$he appropriate organizational structure must be in place to support the adoption of

the policies detailed in *ection 6 of these guidelines. $he key feature is the

segregation of the

arketingMRelationship anagement function from )pprovalMRisk

anagementM)dministration functions.

Credit approval should be centralized within the CR function. Regional credit

centers may be established, however, all applications must be approved by the 1ead

of Credit and Risk anagement or anaging /irectorMC2+MBoard or delegated 1ead

+ffice credit e!ecutive.


52/81

P(e#e((e+ O(!anisationa' St(*)t*(e

$he following chart represents the preferred management structure5

:A;A I; IRE)TOR


53/81


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PROCEDURAL GUIDELINES

$his section outlines of the main procedures that are needed to ensure compliance

with thepolicies contained in *ection 6.3 of these guidelines.

A%%(o3a' P(o)ess

$he approval process must reinforce the segregation of Relationship

anagementM arketing from the approving authority. $he responsibility for preparing

the Credit )pplication should rest with the R within the corporateMcommercial

banking department. Credit )pplications should be recommended for approval by theR team and forwarded to the approval team

within CR and approved by individual e!ecutives. Banks may wish to establish

various thresholds, above which, the recommendation of the 1ead of

CorporateMCommercial Banking is re-uired prior to onward recommendation to CR

for approval. n addition, banks may wish to establish regional credit centres within

the approval team to handle routine approvals. 2!ecutives in head office CR

should approve all large loans. $he recommending or approving e!ecutives should

take responsibility for and be held accountable for their recommendations or

approval. /elegation of approval limits should be such that all proposals where the

facilities are up to 6=F of the banks capital should be approved at the CR level,

facilities up to 7=F of capital should be approved by C2+M /, with proposals in

e!cess of 7=F of capital to be approved by the 2CMBoard only after recommendation

of CR , Corporate Banking and /MC2+.


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T$e #o''o9in! +ia!(a i''*st(ates t$e %(e#e((e+ a%%(o3a' %(o)ess:

6 7

8 :

= ?

@

Credit ApplicationRecommended By RM / Marketing

Zonal Credit Officer (ZCO)

Head of Credit (HOC) &Head of Corporate Banking (HOCB)

Managing Director

E ec!ti"e Committee/Board


56/81

6. )pplication forwarded to Zonal +ffice for approvedMdecline

7. )dvise the decision as per delegated authority Dapproved MdeclineE torecommending branches. ) monthly summary of ZC+ approvals should be

sent to 1+C and 1+CB to report the previous months approvals sanctioned

at the Zonal +ffices. $he 1+C should review 63F of ZC+ approvals to

ensure adherence to 9ending "uidelines and Bank policies.

8. ZC+ supports & forwarded to 1ead of Corporate Banking D1+CBE or delegate

for endorsement, and 1ead of Credit D1+CE for approval or onwardrecommendation.

:. 1+C advises the decision as per delegated authority to ZC+

=. 1+C & 1+CB supports & forwarded to anaging /irector

?. anaging /irector advises the decision as per delegated authority to 1+C &

1+CB.

@. anaging /irector presents the proposal to 2CMBoard

A. 2CMBoard advises the decision to 1+C & 1+CB

WW Regardless of the delegated authority 1+C to advise the decision

DapprovalMdeclineE to marketing department through ZC+


57/81

Re)o en+e+ De'e!ate+ A%%(o3a' A*t$o(it Le3e's

1+CMCR 2!ecutives 0p to 6=F of Capital anaging /irectorMC2+ 0p to 7=F of Capital

2CMBoard all e!ceed 7=F of Capital

A%%ea' P(o)ess

)ny declined credit may be re#presented to the ne!t higher authority for

reassessmentMapproval. 1owever, there should be no appeal process beyond theanaging /irector.

C(e+it A+ inist(ation

$he Credit )dministration function is critical in ensuring that proper documentation

and approvals are in place prior to the disbursement of loan facilities. or this

reason, it is essential that the functions of Credit )dministration be strictly

segregated from Relationship anagementM arketing in order to avoid the possibilityof controls being compromised or issues not being highlighted at the appropriate

level. Credit )dministration procedures should be in place to ensure the following5

Dis4*(se ent 5

[*ecurity documents are prepared in accordance with approval terms and are

legally enforceable. *tandard loan facility documentation that has been reviewed by

legal counsel should be used in all cases. 2!ceptions should be referred to legalcounsel for advice based on authorisation from an appropriate e!ecutive in CR .

[/isbursements under loan facilities are only be made when all security

documentation is in place. C B report should reflectMinclude the name of all the

lenders with facility, limit & outstanding. )ll formalities regarding large loans & loans

to /irectors should be guided by Bangladesh Bank circulars & related section of

Banking Companies )ct. )ll Credit )pproval terms have been met.


58/81

C*sto+ia' D*ties 5 9oan disbursements and the preparation and storage of security documents

should be centralised in the regional credit centres.

)ppropriate insurance coverage is maintained Dand renewed on a timelybasisE on assets pledged as collateral.

*ecurity documentation is held under strict control, preferably in locked

fireproof storage.

Co %'ian)e Re *i(e ents 5 )ll re-uired Bangladesh Bank returns are submitted in the correct format in a

timely manner. Bangladesh Bank circularsMregulations are maintained centrally, and advised

to all relevant departments to ensure compliance. )ll third party service providers Dvaluers, lawyers, insurers, C')s etc.E are

approved and performance reviewed on an annual basis. Banks are referred

to Bangladesh Bank circular outlining approved e!ternal audit firms that are

acceptable.

C(e+it Monito(in!

$o minimise credit losses, monitoring procedures and systems should be in place

that provide an early indication of the deteriorating financial health of a borrower. )t a

minimum, systems should be in place to report the following e!ceptions to relevant

e!ecutives in CR and R team5

'ast due principal or interest payments, past due trade bills, account

e!cesses, and breach of loan covenantsK 9oan terms and conditions are monitored, financial statements are received

on a regular basis, and any covenant breaches or e!ceptions are referred to

CR and the R team for timely follow#up.

$imely corrective action is taken to address findings of any internal, e!ternal

or regulator inspectionMaudit.

)ll borrower relationshipsMloan facilities are reviewed and approved through

the submission of a Credit )pplication at least annually.


59/81

Computer systems must be able to produce the above information for centralMhead

office as well as local review. here automated systems are not available, a manual

process should have the capability to produce accurate e!ception reports.

2!ceptions should be followed up on and corrective action taken in a timely mannerbefore the account deteriorates further.


60/81

C(e+it A+ inist(ation F'o9)$a(t


61/81


62/81


63/81

f. ) photocopy of the Blue Book duly attested by an officer of the Branch

evidencing Ioint Registration is to be obtained.

8. C1)R"2 /+C0 2


64/81

7. LOAN AGAINST IMPORTED MERCHANDISE 0L=I=M=1:

6. 9oan against the security of merchandise imported through the Bank may be

allowed against pledge of goods, retaining margin prescribed on their 9anded

Cost, depending on their categories and credit restrictions imposed by the

Bangladesh bank. Branches shall also obtain letter of undertaking and

indemnity from the clients, before getting goods cleared through 9 account.

7. Clearance of the goods should be taken through )pproved Clearing )gent of the

Bank.

8. $he following points must be taken into consideration while allowing advance

against the security of imported goods5

a. $hat the landed cost of the merchandise is properly worked out before the

goods are delivered to the customer against proportionate payments. $he

landed cost of the goods sub4ect to the credit restrictions imposed by

Bangladesh Bank is arrived at by taking into account5

iE $he invoice value of the merchandise including freight.

iiE Customs /uty.

iiiE *ales $a!.

ivE harfage.

vE Clearing )gentPs charges.

viE Railway reight etc.

viiE nsurance premium.

viiiE /emurrage.

i!E +ther charge, if any.

b. $he landed cost of each item should be separately worked out that goods

are delivered to the customers against proportionate payment made for

each item. hile making part delivery, it must be ensured that slow

moving items are also taken delivery simultaneously. aluable and less

valuable items should not be averaged together.


65/81

c. hile creating forced 9 Branch manager should satisfy that forced sale

value will cover the outstanding 9 , if not, arrangement should be made

to recover the liabilities through sale of documents. 'rior approval of 1ead+ffice to be obtained for creating forced 9 .

:. C1)R"2 /+C0 2


66/81

cE $he shares are accompanied with blank $ransfer /eed duly signed by the

person in whose name those shares stand and witnessed by somebody

who is easily traceable.

dE $he transferorPs signature on the $ransfer /eed is verified by the Companyconcerned under its stamp.

eE $he $ransfer /eeds are undated.

fE ) fresh set of $ransfer /eeds signed by the borrower, and witnessed by

somebody who is easily traceable is obtained and retained with the

branch, for all such shares which are to be sent to various companies for

registration in his name, before the closure of their books, if so re-uested

by him.

gE $hese shares are lodged with the companies concerned for registration

with their original $ransfer /eeds, duly completed in all respects, under a

covering letter from the branch, re-uesting them to return the shares to the

branch, as the Bank has its lien on them. $he $ransfer /eeds attached

with the shares are completed and signed by the borrower as transferee,

before these are dispatched to the companies.

hE ) receipt is obtained from the companies and retained with branch, duly

discharged by the share#holder, for e!change with the share certificates,

when ready for delivery.

iE $he borrowerPs signatures on the fresh set of $ransfer /eeds are verified

by the companies concerned and retained with branch along with their

respective share certificate when received back from them after

registration.

4E $he branch should obtain a letter of lien from the borrower in respect of all

such shares which stand in his name, or which have been sent to the

various companies for registration, in his name. here advance has been

allowed to the borrower at the specific re-uest of a third party against

shares owned by them the letter of lien shall be obtained from third party,

in its own name.

kE $he branch shall not generally resort to transferring the shares registered

in the name of the borrower or any third party, in its own name.


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lE n the event of transferring the shares in the name of the Bank with the

approval of the 1ead +ffice, branches shall take specific notice of any

declaration of /ividends, Bonus *hares or any offer of Right *hares made

by the companies concerned. $hey shall also ensure that all such/ividends and Bonus *hares are duly received by them.

iE $he dividend is credited to the account of the borrowers and the

bonus shares are kept along with other shares of the borrower.

iiE n case of an offer of Right *hares, branches shall send an intimation

to the borrowers concerned en-uiring from them if they wereinterested to ac-uire them for the value mentioned on the letter of

Right which should immediately be deposited by them with the Bank.

iiiE f the borrowers do not deposit the money from their own resources

or make any alternate arrangement in that behalf, the letter of rights

may be renounced with the permission of the 1ead +ffice and sold,

and the sale proceeds should be credited to the borrowerPs accountunder intimation to him.

8. C)9C09)$ +< + /R)


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)llow the advance on obtaining the following charge documents duly stamped5

aE /emand 'romissory


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gE $he discharged receipt, the letter of lien duly verified by the issuing branch

and the letter confirming registration of the lien on the /eposit Receipt

shall be kept along with other documents for the relative advance, duly

entered in the documentation check list.hE 9ien on the partial amounts on i!edM*hort $erm /eposits shall not be

accepted.

iE $he lien of the Bank has to be marked in red inkMrubber stamp on the face

of the /eposit Receipt against which advance has been allowed. +n

ad4ustment of the advance, lien shall be released under signature of two

+fficers on the back of the /eposit Receipt.

4E )n undertaking from the borrowerMthird party Dif the deposit is in the name

of third partyE for encashment of the /RM*hort $erm /eposit and

appropriation of the proceeds thereof without reference to them be

obtained.

kE )n undertaking from the borrowerMthird party Dif the deposit is in the name

of third partyE for renewal of the i!ed and *hort $erm /eposits without

reference to them be obtained.

lE n case of Bearer Certificate of /eposit, lien to be marked on the face of

the certificate and margin to be calculated on the amount deposited.

7. C1)R"2 /+C0 2


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return che-ues which, as a result of the Bank having taken such an action,

would overdraw the combined account. 1e should also agree not to close the

account and withdraw the balance, pending ad4ustment of the advance.

here the advance is allowed against credit balance, ear#marked in the

account of a third party, whether at the same branch or at some other branch of

the Bank, take an irrevocable letter of authority from third party, authorizing the

Bank to appropriate the credit balance lying in their account to the e!tent of the

debit balance appearing in the account of the borrower, at any time, without any

reference to them. $his being an irrevocable letter of authority, they should

agree neither to close the account pending ad4ustment of the advance allowedat their instance, nor to issue che-ues which would reduce that balance.

8. $he signature of the account#holder in whose account a credit balance is ear#

marked is verified on the irrevocable letter of authority given by him.

:. C1)R"2 /+C0 2


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ivE 'ersonal "uarantee of all the 'artners.

eE Certified copy of Resolution of the Board of /irectors in accordance with

corporate Borrowing 'ower laid down in the emorandum and )rticles of )ssociation of the Company and in case of Corporations, resolution of the

Board of /irectors along with charter to be vetted by 9egal

)dviserMRetainer.

fE 'ersonal "uarantee of all the /irectors in case of a 9imited Company.

gE 9etter of )uthority to set off or appropriate the balance.hE or 9oans5 9etter of /isbursement.

iE or +verdrafts5 9etter of Continuity.

SET OF DOCUEMNTS TO BE OBTAINED AGAINST

DIFFERENT TYPES OF LOANS AND ADVANCES

$he following three documents are common for each type of 9oans and )dvances5

aE /ocuments common to all )dvances5iE /. '.


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+ther documents are to be obtained according to the types of advances, nature of

securities offered and status of the borrower as classified below, in consultation with

the 9egal )dviserMRetainer.

aE n case of 9imited Company5

iE ndividual 'ersonal guarantee of all /irectors.

iiE Boards resolution covering corporate borrowing power, authorising

the /irectorDsE to e!ecute the security documents. Resolutions must

be duly certified.

iiiE emorandum and )rticles of )ssociation of the Company duly

certified by the Registrar, Ioint *tock Companies.

bE n case of 'artnership irms5

iE 'hotocopy of Registered 'artnership /eed duly certified by


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9ending Risk )nalysis D9R)E

$he inancial *ector Reform 'ro4ect D *R'E has been instituted in the early nineties

in Bangladesh with a view to bringing about financial discipline through undertaking

appropriate reform measures in the financial sector of our country. $he pro4ect has

been taken by the "overnment of Bangladesh D"+BE with combined support of the

orld Bank and 0*) / under the structural ad4ustment program. $he banking sector

constitutes the principal segment of the financial sector and hence the main thrust of

the reform activities rests on this sector. $he reform programs also gave freedom to

the banks to select the borrowers on the basis of their own 4udgement.

)mong the several reform measures that *R' has so far recommended. 9ending

Risk )nalysis D9R)E constitutes an important set of activities that has been

prescribed for minimising and averting risk in funds business of local banks Dpublic

and privateE. t has been identified by the e!perts and bankers that risk DhighE

involved in providing loan to a particular borrower is the main reason for failing to

recover the banks money and the issued of risk analysis remains as one of the main

factors in determining the status of a loanMinvestment in terms of recovery.

Len+in! Ris. Ana' sis 0LRA1: Te( s & De#initions

9ending Risk )nalysis D9R)E is simply a loan processing manual. By going through

this manual the lending bankers can assess the creditworthiness of their prospective

borrowers. $herefore, 9R) is such an instrument which is definitely and directly

related with lending information to analyze the borrowers financial, marketing,

managerial and organisational aspects sub4ectively and ob4ectively. t also facilitates

the analyst to know the security risk of the credit.

9ending Risk )nalysis involves assessing the likelihood of repayment of loans to the

bank as per agreement on the basis of analysis of certain risks. $o analyze these

risks bankers will need to fill#up a 6? page 9R) orm. $he form leads to scoring


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various risk factors involved in lending D$able )E, first of all, has divided the various

risks into two groups namely. Business Risk and *ecurity Risk.

Business Risk5

Business Risk is concerned with whether the borrowing company would fail to

generate sufficient cash out of business to repay the loan. Business Risk, the main

component of lending risk, consists of the ndustry Risk and the Company Risk.

). ndustry Risk5 /ue to some e!ternal reasons a business may fail and the risk

which arrives from e!ternal reasons of the business is called ndustry Risk. t

has two components5

DiE *upplies Risk5 hen the business fails due to disruption in the supply of

inputs, the conse-uent risk which would arise is known as *upply Risk.

DiiE *ales Risk 5 t is another component of ndustry Risk. hen the business

fails for disruption in sales, this type of risk would generate.

B. Company Risk5 Company Risk is shown for some internal reasons of the

business. t has also two main components and four sub#components.

DiE Company 'osition Risk5 2ach and every company holds a position within

an industry. $his position is very much competitive. /ue to weakness in

the companys position in its industry, a company may fail and the risk of failure is called Company 'osition Risk. t depends on J

DaE 'erformance Risk5 f a company fails to perform well enough to repay

the loan because of its weakness under given e!pected e!ternal

conditions, the company is said to suffer from performance risk.


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DbE Resilience Risk5 hen a company fails due to lack of its resilience to

une!pected e!ternal conditions, the conditions, the resilience risk is

generated.

DiiE anagement Risk5 f the management of a company fails to e!ploit the

companys position effectively, the company can fails and this risk of

failure is called management risk. t can be subdivided further.

DaE anagement Competence Risk5 anagement competence risk is the

risk that the company fails to repay its loan due to lack of

management integrity.

DbE anagement ntegrity Risk5 anagement integrity risk is the risk that

the company fails to repay its loan due to lack of management

integrity.

*ecurity Risk5

*ecurity Risk is the risk that the realized value of the security does not cover the

e!posure of loan. 2!posure means principal plus outstanding interest. *ecurity risk

can be divided into two parts5

DaE *ecurity Control Risk5 *ecurity Control Risk is the risk that the bank fails to

realize the security because of lack of banks control over the security offered

by the borrowers.

DbE *ecurity Cover Risk5 *ecurity cover risk is the risk that the realized security value

may not cover the full e!posure of loans.

P(o)ess o# Len+in! Ris. Ana' sis:


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or the purpose of risk analysis for either trading or manufacturing companies, the

credit officer or concerned persons who are involved to prepare the 9R) report

should first collect the information and data in respect of the loan proposal and the

borrower.$he following steps are generally followed5

6. Collect all data available from published sources.

7. isit company to collect company specific data that is not published.

8. nterview management to assess their ability and integrity.

:. nvestigate the security.

=. 1ave an impression Dby the credit officerE of the companys operations.

)fter collecting the re-uired information and data5

6. 'repare financial spreadsheet which includes Balance *heet, ncome *tatement.

Cash low *tatement and inancial Ratios on the basis of at least 8 years

financial statement of the borrowers.7. )nalysis of *preadsheet Ratios.

8. 'repare supplementary -uestions for company management, if necessary.


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Documents

Credit Management Policy on AB Bank Ltd