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Chapter 01
Introduction
1.1 Origin of the report
1.2 Scope of the report
1.3 Objective of the study
1.3.1 General Objective
1.3.2 Specific Objective
1.4 Methodology and Sources of Information
1.4.1 Primary sources
1.4.2 Secondary Sources
1.5 Limitation of the study
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1.1 Origin of the report
As a requirement for the fulfillment of our BBA program in the business administration we have to
perform three months internship program. As a student of BBA I have gathered enough theoretical
knowledge and now want to put my potentiality in the practical field. The main objective of the
internship program is to have practical knowledge of the professional life and to relate the four
years theoretical learning to practical field.
1.2 Scope of the Report
The report covers two departments during the period in practical orientation and the area of
organizational overview, performance of the overview of Credit Risk Management, identification
of loans and advances, conclusion & recommendation.
1.3 Objective of the Study
1.3.1 General Objective:
The broad or general objective of the study is to learn and analyze the credit risk
management of NBL and the system the followed for credit assessment.
1.3.2 Specific Objective:
To know about the National Bank Limited
To learn about credit department of NBL
To gather information about credit risk and its management process
Analyze the credit assessment process
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All types of required data were not available that may be helpful to make this paper more
complete.
Chapter 02
Background of the National Bank Limited
2.1 Evolution of NBL
2.2 Corporate Information of NBL
2.3 Vision of NBL
2.4 Mission of NBL
2.5 Objectives of NBL
2.6 Business Goal
2.7 Line of Business of NBL
2.8 Hierarchy of NBL
2.9 Branches of NBL
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2.1 Evolution of National Bank Limited
Bangladesh economy has been experiencing a rapid growth since the 90s. Industrial and
agricultural development, international trade, inflow of expatriate Bangladeshi workers'
remittance local and foreign investments in construction, communication, power, food
processing and service enterprises ushered in an era of economic activities. Urbanization and
lifestyle changes concurrent with the economic development created a demand for banking
products and services to support the new initiatives as well as to canalize consumer investments
in a profitable manner. A group of highly acclaimed businessmen of the country grouped
together to responded to this need and established National Bank Limited in the year 1983.
National Bank Limited was established on 23rd March 1983 with authorized capital TK. 100
million and paid up capital of TK. 80 million was subscribed by the sponsors/directors and TK. 4
million was subscribed to the government. Remaining TK. 36 million has been fully subscribed
by the public. The management of the Bank is vested in a board of directors consisting of 21members including the managing director of the Bank. Managing directors is the chief executive
of the Bank. The Bank carries of deposits, investment of funds, financing of trades, businessmen,
industrialists, importers and exporters etc. The National Bank Limited opened new branches
eight during 1983, raising the total number branches 112 in 2009, total number of employees of
the Bank was 242 in 1983 and increased to 2239 in 2009, and during the short periods of its
operation the Bank has made notable progress in various activities.
NBL determined to bring back the long forgotten taste of banking services and flavors. NBL
want to serve each one promptly and with a sense of dedication and dignity. The then President
of the People's Republic of Bangladesh Justice Ahsanuddin Chowdhury in angulated the bank
formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area, Dhaka started
commercial operation on March 23, 1983. The 2nd Branch was opened on 11th May 1983 at
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Khatungonj, Chittagong. At present; NBL has been carrying on business through its 112
branches spread all over the country. Besides, the Bank has drawing arrangement with 415
correspondents in 75 countries of the world as well as with 32 overseas Exchange Companies.
NBL was the first domestic bank to establish agency arrangement with the world famous
Western Union in order to facilitate quick and safe remittance of the valuable foreign exchanges
earned by the expatriate Bangladeshi nationals.
NBL was also the first among domestic banks to introduce international Master Card in
Bangladesh. In the meantime, NBL has also introduced the Visa Card and Power Card. The Bank
has in its use the latest information technology services of SWIFT and REUTERS.NBL has been
continuing its small credit programmed for disbursement of collateral free agricultural loans
among the poor farmers of Barindra area in Rajshahi district for improving their lot. Alongside
banking activities, NBL is actively involved in sports and games as well as in various Socio-
Cultural activities. The Bank established extensive drawing arrangement network with Banks and
Exchange Companies located in important countries of the world. Expatriates Bangladeshi wage
earners residing in those countries can now easily remit their hard-earned money to the country
with confidence, safety and speed. The number of workforce of NBL stood at 2239, which
include 1689 officers and executives and 550 staff. Now NBL is on line to establish trade and
communication with the NBL International banking companies of the world.
As a result NBL will be able to build a strong root in international banking horizon. Bank has
been drawing arrangement with well conversant money transfer service agency "Western
Union". It has a full time arrangement for speedy transfer of money all over the world.
Transparency and accountability of a financial institution is reflected in its Annual Report
containing its Balance Sheet and Profit & Loss Account. In recognition of this, NBL was
awarded Crest in 1999 and 2000, and Certificate of Appreciation by the Institute of Chartered
Accountants of Bangladesh.
With a strong sense in all business areas commercial banking, NBL could foresee tremendous
growth in home in homebound remittance form Bangladesh expatriates in USA and UK, Middle
East and different countries of the world. Consecutively NBL established a unique money
remittance system with Western Union of USA for inbound and outbound remittance. At present
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NBL is the only authorized agent for this unique service in Bangladesh. From the very beginning
NBL is playing a vital role in the private sector Banking.
National Bank Limited is one of the leading private commercial bank having a spread network of
112 branches across Bangladesh and plans to open few more branches to cover the important
commercial areas in Dhaka, Chittagong, Sylhet and other areas in 2009.
National Bank Limited has been licensed by the Government of Bangladesh as a Scheduled
commercial bank in the private sector in pursuance of the policy of liberalization of banking and
financial services and facilities in Bangladesh. In view of the above, the Bank within a period of
25 years of its operation achieved a remarkable success and met up capital adequacy requirement
of Bangladesh Bank.
National Bank Ltd is one of the leading banks which introduced first Credit Card in Bangladesh.
Our technology has been upgraded to manage the growth of the bank and meet the demands of
our customers. ATMs now allow customers to retrieve 24x7 hours cash withdrawals. National
Bank Limited is a customer oriented financial institution. It remains dedicated to meet up with
the ever growing expectations of the customer because at National Bank, customer is always at
the center.
National Bank Limited has its prosperous past, glorious present, prospective future and under
processing projects and activities. Established as the first private sector Bank fully owned by
Bangladeshi entrepreneurs, NBL has been flourishing as the largest private sector Bank with the
passage of time after facing many stress and strain. The member of the board of directors is
creative businessman and leading industrialist of the country. To keep pace with time and in
harmony with national and international economic activities and for rendering all modern
services, NBL, as financial branches with computer network in accordance with the competitive
commercial demand of time. Moreover, considering its forth-coming future the institution
automated all its infrastructure of the Bank has been rearranging. The expectation of all class
businessman, entrepreneurs and general public is much more to NBL. Keeping the target in mind
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NBL has taken preparation to open new branches by the year 2007. The emergence of National
Bank Limited in the private sector is an important event in the Banking arena of Bangladesh.
When the nation was in the grip of severe recession, Govt. took the farsighted decision to allow
in the private sector to revive the economy of the country. Several dynamic entrepreneurs came
forward for establishing a bank with a motto to revitalize the economy of the country. National
Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the Private
sector from the very inception it is the firm determination of National Bank Limited to play a
vital role in the national economy.
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2.2 Corporate Information of NBL
Corporate Information
Incorporation of the Bank
15.03.1983
Certificate of commencement of Business 20.03.1983
Licensed issued by Bangladesh Bank 22.02.1983
Licensed issued by Bangladesh Bank foropening the First branch, Dilkusha Branch
22.03.1983
Formal Lunching of the Bank 23.031983
Commencement of Business of Dilkusha
Branch
23.031983
Listed with Dhaka Stock Exchange 20.12.1984
Publication of prospectus 30.12.1984
Date of first public subscription (IPO) 14.01.1985
Trading of shares in DSE 21.04.1985
Association with Gulf exchange Pte Ltd 26.11.1985
Signing in agreement with Western Union
Money Transfer
16.05.1993
Listed with Chittagong Stock exchange 06.11.1995
Trading of Shares in CSE 06.11.1995
Listed with CDBL 29.09.2004
Inauguration of Balaka Exchange Pte Ltd 08.07.2007
Registration Certificate as Stock Broker 24.10.2007
(Source: National Bank Limited annual Report, 2008)
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2.3 Vision of National Bank Limited
Ensuring highest standard of clientele services through best application of latest information
technology making due contribution to the national economy and establishing ourselves firmly at
home and abroad as a front ranking bank of the country are our cherished vision.
2.4 Mission of National Bank Limited
Efforts for expansion of our activities at home and abroad by adding new dimensions to our
banking services are being continued unabated. Alongside, we are also putting highest priority in
ensuring transparency, account ability, improved clientele service as well as to our commitment to
serve the society through which we want to get closer and closer to the people of all strata.
Winning an everlasting seat in the hearts of the people as a caring companion in uplifting the
national economic standard through continuous up gradation and diversification of our clientele
services in line with national and international requirements is the desired goal we want to reach.
2.5 Objectives of National Bank Limited
Bringing modern Banking facilities to the doorstep of general public through
diversification of Banking services, thereby arousing saving propensity among the
people.
Foreign a cordial, deep-rooted and firm banker-customer relationship by
dispensing prompt and improved clientele services.
Taking part in the development of the national economy through productive
deployment of the Banks resources as well as patronizing different social activities.
Connecting clients to modern banking practices by the best application of
improved information technology, so that they get encouraged to continue and feel proud
of banking with NBL.
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Ensuring highest use of the professional workforce through enhancement of their
aptitude and competence.
Responding to the need of the time by participating in syndicated large loan
financing with like-minded Banks of the country, thereby expanding the area of
investment of the Bank.
2.6 Business Goal
To patronize, sponsor and encourage games and sports, entertainment and other socio-economic
activities, alongside providing the best services to the clients.
2.7 Line of Business of NBL
Investment Banking (Capital Market Operation In DSE & CSE)
Lease Finance
Investment In Government & provide Security
International Trade Finance (Import, Export)
Foreign Exchange Dealing (Currency Dealing, Remittance)
Money Market Operations (Call Money Market)
Corporate Finance
Syndication
SME Banking
Personal Banking (Auto Loan, Vocational Loan, Personal Loan) Housing Finance
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Chairman
Asst. Officer
Computer Operator
Managing Director
Deputy Managing Director
Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
Senior Asst. Vice President
Asst. Vice President
Senior Principle Officer
Principle Officer
Executive Senior Officer
Officer
Junior Officer
2.8 Hierarchy of NBL
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2.9 Branches of NBL
NBL which was started at Dilkusha Branch on March 23rd, 1983 was the first and major private
commercial Bank in Bangladesh operating throughout the country as well as the age of the Bank
is only 18 years. During this period it has established total 76 branches over the country and
made a smooth network inside the country as well as throughout the world. The number of
Branches as territory wise is mentioned in the table:
Area-wise BranchesDivision Area Number of BranchesDhaka Area 44
Chittagong Area 23
Rajshahi Area 16
Khulna Area 09
Selhet Area 16
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Chapter 03
Credit Policy Guidelines of NBL
3.1 Different Forms of Credit in NBL
3.2 Purposes of Loans and Advances
3.3 Focus on Various Lending Areas
3.4 Steps in Loan Processing
3.5 Flowchart Approval for process of Loans and Advances
3.6 Lending Caps
3.7 Rate of Interest
3.8 Security and Support against Loans & Advances
3.9 Mode of Disbursement
3.10 Mode of Adjustment
3.11 Validity of Loans & Advances
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03.1 Different Forms of Credit in NBL
Generally we find three types of loan:
The different types of loans and advances that NBL offers are as follows:
Secured Overdraft (SOD) Loan (general)
Loan against Trust Receipt (LTR) Bank Guarantee
Payment Against Document (PAD) Cash Credit (Pledge)
House Building Loan Cash Credit (Hypo)
House Building Loan (staff) Foreign Documentary Bill Purchase (FDBP)
Term Loan. Inland Documentary Bill Purchase (IDBP)
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Loans
Continuous
LoanTerm LoanDemand Loan
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03.1.1 Continuous loan:
In this mode of loan, within a fixed amount and fixed period of time, one can receive and deposit
money several time.
NBL provide different types of continuous loan:
Secured Over Draft- financial obligation
Cash credit- hypothecation
Cash credit- pledge
Secured Over Draft- General
03.1.2. Term Loan:
Here, the borrower will take the whole amount at a time and has to deposit/ repay loan within
specified time.
NBL provides different types of term loan:
Retail Banking Loan SME Loan
Any Purpose Loan Housing Loan
Education Loan Lease Financing Scheme Loan
03.3.3 Demand Loan:
The loans that become repayable on demand by the bank will be treated as Demand Loan. If any
contingent or other liabilities are turned to forced loan i.e. without any prior approval as regular
loan those too will be treated as Demand loan. Such as: LTR, PAD, FBP and FDBP and LDBP etc.
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3.2 Purposes of Loans and Advances
National Bank Limited has been offering wide range of credit facilities as under:
NAME PURPOSE
Cash Credit ( Hypo & Pledge) Business capital/ Working capital.
SOD (General) Against Financial organization
/works/supply orders.
SOD (Export) Payment of Accepted bills at maturity
before receipt of export proceeds.
Loan (General) Acquiring capital assets/purchasing
construction, finishing, expansion,
repair, renovation of House/Flat /Real
estate business etc
LCA(Loan against cash Assistance) Financing for the period of the L/Cobligations against receipt of documents.
LC(Local & Foreign) sight & on Deferred
payment basis For import/Local procurement of goods/
services.
PAD For making payment of the payment ofthe L/C obligations against receipt of
documents.
LTR Retirement of shipping documents
LIM Retirement of shipping documents
PC Meeting Financial requirement of the
exporter at pre-shipment stage againstExporter L/C.
LDBP/FDBP As post shipment finances against local/foreign export bills.
BTB L/C Import of raw/packing materials againstExporter L/C
Bank Guarantee Local/Foreign For submission of tendency/to obtain
and offer as security against work order,
supply order/ For Gas, Electricityconnection/against delivery of
goods/against release of goods, without
or against partial payments by customeretc.
National Bank will also finance any other activity under any credit nature, which will meet the
institution basic principles of safety, liquidity and spread, upholding, credit norms and complying
with the guidelines/ directives of the Central Bank/ regulatory body.
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3.3 Focus on Various Lending Areas
National Bank main focus on various lending/as will be as under:
Industry and Business Segment* Focus
i. Trading Business Grow
ii. Ready Made Garments Grow
iii. Textile (Yarn/Fabrics Manufacturing) Grow
iv. Chemicals/Toiletries Grow
v. Entertainment Grow
vi. Telecommunication/IT Grow
vii. Power Generation and Distribution Grow
viii. Energy (power/Fuel/Gas) Grow
ix. Electric Goods Grow
x. Services viz. GSA, Freight Forward,and Airlines.etc.
Grow
xi. Steel and Re-rolling Mills Grow
xii. Engineering and Construction Grow
xiii. Small Traders/SME Encourage
xiv. Agro-based industry/ Dairy products/Fishery/Tea/crop
Encourage
xv. Export Oriented Industries Encourage
xvi Pharmaceuticals Encourage
xvii Consumer loans(personal, auto, credit
card)
Encourage
xviii. Food and Allied( edible oil, flour etc) Maintain
xix. Ship scrapping Maintain
xx. Real Estate Maintain
xxi. Paper Maintain
xxii. Transport Discouraged
xxiii. Cold storage finance Discouraged
xxiv. Financing Cement Industries Discouraged
*The Industry and Business Segment Focus will be revised from time to time depending on
national requirement, market conditions, Cyclic of the economy, appetite for growth for each
sector, shift in Government Policy and National Bank, credit planning.
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3.4 Steps in Loan Processing
There are some stages the proposal has to come across. The steps are:
Request for Credit the client
Credit Application from filled up
Scrutinizing the documents
Analyzing the information
Preparing the proposal
Presenting of the proposal
Sanctioning of the credit
Informing the client, Implementation
Figure: Steps of processing Loan
3.5 Flowchart Approval for process of Loans and Advances
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Credit application processed by credit officers and
recommendation by Credit In charge of the branch
Branch Credit Committee
Branch Manager
Regional office
Regional officeCredit Committee
Regional Head
Head Office, Credit Division
Head Office Credit Committee
Deputy Managing Director (Credit)
Managing Director
Executive Committee(EC)
Figure: Approval Process of Loans & Advances
3.6 Lending Caps
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National Bank Limited is very much aware of over concentration of credit in particular area, which
may under some situation, create disaster for the bank. Keeping this in consideration and also the
overall business, trend, propose/potentials, risks& mitigate, pricing, owners stake in business,
business competitors involvement, safety, liquidity, security etc. NBL will be guided by the
following Lending caps generally:-
Sectors Caps %
Trade & Commerce 45%
SME 10%
Industry-working capital 10%
Project Finance Long Term 10%
Retail/Consumer (CCS) 10%
Agro Credit 5%
Work/ Supply order (contractual Finance) 5%
Others 5%
Total 100%
*The Caps will be revised from time to time depending on the market conditions, shift in
Government Policy and National Banks credit focus.
3.7 Rate of Interest
Rate of interest will be charged as per declared rate of the bank. Pricing will be basically risk
based. Higher price will be considered for riskier borrowers because of their higher risk involved.
Similarly lower price will be considered for prime clients on the basis of their low risk ( Low risk
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grade clients means where an obligor obtained higher aggregate score as per CRG score sheet or
100% cash covered or govt./international Top bank Guarantee). In fixing interest rate cost of fund
& the prevailing rate in the competing market shall also be considered. Concessional interest rates
to the deserving customers will be allowed within the declared interest rates band of the bank.
Commission/charges on credit facilities will be realized taking the competing scenario in the
banking market into account, involved risks in financing & overall policy of the bank.
NBL will be provided loans by the following interest rates generally:
Loans & Advances Interest Rates (%)
Cash Credit(CC) 18%
Secured Over Draft( SOD) 16%, normally, Interest rate is 2.5% above
from the instrument rate such as FDR,SS etc.
SME Loan 16%Housing loan 16%
Lease Financing Scheme Loan 16%
Retail Banking 14% (Officers)
20% (Non- officers)
Term Loan 16%
*The Interest Rates will be revised from time to time depending on the market conditions, shift in
Government Policy and National Banks credit focus.
3.8 Security and Support against Loans & Advances
The following types of securities are generally accepted:
Machineries of factory/ industry on hypothecation basis. Values of machineries are
checked.
Raw materials, work in process, finished goods, stock in trade on hypothecation and pledge
basis. Inventory is held in a warehouse/godown for financing against pledge under Banks
control. Value of Inventory is checked.
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Land and building of acceptable type and value, under registered mortgage.
Financial obligation after ascertainining its genuineness of issuance, ensuring marking of
lien of the lender bank on the instrument and obtaining confirmation from the issuing bank
that encashment including even before maturity date will be allowed to the lender bank on
request without referring to the instrument holder.
Bills receivable against work order/supply order duly assigned/supported by registered P.A
executed by the client favoring the bank, confirmed by the work entrusting authority that
the cheques/ bills against the work shall be issued in the name of the bank A/C of the
client.
Cars/ buses/water crafts/ vessels under hypothecation and joint registration.
Shipping documents as lien against LC.
Trust receipt (For LTR)
Export documents-under lien (for LDBP/FDBP).
Export LC/ Contact under lien (For LDBP/FDBP).
Packing credit letter. (For PC)
Personal guarantee/corporate guarantee/cross-corporate guarantee.
Post dated cheques.
1st/2nd charge/1st ranking pari passu charge on fixed and floating assets of the limited
companies financed.
Bank obtains authorization to debit clients account in order to keep policy in force.
Insurance:
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National Bank having insurable interest on a property/ an asset obtain insurance policy as per
norms against credit facilities extended in order to protect this banks interest. Insurance policy
shall be taken covering all possible risks. Branches shall ensure that insurance policy is current and
renewed on a timely basis. Insurance shall be obtained from a reputed company.
General/Special conditions/Covenants:
General/Special conditions/Covenants will be according to the nature of advances, security
arrangements, ownership pattern, and mode of acquisition, institutional norms / instructions, guide
lines of the central bank / regulatory authority.
3.9 Mode of Disbursement
In disbursing credit the bank ensures drawings for the purpose the loan has been sanctioned. Where
required visit of the business/site etc are suggested and all subsequent disbursement are made
conditional to full utilization of disbursed money in the preceding phase. In case of disbursement
of loan, money for acquisition of assets, payment is suggested after receipt of the asset by the
borrower.
3.10 Mode of Adjustment
For the borrower to exhibit capability to periodically adjust the drawings taken and as such to have
idea regarding the rationale for the continuation of the facility, adjustment mode is given. In term
of lending, where revolving transaction is not allowed, adherence to adjustment stipulation
(monthly, quarterly, half yearly or otherwise) is suggested to ensure recovery of the loan disbursed.
3.11 Validity of Loans & Advances
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Validity date for continuous credit is set at a period not exceeding 1 year. Short term loan mostly is
allowed for trade/commerce. This expiry date is virtually the date for adjustment/ review of the
facility, subject to periodical and satisfactory turnover of the limit. Conduct of the business during
the whole of validity period determines the fate of continuation of the facility for the next period.
Loans for short/ medium/long term are also sanctioned depending upon the requirement thereof
and also on cash flow generation, repayment capacity and over all lending feasibility. Such loans
are allowed for adjustment in installment.
Short term : Up to 12 months
Medium term : More than 12 months and up to 60 months
Long term : More than 60 months.
Chapter 04
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Credit Risk Management of NBL
4.1 Types of CRM
4.2 Mission and Vision of CRM
4.3 Major objectives of the CRM guidelines
4.4 Risk Management Process
4.5 Credit principles followed by NBL
4.6 Credit Evaluation of NBL
4.7Credit Risk assessment
4.8 Credit Information Bureau Report (CIB report)
4.9 Credit Assessment System
4.10 National Banks Risk Grading Framework
4.11 Credit Risk Grade Matrix
4.12 Different categories of Credit RiskGrading Credit
4.13 Risk Grading Review
4.1 Types of CRM
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In perspective of National Bank Limited risk is defined as the possibility of losses, financial or
else. Now a days risk management plays a vital role to reduce uncertainty of assets and or else.
The major area of risk the bank think is that Credit Risk, Liquidity Risk, Market Risk, Operation
Risk and Reputation Risk due to Money Laundering Risk. Market risks include Foreign exchange
risk, Interest rate risk and Equity risk.
Figure 01: Types of Risk Management of National Bank Limited
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4.2 Mission and Vision of Credit Risk Management
National Banks mission is to ensure quality services, establish and maintain modern and
electronic banking all financial activities with highly motivated and skilled personnel, maintaining
transparency, accountability & integrity and thereby ensure stable and sound financial operational
system.
National Bank Limited will:-
Extend credit facilities at competitive price with prudence & efficiency.
Offer wide range of products.
Encourage loans & advances to income generating activities and will thereby create
employment opportunity and improve standard of living of the common people. Loans and
advances for productive purpose which will alleviate poverty will be stressed upon.
Diversify lending activities, avoiding sectored concentration, ensuring geographical
dispersal.
Design its loan operations keeping social and economic factors in consideration.
Attach importance to consumer credit, Loans to small businessmen, Festival loan, Small
Loans for finishing and expansion of house, Personal loan for salaried persons and any
purpose loan.
Prefer lending which will be adequately secured with acceptable security. Borrowers stake
in any activity will be ensured.
Encourage syndicated financing in prospective/ profitable ventures.
Not incur any uncovered foreign exchange risk in lending fund.
Invest at reasonable lending rates.
Monitor End use of loans/ advances.
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Generally prefer short term lending promoting through lending small and medium
enterprises.
Constantly explore prospective and profitable investment areas in order to achieve
institutional and country objectives.
Extend of credit which should contribute within defined risk limitation to the banks
achievement of profitable growth and superior return on the Banks capital.
4.3 Major objectives of the CRM guidelines
The main objectives of the guidelines are as under:
To provide directional guidelines to all concerned to improve risk management culture &establish minimum standard for managing risks in credit operations.
To adopt an appropriate working method.
To keep legal aspects relating to loans and advances vivid.
To introduce and adopt uniform practice in working.
To make lending correct information based.
To identify proper lending correct area.
To analyze all aspects related to credit and ascertain viability of lending.
To make credit documentation exhaustive.
To ensure proper supervision, monitoring & follow up.
To ensure safe return of money lent, avoidance of credit loss and strengthen asset quality
and to protect banks interest.
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4.4 Risk Management Process
NBL's activities involve analysis, evaluation, acceptance and management of some risk or
combination of risks. Risk management is emphasized not only for regulatory purpose but also to
improve operational and financial performance of the Bank. The main objective of the risk
management is that the Bank takes well calculative business risks while safeguarding the Bank's
capital, its financial resources and profitability from various risks.
Risk Origination by Business Units
Credit Risk Operational
Risk
Market
Risk
Liquidity
Risk
Reputation
Risk
Risk Identification
Identify, Understand and Analyze Risks
Risk Assessment & Measurement
Quantify and Assess Risk Impact
Risk Control & Migration
Recommend Measures to Control & Migrate Risks
Risk Monitoring
Monitor and Report on Progress & Compliance
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Balance Risk against Return
Figure:Risk Management Process
In order to streamline risk control features in a more effective manner, National Bank Limited has
put in places all manuals as suggested in the core risk management guide lines of Bangladesh
Bank. To manage the risk, National Bank Limited takes some steps. They actively involve
analysis, evaluation, acceptance and management of some risk. Risk management is not only for
regular process but also improve financial performance of the Bank.
4.5 Credit Principles Followed by NBL
To achieve their goal for maximizing the stockholders value and protect the interest of the
depositors as well as to improve the quality of banks assets as fundamentally sound financial
institution, they will abide by but will not be limited to the following Credit Principles, which
should guide their behavior in their lending decisions:
Assessment of the customers character, integrity and willingness to repay will from basis
of lending.
Customer having capacity and ability to repay shall only be lent.
Possibility of default will be worked out before lending.
Credit will be extended in the areas risks of which can be sufficiently understood and
managed.
Independent Credit participation in the credit process shall be ensured.
Ethical behavior in all credit activities shall be ensured.
Be proactive in identifying, managing and communicating credit risk.
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Be diligent in ensuring that credit exposures and activities including processing function
complying with NBL requirements as well requirement of regulatory authority.
Risk and reward to be optimized.
Diversified Credit Portfolio to be built and maintained.
Credit will normally be financed from customers deposits and not out of short-term
temporary funds or borrowing from other banks.
The bank shall provide suitable credit services and products for the market in which it
operates.
Credit will be allowed in a manner which will in no way compromise with the Banksstandard of excellence and to customers who will not compromise such standards.
All credit extension must comply with the requirement of banking companies Act. 1991
and amendments thereof from time to time.
4.6 Credit Evaluation in NBL
National Bank will follow the following credit evaluation process:
Prevailing credit practices in the market.
Credit worthiness, background and track records of the borrower.
Financial standing of the borrower supported by financial statement and other documentary
evidences.
Legal jurisdiction and implication of applicable laws.
Effect of any applicable regulations and laws.
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Purpose of the loan/ facility.
Tenure of the loan/facility.
Viability of the business concern.
Cash flow analysis and also projections thereof.
Quality, value and adequacy of security, if available.
Risk taking capacity of the borrower.
Entrepreneurship and managerial capabilities of the borrower.
Reliability of the sources of repayment.
Volume of risk in relation to the risk taking capacity of the bank or company concern.
Profitability of the proposal to the bank or company concerned.
Credit Risk Grading
Yield from the facility
Market aspect
Total global exposure of the borrower
CIB status
4.7.1 Credit Risk Assessment
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4.7.1.1 Risk Assessment
The primary factor determining the quality of the Banks credit portfolio is the ability of each
borrower to honor, on timely basis, all credit commitments made to the Bank. This must be
accurately determined by the authorized Credit officers/Executives prior to approval. Therefore athorough credit risk assessment shall be conducted prior to the sanction of any credit facilities.
While assessing a credit proposal more emphasis shall be given on repayment potential of loans
out of funds generated from borrowers business (cash flow) instead of realization potential of
underlying securities. Credit risk assessment process in the Bank shall be considered by the
following the risk assessing areas:
4.7.1.2. Borrower Analysis:Full particulars of the proprietor, partners, Directors, etc to be examined, their management
capability to be ascertained. Overall performance and credit status of the allied concerns of the
client i.e. group will be assessed.
4.7.1.3. Industry analysis:
Before extending credit in an area, over all business conditions of that area/sector will be critically
examined, prospects and problems to be ascertained. Demand and supply of the concerned goods/
services, Demand and supply gap, contribution of the borrower in meeting the gap, strength and
weakness of the borrower & their competitors to be accurately assessed.
4.7.1.4. Supplier/Buyer Analysis:
Lending decision will be preceded by an intensive analysis on whether the borrower depends on a
single or a very few customer or gets the supply of the raw materials/dealing items from a single
suppler. Such sales and supply concentration will be given a very careful consideration.
4.7.1.5. Historical Financial Analysis:
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An analysis of a minimum of 3 years historical financial statements of the borrower shall be
presented.
4.7.1.6. Projected Financial Performance:
Where term facilities (tenor more than 1 year) are proposed, borrowers future/ projected financial
performance should be provided, indicating an analysis of the sufficiency of cash flow to service
debt repayments. Loans should be granted if projected cash flow is insufficient to repay debts.
4.7.1.7. Risk and Mitigating Factors
Risk inherent in a credit proposal shall have to be identified and appropriate justifying factorsshould be applied. These are to be summarized in the Credit Assessment Form. That has to identify
properly. If any risk factor is identified by the credit officer but that is actually not mitigating
factors. That will be make loss for the organization.
4.7.1.8. Collateral
Collateral offered against a credit facility shall properly be valued and verified by the concerned
relationship officer or Relationship Manager and revalued and re-verified annually in the
subsequent period(s). In addition to the valuation of the Relationship Officer, the same Collateral
must be valued and verified by an enlisted surveyor of the bank if the total credit facility to the
concerned customer exceeds Tk 25.00 lac. Any valuation of the collateral must be supported by the
photograph and side map, where applicable.
4. 7.1.9. Insurance Coverage
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Adequacy and extent of insurance coverage must be assessed in the credit Assessment Form.
Customer preference for not taking required insurance policy must be obtained from approved
insurer of the Bank.
4.7.1.10. Adherence to Policy
It should be clarified whether the customer is agreed to comply with the banks internal policy and
external regulatory requirements. Any deviation from the policy and other internal or external
requirement must be justified and mentioned as deviation in the Credit Assessment From.
4.7.1.11. Syndicated Loans
Proposal for syndicated loans shall be analyzed with respect to risk and return in the same manner
as directly sourced loans. In case of participation in a syndication deal, Bank will independently
assess the proposal and will not solely depend on the credit assessment of the lead Arranger.
.
4.8 Credit Information Bureau Report (CIB report):
One of the major risk reducing criteria for the bank is Credit Information Bureau Report. Bank can
easily know the total information of any customer from Credit Information Bureau.
Banks are requested to send the CIB if a customer want to avail more than 50 thousand taka. Every
Bank needs to submit their various statements like monthly statement, quarterly statement to
Bangladesh Bank. Bangladesh Bank gathers that credit information and make an individual code
name for every customer. They provide information about the limit, outstanding, disbursement
date, expiry date. If a customer applied for a Credit facility in any bank, the bank request to
Bangladesh Bank to sent CIB report to the Bank where bank can know the details of customer. If a
customer have loan facility more than 1.00 crore bank need to send monthly statement, if acustomer have loan facility less than 1.00 crore bank sent the statement quarterly.
4.9 Credit Assessment System
4.9.1. Credit Assessment System:
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Commercial banks and financial institutions intermediate between lenders and borrowers. These
financial intermediaries collect deposit and disburse it as loan and advance to the individual
people, business, commercial, industrial entity. The loan and advance should be given to them who
has the certain and predicted cash flow to repay the credit. If the credit officer fail to analyze the
clients viability of repaying the loan and the projects cash flow possibility of default may arise due
to the information. In sanctioning the loan, is the key to identify the borrowers ability, expertise,
efficiency, and industry analysis, business performance to ensure the recovery of the credit along
with the good supervision, monitoring and the relationship. The purpose of appraisal is to be sure
that the proposed advance will be safe, liquid, and profitable and for acceptable purpose covered
by adequate security.
4.9.2. Allocation of Authority:
To assure proper and orderly conduct of the banking operation, the board of directors empowered
the Managing Directors and executives of the bank to lend up-to certain under certain terms and
conditions at their discretion. Important point is that an officer will not be delegated certain power
on the basis of his position. In other words, an officer does not automatically get lending authority
by virtue of his corporate /functional title. Specified lending authority will be delegated by the
Managing Director to various Executives after taking into consideration his proven credit
judgment, Knowledge, and experience.
4.9.3. Approving Authority:
In National Bank Limited, the credit proposal goes through certain steps that are ordered in terms
of hierarchy. The board of directors is the ultimate authority and it delegates different power to the
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different committees. In National Bank Limited, there are following hierarchies in approving credit
facilities:
Figure: Approving Authority Sequence
4.9.3.1 Branch Credit Committee:
The branch credit department is maintained by the branch manager and the other members are
second man or manager operation, credit in-charge, and other members are nominated by the
branch manager and the credit officer who prepares the proposal calls them relation officer. As the
ultimate performance of the branch depends on the loan all of the members are give importance. If
the credit amount wanted is not under the sanctioning authority of the branch committee, it is sent
to the Head Office Credit Committee for approval.
4.9.3.2 Head Office Credit Department
After receiving the loan proposal from different branches, credit committee (HO) seats after certain
interval for analyzing the proposal. The credit officers review the proposal and look for what other
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information is needed to provide with it to present before the executive committee. Here they also
appraise the loan proposal in the same way the branch does. The HO credit committee is headed by
the Managing Directors of the bank and other members are selected by him. Mainly the HO credit
department is responsible for the following activities:
The committee evaluates the quality of the lending staff posted in the branch and take
appropriate steps to made them efficient and effective.
Ensuring that all the required information and documents are collected and are in order.
4.9.3.3 Executive Department
If the limit of the loan proposal exceeds the authority delegated to the HO credit committee, the
loan proposal is forwarded to the executive committee for sanction. Approving the credit facility as
delegated by the Board of Directors.
Supervising implementing the directives of the Board of Directors.
Reviewing of each extension of the credit approval by the HO credit committee or Managing
Director.
Communicate the result of all the above function to the Board of Directors .
4.9.3.4 Board of Directors
If the credit demand of the client crosses the delegated power of the executive committee, the
proposal is sent to the board of directors for approval. The Board of Directors has, in the NBL;
retain the following credit related responsibilities in their hand:
Delegating authority to approve and review credit
The board of directors will approve the credit for which authority is not delegated to anybody.
4.10. National Banks Risk Grading Framework
4.10.1 Basic Framework:
When providing credit facility to the customer, Bank undertakes many risks among which credit
risk is considered to be most important one. As such, an in-depth study should be conducted on the
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borrowers creditworthiness which will help the Bank to identify all possible risk underlying in a
particular credit transaction. A former evaluation of borrowers financial health and ability to repay
debt obligation is call credit rating which helps the bank to grade the customer. As such, it is also
called credit risk grading. And risk identified through credit rating/risk grading is quantified for
better understanding and takes appropriate technique. Besides, it helps the bank to charge
commensurate risk premium on a particular credit facility. Therefore, it is important to accurately
measure the risk in a transaction and grate the facility accordingly. As per recommendation of the
Financial Sector Reform Project, Bangladesh Bank made it mandatory for the bank to conduct a
Lending Risk Analysis in the prescribed format before sanction of a loan which is steel in force.
Later, Bangladesh Bank instructed all commercial Banks to develop its own credit risk grading
system vide its Guidelines on Credit Risk Management. In the said guideline, Bangladesh Bank
provide sample Risk Grading Model and advised Banks to design their own model in line with that
one.
4.10.2 NBLs Risk Grading Framework
All credit proposals must be supported by a comprehensive risk analysis. It is the absolute
responsibility of the originating officer to conduct comprehensive risk analysis and risk grading
score, risk grading etc in the proposal. He/she will also insure that all necessary
documents/proposal/ information in support of the proposed risk grading are with the proposal
before the facility request is sent to the competent approval authority.
4.11 Credit Risk Grade Matrix
As per instruction of Bangladesh Bank, National Bank has developed Risk Grading Scorecard
which will be used to find out rating of all credit facilities and/or customers of the bank except the
loans under Retail Credit Division. The score of the risk grading scorecard will be weighted one.
There are 10 (ten) rating criteria and separate parameters have been set to measure borrowers
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position against each criterion. After analyzing borrowers financials or other relevant documents,
the Relationship Officer will first find out the points the borrower earns against each criterion
based on the parameters set and then multiply the points obtained by the relevant risk weight which
will produce Weighted Score.
A snapshot of criteria and weight assigned to each criterion is as follows:
Sl.
No.
Criteria Weight
(%)
Name of the
Grade
Short
Name
Score
01 Leverage 15 Superior SUP 85+
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02 Liquidity 15 Good GD 75-84
03 Profitability 15 Acceptable ACCPT 65-74
04 Account
Control
5 Marginal/ MG/WL 55-64
05 Business
Outlook
10 Special
Mention
SM 45-55
06 Management/
Key Person
15 Substandard SS 45-54
07 Age of
Business
05 Doubtful DF 35-44
08 Size of
Business
05 Bad & Loss BL
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2. Good (GD)
Strong repayment capacity of the borrower.
The borrower has excellent liquidity and low leverage.
The company demonstrates consistency strong earnings and cash flow.
Borrower has well established, strong market share.
Very good management skill and expertise.
All security documentations are in place.
Credit facilities fully covered by the guarantee of a top tier local bank
Aggregate score of 85 or greater based on Risk Grade Score sheet.
3. Acceptable (ACCPT)
These borrowers are not strong as good grade borrowers, demonstrate earnings, cash flow
and have a good track record.
Borrowers have adequate liquidity, cash flow and earnings.
Credit in this grade is secured acceptable collateral (1st charge over
inventory/receivables/equipment/property).
Acceptable management.
Acceptable parent/sister company guarantee.
Aggregate score of 75-84 based on Risk Grade Score sheet.
4. Marginal/Watch list (MG/WL)
This grade warrants greater attention due to conditions affecting the borrower, the industry or
the economic environment.
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These borrowers have an above average risk due to strained liquidity, higher than normal
leverage, thin cash flow and/ or inconsistent earnings.
Weaker business credit and early warning signals of emerging business credit detected.
The borrower incurs a loss.
Loan repayment routinely falls past due.
Account conduct is poor, or other untoward factors are present.
Credit requires attention.
Aggregate score of 65-74 based on Risk Grade Score sheet.
5. Special Mentioned (SM)
This grade has potential weakness that deserves managements close attention. If left
uncorrected, this weakness may result in a deterioration of the repayment prospects of the
borrower.
Severe management problems exist.
Facilities are downgraded to this grade if sustained deterioration in financial condition is noted
(consecutive losses, negative net worth, excessive leverage).
Bangladesh Bank criteria for Special Mentioned (SM) shall apply.
Aggregate score of 55-64 based on Risk Grade Score sheet.
6. Sub Standard (SS)
Financial condition is weak and capacity or inclination to repay is in doubt.
These weaknesses jeopardize the full settlement of loans.
Bangladesh Bank criteria for Sub Standard (SS) shall apply.
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Aggregate score of 45-54 based on Risk Grade Score sheet.
7. Doubtful (DF)
Full repayment of principal and interest is unlikely and the possibility of loss is extremely high.
However, due to specifically identifiable pending factors, such as litigation, liquidation
procedures or capital injection, the asset yet is not classified as Bad & Loss.
Bangladesh Bank criteria for Doubtful Credit shall apply.
Aggregate score of 35-44 based on Risk Grade Score sheet
8. Bad and Loss (BL)
Credit of this grade has long outstanding with no progress in obtaining repayment or on the
verge of wind up/ liquidation.
Prospects of recovery are poor and legal options have been pursued.
Proceeds expected from the liquidation or realization of security may be awaited. The
continuance of the loan as a bankable asset is not warranted, and the anticipated loss should
have been provided for.
This classification reflects that it is not practical or desirable to defer writing off this basically
valueless asset even though partial recovery may be affected in the future. Bangladesh Bank
guidelines for timely write off of bad loans must be adhered to. Legal procedures/ suit initiated.
Bangladesh Bank criteria for bad and loss (BL) shall apply.
Aggregate score of less than 35 based on Risk Grade Score sheet.
4.13 Credit Risk Grading Review
Credit Risk Grading for each borrower should be assigned at the inception of lending and should
be periodically updated. Consistency and accuracy of the Risk Grade should be examined
periodically by the branch and Internal Control & Compliance Division while conducting inception
it must also be ensure that CRG has been properly done and periodically updated. Frequencies of
the review of the credit risk grading are mentioned below:
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Number Risk Grading Short Review frequency
(at least)
1 Superior SUP Annually
2 Good GD Annually
3 Acceptable ACCPT Annually
4 Marginal/ watch list MG/WL Half yearly
5 Special Mention SM Quarterly
6 Sub- standard SS Quarterly
7 Doubtful DF Quarterly
Bad & Loss BL Quarterly
Chapter 05
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Findings
5.1 Findings of the study
The rate of interest or product cost is set up by the Head Office. Interest rate has to be
within a limit for every bank which is notified by the Bangladesh Bank.
Pricing for the credit varies for depending on the risk level of credit facility. Risk level is
measure on some criteria like; CIB Report, CRG points, Personal Information. High risky
credit facility charged high interest. Price of Credit facility also set up by the Head Officecredit committee.
Credit allocation is set-up by the Head Office Credit committee. The Head of the Branch
can authorize credit up to Tk.20 Lac.
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Branch credit officer prepare the credit proposal containing details customer information.
Some big credit facilities recommended by the Head Office credit Committee which is
processed with fast monitoring and screening.
Sometimes clients and customers are moving here and there inside the bank premises. So it
hampers the smooth functioning and security system of the bank.
Quality development may help the bank to hold on the old customers and attract
potential customers.
The number of Brochure is not sufficient to supply information to the clients for
their query.
Chapter 06
Recommendation
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Conclusion
6.1 Recommendation
The process of sanctioning a loan is very time consuming. Management should give more
effort to reduce the time of processing a loan.
The main portion of profit comes from the foreign exchange and credit division, but there
are not enough employees on these departments to serve the clients. So number of
employees should be increased in these departments.
The management must be more careful of sanctioning that loans which are recommend by
powerful bodies. Because these loans sometimes become more risky.
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To reduce the credit risk the original documents of the client must be verified thoroughly.
The repayment capacity of loan of the client should be properly investigated to reduce the
default risk.
6.2 Conclusion
The National Banks philosophy - "A bank Performance for potential" has been precisely an
essence of the legend of success in Bangladesh. The bank has proved to be successful by offering
quality services to its customers in time. Most of employees of National Bank are very efficient
(with few exceptions); everyone knows their work very well and can perform efficiently to
produce the best output.
National Bank Limited has consistently remained focused on efficient customer service by
providing wide range of products and services. Their products and services are as diverse as the
market segment demand. Their customers group range from individuals, big corporate clients,
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NGOs to non residents. Financing to NGOs were done for extending microfinance to cover less
privileged people who are struggling to fight poverty. NBL also focus on its delivery platform, its
people and its brand to support the growth. Improvement in mix of deposit by developing more
retail savings products remained in their policy objectives. National Bank Limiteds core value to
remain socially responsible corporate citizen will remain integral part to its strategy and
communicating them to all stakeholders is intrinsic to the plan.