qCHAPTER ONE qCHAPTER ONE

1.1) Background of the Study:1.1) Background of the Study:

The MBA program is designed to focus on theoretical and professional development of

people open to take up business as a profession a well as service as a career. The program is

two months duration. This internship provides the students to link up their theoretical

knowledge into practical fields. In this purpose, I was assigned to National Bank Ltd,

Muradpur Branch, Chittagong for my practical orientation.

Students are required to prepare an internship report under the guidance of supervising

teachers on a selected subject matter to highlighting his experience and to conduct an in depth

analysis on the subject matter.

Banking is one of the most heavily regulated businesses in the world. Banks are the most

important financial institutions in an economy. They are the principal source of credit for

millions of individuals and families and for many units of Government. The credit is the

king’s pin of trade and commerce and the cause of progress of economy as a whole, because

without it the economy either stops totally or moves very slowly.

Bank acts as a financial intermediary between actual lenders and actual borrowers. For doing

lending business, a bank has to face lots of uncertainties or risk. In short, lending is a risky

business but profitable also. Actually, the profit or income of the bank directly related to the

loans and advance sector of bank. And this sector has the opportunity to do more diversified

and creative task than other areas or sectors of the bank.

I have tried my level best to highlight the credit management in the perspective of National

Bank Ltd. which has also fulfilled my thirst to know about the most risky business of banking

i.e. “Lending”.

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1.2) Objectives of the study:

The main objective of the study is to know about the credit Management of National Bank

Ltd.

Some other specific objectives of the study may are shown bellow:

1) To know the rules & regulations of credit management.

2) To know the policy of credit management of National Bank Ltd.

3) To know the investment structure

4) To know the liquidity performance

5) To know the credit appraisal process

6)To identify the risk related with lending.

7) To evaluate the steps relating to recovery of defaulting loan.

8) To find out the lacking of the loans and advance procedure.

1.3) Scope of the Study:

Banking Sector is a robust and sensitive area. A Bank has different products, different

services and different customers. Different departments of a Bank perform different

activities. However, scope of the study is limited within a specific area of an organization that

is National Bank Limited.

This study covers only Credit management of National Bank Limited.

1.4) Methodology of the study:

1.4.1) All data and information by which this report is prepared, are collected mainly from

two sources-

“Primary sources and Secondary sources”

Primary sources are ---

Face- to- face conversation with employees and clients of the bank.

Observing the banking activities.

Practical working experience.

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Secondary sources are ---

Different financial records of the bank.

Different files and leaflets of the bank.

Annual reports of the bank.

Different books on banking.

1.4.2) Analysis of DataCollected data and information have been analyzed and examined critically in order to make

the study more analytical and useful. For that purpose regression analysis and ratio analysis

have been done.

1.5) Rationale of the Study:In this 21st century Banks are the life-blood of modern economy irrespective of its size &

pattern. Banks are established to earn profit and help economic and financial activities so as

to help economic development of a county. In such a context, the main business of Banking is

to take deposits from customers and sanction credit to the borrowers. In performing

multidimensional activities like borrowing and lending of money, the world of banking is

under going a transformation. Beside banks are direct agents to create opportunities for the

development of a country and also provide large scale of employment opportunities. Banks

are the most important functionary of financial system of a country and National Bank

Limited is one of them. It plays a dynamic role in the economic development of a nation

through of saving and allocation of credit to privates and industrial sectors. It diverts and

employs the funds in such avenues which are aimed to develop a country’s economy.

1.6) Limitation of the Study:1.6) Limitation of the Study:

During the study, I have faced the following limitations:

Two months time is not enough for arranging an internship in a well recognized

organization and preparing a Report on specific topic is very difficult.

Due to some legal obligation and business secrecy banks are reluctant to provide data.

For this reason, the study limits only on the available published data and certain

degree of formal and informal interview.

The bankers are very busy with their jobs, which lead a little time to consult with

them.

Inadequate data sources.

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CHAPTER TWO

An Overview of NBL

2.1 History of NBL:

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 business 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 a financial institution automated all its branches with computer

network in accordance with the competitive commercial demand of time. Moreover,

considering its forth-coming future the infrastructure of the Bank has been rearranging. The

expectation of all class businessman, entrepreneurs and general public is much more to NBL.

The emergence of National Bank Ltd., in the private sector in 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. We are determined to bring back the long

forgotten taste of banking services and flavors. We 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

inaugurated the bank formally on March 28, 1983 but the first branch at 48, Dilkusha

Commercial Area, Dhaka started functioning on March 23, 1983. The 2nd Branch was opened

on 11th May 1983 at Khatungonj, Chittagong. Today we have total 106 Branches all over

Bangladesh.

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Since the very beginning, the Bank exerted much emphasis on overseas operation and

handled a sizeable quantum of homebound foreign remittance. 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.

In the year 2000, the Bank managed to procure foreign remittance business to the turn of

US$88.44 million dollar equivalent to Tk. 662.10 million compared to Tk. 3,986.20 million

in the previous year indicating a growth of 16.96%.

Our Bank invested 25% equity of Gulf Overseas Exchange Company LLC, a joint venture

Exchange Company in Oman, operating since November, 1985 under the management of

four Banks. The Bank received Riyal Omani 12,450 equivalent to Tk. 1.74 million a dividend

for the year 2000.

A Representative Office was established in Yangon, Myanmar in October, 1996 by our Bank

and obtained permission from the Government of Bangladesh to handle border trade with

Myanmar. Opportunities are being explored for further business avenues there.

Now NBL is on lie to establish trade and communication with the Prime 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.

Banking is not only a profit-oriented commercial institution but it has a public base and social

commitment. Admitting this true NBL is going on with its diversified banking activities.

NBL introduced Monthly saving scheme, Special Deposit Scheme, Consumer’s Credit

Scheme and Savings Insurance Scheme etc. to combine the people of lower and middle-

income group.

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A term of highly qualified and experienced professionals headed by the Managing Director of

the Bank who vast banking experience operates bank and at the top there is an efficient Board

of Directors of making policies.

2.2) National Bank Ltd. at a Glance:

National Bank Limited (NBL) has a long proud history. Bangladesh entrepreneurs established

it in Bangladesh in 1983 as the first private sector Bank fully owned. The member of the

Board of Directors is refuted business personalities and leading industries of the Country.

NBL extended and diversified its activities to include a full range of commercial banking

services with computer technology in all branches.

The Bank took equity in Nepal Arab Bank Ltd. Nepal in 1985 and provided management

support to this bank a technical services agreement. The bank has opened its representative

officer Yangon in Myanmar in 1997. NBL is the first Bangladesh private bank licensed by

Master Card International to issue and acquire both domestic and international card. The bank

has made an arrangement with Western Union, which has experience for speedy remittance

of money all over the world.

This bank is run by a group of people who are well educated, experienced and energetic. Ana

a management director is leader of them who has a lot experience about banking.

Total branches of NBL are now 81, which are Operating all over the country.

NBL got the Certificate of Appreciation the Review Committee for Published Accounts and

reports from the Institute of Chartered Accounts of Bangladesh in 2004.

2.3) Vision Statement:

Ensuring highest standard of clientele services through best application of late test

information technology , making due contribution to national economy & establishing

ourselves firmly at home & abroad as front ranking bank of the country are cherished

vision .

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2.4) Mission Statement:

To provide high quality services to the customers and to participate in the growth and

expansion of our national economy.

To set high standard of integrity and bring total satisfaction to the clients, shareholders and

employees.

2.5) Five-year activities of NBL:

(Million Tk.)

Particulars 2004 2005 2006 2007 2008Authorized Capital 1000.00 1000.00 2450.00 2450.00 2450.00Paid up capital 516.33 619.59 805.47 1208.20 1872.72Reserved Fund 1345.99 2115.03 2468.79 3360.18 4253.55Deposit 28973.39 32984.05 40350.87 47961.22 60195.25Loan 23129.65 27020.21 32709.68 36475.74 49665.07Investment 4374.17 3564.82 6239.83 7760.38 10162.18Import 22028.30 31648.20 42458.50 62759.00 78226.32Export 17105.30 21344.10 280193.20 31824.00 36284.44Remittance 9035.50 13618.20 21353.90 27560.80 39877.80Total Income 2988.90 3.288.00 3343.55 3622.31 3715.21Expenditure 2064.75 2271.36 2473.23 2677.22 2980.06Net Profit Before Tex 484.21 581.13 1058.73 2035.10 2828.82Net Profit After Tex 170.02 271.67 507.49 1238.11 1517.43Fixed Asset 895.35 1431.23 1627.29 1842.28 1981.60Total Asset 35127.30 38400.37 6796.04 56526.96 72212.86

Graphically presented the net profit before tax trend for the 5 years of National

Bank Ltd Like as.

Net Profit before tax in million

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Profit after tax in million

The trend of Net Profit after Taxes highest in 2008and lowest in 2004 but increasing in

2004. So, this graph indicates in consistency earning of net profit.

Tk.

Particulars 2004 2005 2006 2007 2008

Book Value of Share 361.47 365.52 378.59 395.31 360.68

Marke value of share 475.25 746.50 760.50 1494 1014.25

Earning Per share 27.44 43.85 63.01 66.11 81.03

Dividend 20.23% 26.56% 56.50% 48.08% 29.46%

Market value per share (taka in a million)

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Net

Pro

fit A

fter

Tax

The market price of share lowest in 2004 and highest in 2007 which reveal current

market price per share is high.

Particulars 2004 2005 2006 2007 2008

Foreign Correspondent 410 391 400 405 405

Officers/Staff 2025 2073 2171 2185 2133

No. of Shareholders 8960 9052 9521 9276 9491

No. of Branch 76 86 91 101 106

2 .6) Ownership and Management:

Board can delegate its power and authority to the management, mainly consisting of

professionals but can in no way delegate or relinquish or avoid its responsibility and

accountability. Therefore, it goes without saying that the directors have an inherent obligation

to all concerned to ensure that the company operates properly and sound basis.

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They are duty bound and morally obligated to exercise utmost care and effective prudence

without bias without any fear or favor to secure a clean and well-founded administration for

the company.

2.7) Board of Directors and Responsibility of the Board:

In NBL the Boards has been conceived as the source of all powers. It is the legislative body

of the bank. The directors acting in a body will exercise the powers. A commercial bank such

as NBL depends for its success on the reputation, business acumen and integrity of its

directors and executives. Directorship is not simply an honor. A director has his obligation,

duties and responsibilities to shareholders, depositors, society, regulatory agencies,

Government authority and clients alike.

Mozzam Hossain : ChairpersonMr.Zainul Hauqe Director Sikder : DirectorMrs. Parven Hauqe Sikder : DirectorMr.Zakaria Thaher : DirectorMr. Shahadat Hossain : DirectorMr.M.G.Murtuza : DirectorLt.Col (Rtd)Md.Aziz Asraf PSC : DirectorMr.A.M.Nurul Islam : DirectorMr. Salim Rahman : DirectorMr.S.M.Shamim Iqbal : DirectorProf. Mahabub Ahamad : DirectorCaptain. Abu Sayed Monir : DirectorMr.AKM. Enamul Hoque : DirectorMr.A.B.Tajul Ialam : Director

2.8) Power and Function of MD:

Managing director is the chief executive of the company as per article 129(1) of the Article of

Association of the company. He is also an Ex-Officio member of the Board of directors and

shall be a professional man in banking and management. He has to take the load of carrying

out the guidelines, directors, rules and regulations framed by the board from time to time and

provide all vital information to the board/ committee for their knowledge and effective

decision.

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Power and functions:

The managing director of the company shall act and discharge his duties, responsibilities and

obligations as per the powers delegated to him by the board and as envisaged hereinafter.

(i) To promote a healthy organizational climate for most effective utilization of the

services of the company’s employees in achieving the goal of the company.

(ii) To run and manage the affairs of the company smoothly, efficiently within the

framework of the rules and regulations of the company and guidelines given by

the board and the committees.

(iii) To ensure optimum clients service and satisfaction through appropriate marketing

strategies and expansion.

(iv) To prepare realistic budget including the fixation of half-yearly and or yearly

business target and also to ensure that such targets are achieved.

(v) To ensure maintenance of proper accounts of every aspect of the company.

(vi) To ensure timely submission of financial, administration and other information’s

to the regulatory agencies of the government as required by law.

(vii) To evolve most economic system of managing the company to keep the

expenditure of the company under control within budget.

(viii) To ensure economic purchase of equipment, furniture, vehicle, stationary, other

consumable stores.

(ix) To explore investment opportunities in and outside the country.

(x) To avoid any and such business where company may run for unnecessary/

undesirable/ inevitable risk and bad debts.

(xi) To prepare judicious plan for expansion of company’s business through operating

of branches.

(xii) To evaluate the marketing strategies and policies with their effectiveness for

achieving the objectives of the company.

(xiii) To formulate policy guideline for recruitment of staff.

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2 .9) Functional Aspects of NBL:

NBL, which a private commercial bank and registered under the Bangladesh Bank, abides by

the rules and regulations prescribed by Bangladesh Bank for scheduled commercial banks.

The functions converted by the bank include a wide banking and financial activities to

individual firms, corporate bodies and other multi national agencies. Sort descriptions of the

following functions areas are given below:

Deposit:

Deposits of all kinds like the savings, current, short-term deposit, fixed deposit etc are

expected from the resident and non-resident customers.

Credit:

Bank loans are a good source of the bank income and thus they are greatly hapteremphasized.

Banks loans play a very important role in the economy since the level of the business activity,

which is controlled by the expansion of the bank loan, affects the national money supply.

Import finance

The volume of import trade financed by NBL during 2005 amounted to US$485.0 million or

Tk. 3,164.82 crore as compared to US$ 367.8 million or Tk. 2,202.83 crore in 2004. The rate

of growth was 43.67%. The main sectors financed were: old ships, rice, wheat, sugar, capital

machineries, petroleum, readymade garments and other consumer goods.

Imports & Exports Business

IMPORT& EXPOR BUSINESS IN MILLION:

Import 22028.30 31648.20 42458.50 62759.00 78226.32

Export 17105.30 21344.10 280193.20 31824.00 36284.44

Export Finance

The Bank has been nursing the export fiancé with a special attention since its inception .in 2008 it handle 16234 documents valuing $ 531.03 million of 14 percent with a growth of the last year Export fiancé were made mainly readymade garments ,knitwear , frozen food and fish .tanned leather , handicraft .Import Finance The Bank opened a total numbers of 21210 LC S amounting USD 1130.96 million import trade in 2008 with a growth of 25 percent over the previous year . The main commodities were scrap vessel , rice , wheat edible oil , capital of machinery ., petroleum product fabrics & accocerioes and other consumer items .

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Remittance

In 2008, foreign remittance brought into the country though the NBL was $ 582.47 million

showing an increase of $ 179.90 million over the previous year,which registered and

attractive growth of 45 percent . This growth was possible due the introduction of different

instant payment of product and technology including extending SWIFT, online, EFT etc.and

further efforts are being made of more speedy payment

Foreign Remittance in the graphically for the 5 years

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2.10) Products & Services of NBL:

Consumer Credit SchemeSpecial Deposit SchemeMonthly Savings Scheme

Credit CardNBL ATM Service

Western Union Money TransferSaving Insurance Scheme

2.10.1) Consumer Credit Scheme:

National Bank’s Consumer Credit Scheme gives you a great opportunity to buy household

and office items on easy installments. This scheme gives you the advantage of part payment

to cope with the high price tags of many necessary home and office appliances.

Television, Refrigerator, VCR, Personal Computer, Photocopier, Washing Machine,

Furniture, Microwave Oven, Car, and a number of other expensive items are now within your

buying range. With this scheme NBL makes better living possible for people living of fixed

income. Customers can buy those home and office equipment’s without over taxing their

budget.

2.10.2) Special Deposit Scheme:

For most of the people of fixed income the opportunity to supplement their monthly earning

is a golden one. And NBL Special Deposit Scheme gives a customer just that.

Under the scheme, customers can deposit, money for a term of 5 years. The deposited money

is fully refundable at the expiry of the term. At the same time, during the term period they can

enjoy a monthly profit corresponding to their deposited amount. As for instance, under this

scheme a deposit of Tk. 55,000 gives a monthly income of tk. 500.

Deposited Amount Monthly Benefit Tk. 55,000/= Tk. 500/=Tk. 1,10, 000/= Tk. 1, 000/=Tk. 1,65,000/= Tk. 1,500/=Tk. 2,20, 000/= Tk. 2, 000/=

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2.10.3) Monthly Savings Scheme:

This scheme is specially designed for the benefit of the limited income group members. This

helps to accrue small monthly savings into a significant sum at the end of the term. So, after

the expiry of the term period the depositor will have a sizeable amount to relish on.

A monthly deposit of Tk. 500/- or Tk. 1000/- for 5 or 10 years period earns in the end Tk.

40,000/- or Tk. 2, 24,500/- respectively.

Monthly

installment

Return after

5 years

Return after

10 years

Tk. 500/= Tk. 40,100/- Tk. 1,12,500/=

Tk. 1,000/- Tk. 80,100/- Tk. 2,24,500/=

2.10.4) Credit Card:

The most modern technology based facility for making hassle free financial transactions and

drawing of each money all over the world is given by credit card.

NBL introduced master card in 1997. Now, NBL are the issuer and acquire of two most

popular brands of credit card of the world, namely master card and VISA card.

2.10.5) NBL ATM Service:

NBL has introduced ATM service to its customers. The card will enable to save our valued

customers from any kind of predicament in emergency situation and time consuming

formalities. NBL ATM Card will give our distinguished clients the opportunity to withdraw

cash at any time, even in holidays, 24 hours a day, 7 days a week.

NBL ATM card – clients’ access to prompt cash.

2.10.6) Western Union Money Transfer:

Money transfer from anywhere in the World to Bangladesh in Minutes

Joining with the world’s largest money transfer service “Western Union” NBL has introduced

Bangladesh to the faster track of money remittance. Now money transfer between

Bangladesh and any other part of the globe is safer and faster than ever before.

This simple transfer system, being on line eliminates the complex process and makes it easy

and convenient for both sender and the receiver. Through NBL Western Union Money

Transfer Service, your money will reach its destination within a few minutes.

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NBL signed an agreement with the Western Union Financial Services, USA (or, Western

Union in short) in 1993. NBL was the first authorized agent of Western Union in Bangladesh.

Millions of people from different parts of the world have been sending money with

confidence to their near and dear ones through the Western Union. Western Union has the

most modern technology for remitting money within quickest possible time from any part of

the world through their more than 2, 25,000 representatives in 195 countries and regions.

Western Union earns more than 3.0 billion US dollar as revenue every year. With the help of

online connection with the central computer system of the Western Union, NBL delivers the

money remitted by expatriate Bangladeshis safely and quickly to the recipients through its 76

branches.

National Bank has won the international award styled as “Most Outstanding Performance

Among Banks in South Asia – 2005”. Managing Director and Chief Executive of NBL M.

Aminuzzaman received this prestigious award on behalf of the Bank at the South Asia

Representatives Conference convened by the Western Union and held at Kochin in India

2.10.7) Saving Insurance Scheme:

This is an uncertain world and the threatening silhouettes of future catastrophes are always

looming around. This NBL scheme gives your family protection against the insecurities of

the world. This scheme is the first of its kind in Bangladesh. It combines the benefits of

regular savings and insurance scheme; so, you get the usual rate of interest on the deposited

amount while you enjoy the protection of a comprehensive insurance coverage. Under this

scheme, the beneficiary (ies) get equal the deposit in case of natural death of the account

holder whereas in the event of accidental death of the account holder the beneficiary (ies) will

receive twice the deposit. As for example, if a customer picks up Easy Class (Tk. 50,000)

he/she will get tk. 50,000 for natural death and Tk. 1,00,000 for accidental death part from his

/her deposited amount and inte

Class DepositNormal Death Benefit

(Including Own Deposit)Accidental Death Benfit (Including Own Deposit)

Easy 50,000/= 1,00,000/= 1,50, ,000/=Convenient 1,00,000/= 2,00,000/= 3,00,000/=Classic 2,00,000/= 4,00,000/= 6,00,000/=Standard 5,00,000/= 10,00,000/= 15,00,000/=

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CHAPTER – THREE

Credit Policy of National Bank Limited

3.1) Credit Policy of National Bank Limited:

The credit policy is a statement of basis principles that governs the extension of credit. It

provides a framework in which to conduct business and also enables National Bank Limited

to have a long-term business plan. It is a document through which the Board of Directors

(BOD) communicates the lending strategy of the NBL and duties and authorities of

management and lending officers.

Policy guidelines have been established and to be developed from time to time taking into

consideration economic condition and market requirement. This helps to shape and define the

acceptable risk profile of NBL and to provide guidance in responding to business

opportunities as they arise.

Client Base:

NBL’s client base consist corporate, institutional and private clients to help them realize their

terms goals and long-term aspiration.

Credit Products and services of NBL

The services include import/export finance, short-term credit, retail banking project financing

through syndication with other co-lenders, corresponding banking. Each of these areas

involves credit exposure to client or to a third party, providing both revenues as well as risk.

Legal Considerations:

NBL complies with all applicable Bangladesh laws and regulations.

General Policy Guidelines:

The general policy guidelines govern the implementation of the business strategy of NBL

with respect credit risk are as follows:

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1. NBL makes loan only to reputable clients who are involved in legitimate business

activities and whose income and wealth are derived from legitimate sources.

2. NBL encourages lending to socially desirable, nationally important and financially

important and financially viable sectors and not lend to unproductive purpose or socially

undesired projects.

3. At all times a policy of “Know your customer”( KYC) must be exercised in the credit

application processes.

4. NBL extends credit in its discretion, only to qualified borrowers where the where the

amount and intended purpose or the use of precedes is clear and legitimate and where the

amount and its use are reasonable.

5. NBL requires that borrowers have a source of repayment established at the inception of the

credit, and that any exception must be specifically addressed the credit approval. There

should be identified, whenever possible , a secondary source of repayment. As with any funds

received any all repayment sources must be legitimate and consistent with what is known and

documented about the client. Borrowers must provide, and the credit approval package must

contain, sufficient information on the borrower to approve the extension of credit.

Satisfactory security and collateral is required as appropriate NBL’l main thrust is on Cash

Flow Statement of the business rather than on collateral security.

6. NBL discourages the client with relatively low or no funds of their own and with a relative

low or no funds of their own and with a relatively high ratio of borrowed to own funds tend

to face liquidity problems. With adverse repercussions on their ability to service their

obligations.

7. NBL does not engage in “Name lending” based only on the general reputation of the

borrower. There are cases however; where certain financial information about private clients

is highly confidential any may not be disseminated. Such situations are addressed

individually at the discretion of management.

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(Note: Recently this practice is little bit relaxed and facility is provided if the client has good

backup against the credit repayment capacity.

8. NBL may consider term loans with maturates up to five years, or longer none except the

Managing Director approves such loans. Management reviews the terms loan portfolio

periodically.

9. NBL extends venture capital to start up business or to business, which are entirely

dependent on new technologies, but is considered with extreme caution and also secured by

First Class or other acceptable collateral.

Exceptions:

There will be occasions when exceptional circumstances exist which, in the opinion of NBL

management, warrant the extension of credit as an exception to existing policy guidelines.

Such policy exceptions, regardless of the size of the credit must have the prefect approval of

the NBL’s high officials.

Maximum size of loan portfolio:

The banking Companies Act 1991 restricts lending to any single obligor or a Group of

companies up to 15% of the capital funds of the Bank without having any approval from

Bangladesh Bank. With the permission of Bangladesh Bank, the Maximum limit can go up to

100% of the fund of the Bank. NBL complies with the ceiling set by Bangladesh Bank.

Loan portfolio mix:

After annual reviewing the performance of existing loan portfolio of NBL as well as market

prospect of different sectors/sub-sectors of the country, the senior management prepares the

annual budget at the beginning of the year giving guidelines for limiting exposure to different

sectors/sub-sections and term which is approved by the Board of Directors.

Terms of lending (liquidity) are determined based on the following factors:

Deposit mix;

The volatility and seasonal fluctuation of the deposit base;

The amount of purchased funds;

The composition of investment portfolio and

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Liquidity of banks assets.

Credit budget will be prepared having a diversified loan portfolio spreading over a large

number of obligors/sectors/purpose/location as well as different term. As a prudential norm.

NBL will restrict large loan to maximum two-third of its total loan portfolio.

Lending authority:

NBL’s organization structure has two levels-Branch and Corporate Office. The credit

proposal moves through various management approval levels according to the amount of risk.

There are three approval levels.

Branch Manager

Executive Vice President/Managing Director at Corporate Office;

Board of Directors of the Bank.

The approval limits for each of this sanctioning authority are defined in Business

Discretionary power, which is also reviewed by senior management and approved by the

Board of Directors.

Each loan proposal will be examined properly and nature and scope of appraisal to be carried

out will depend upon the amount, term, type of credit facility, obligor’s background and so

on.

Determining the rate:

The interest rate on lending conforms to the prevailing rates offered by other financial

institution. At the same time, the management has to keep in mind the following points while

pricing a loan:

Risk exposure (Obligor and industry);

Cost of funds

Terms of loan (maturity)

Account balances and other relationship.

There is a schedule of annual interest rates for different types of credit allowing latitude to the

management than would be true under the more rigid Schedules. This is reviewed by senior

management and approved by the Board of Directors annually.

Documentations:

Each credit exposure is to be supported by proper documentation and standard from of

documentation should be used whenever possible.

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Monitoring of Credit:

The control of credit operations fall into two parts:

Monitoring and review of all accounts

Monitoring of delinquent accounts.

Control of credit operations is done at Branch and corporate Office levels. In case of

delinquent accounts, Bangladesh Banks “Procedures of loan classification and provisioning”

is to be strictly complied with by NBL.

CREDIT PLAN OF NATIONAL BANK LTD.

National Banks credit mission is to actively participate in the growth and expansion of

national economy by providing credit to viable borrowers. The bank has also to extend more

credit to increases its role in the growth of the economy. At the same time, Bangladesh Bank

Guidelines have to be adhered to, Keeping in view all these factors and the Credit Policy of

the Bank, a Credit Plan has been crafted limiting the exposure to different sectors/sub-sectors,

term and large /retail.

BASIC LENDING CRITRIA

It should be clearly understood that the criteria/principles are not inflexible laws and are

given as guidelines for protecting an advance. In a practical competitive world risks are

identified, accepted, and an advance is often granted even though a proposal does not strictly

with some of tile criteria described below

The Basic Lending Criteria can be considered under six main headings as follows:

Profitability;

Source of repayment;

Character and ability of the borrower

Purpose of tile facility;

Term of the facility;

Safety

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Each of these headings will now be discussed further in the following paragraph: -

1. Profitability

All credit facilities granted to the Banks customer must produce profit, directly or indirectly.

Spreads are normally associated with element of risk undertaken and the period and nature of

the liabilities.

2.Source of repayment.

After the branch manager has ensured that the advances will be a profitable propositioning

for the Bank, he should then turn his attention to the cash flow Situation of the borrower. The

Bank’s advances can be classified in to three main categories, as follows:

1) A very short-term advance which will be liquidated by funds received in the very near

future, such as advances against foreign or local bills or bridge financing where evidence of

credit sanction from another financial institutions is available:

2) Provision for current assets: this type of facility is needed for trading

And/or manufacturing activities.

3) Long-term advance, generally over 5 years; example of such facilities are investment in

plant and machinery, building, a farm or a shop generally, a long-term loan is repaid out off

profits generated by the business.

C. Character and ability of borrower

The primary responsibility of lending banker is “Know your customer and his business”

While considering the character and ability of a borrower, tile following points must be kept

in mind:-

Do you know the customer already?

Was he respectably introduced?

If he was previously customer of another bank, why has he come to National Bank

Ltd.? Try to see previous bank statement.

Have you made the account opening inquiries required by the bank?

What are the business and its ownership?

What is the customer’s history and financial track record?

Customer integrity & honesty and personal stability – age/health?

How has the customer managed his financial circumstances in the past?

The branch manager should have the answer of the above queries and should be able judge

his ability to use the credit facilities to his advantage. Advance should be granted only to

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those borrowers in whom the branch manager has full confidence. Integrity of the borrower

and his ability to conduct business are of paramount important and take precedence over the

value of securities offered.

d. Purpose of the facility

The purpose of advance should be studied with a view to understanding whether it is within

the policy of the Bank. It is outside the Banks policy, the proposal

Should not be given further consideration. Each proposal should be considered on its own

merits. Consideration should or course be given to the nature business and certainty with

which the business or tile project will yield results.

e. Term of the facility

As explained earlier, credit facilities are broadly divided under the following categories:

Facilities needed for temporary/seasonal/short term requirements;

Facilities needed for current assets requirements;

Facilities needed for long term/Investment requirements

Facilities covered under category (a) above are generally required for a short period of up to

three to six months, which are self-liquidating transactions. Such facilities include packing

credits, advances against salaries, advances against purchase/discount of bills, TODs etc.

Facilities covered under category (b) are generally for a slightly longer period says Lip to one

year. This type of facility is granted for financing working capital. The facilities under

category (c) are for periods longer than one year. Which are often used to finance the

Acquisition of capital assets. When considering a facility of this nature, a feasibility study of

the project should be made and a repayment schedule should be agreed.

f. Safety

To safeguard Banks interest over the entire period of the credit me, a comprehensive view of

the capital, capacity and integrity of the borrowers adequacy and nature of security,

compliance with all legal formalities, completion of all documentation and finally a constant

watch on the account are called for. All advances will be against adequate security of a third

party, that party must be subject to the same credit assessment as made for the principal

borrower.

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3.2) Types of Credit Facilities:

NBL’s lending practices will favor extension of Credit for short term. Self-liquidating

transactions as well as property structured term loans.

For the convenience of reporting, the credit facilities granted by the bank are classified under

different account heads appearing in the Statement of Affairs. Broadly, the credit facilities are

classified as:

Credit Facilities

Funded credit facilities Non-Funded credit facilities

Term Loan Working capital Micro credit L/C L/G Back to Back L/C

SSI MSI

Project loan

Industrial Commercial

Cash CreditLIMPADLTR

OD

SOD TOD

CC (H) CC (P)

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A. Loan:

Advance make in a lump either at a time or phrases repayable either on fixed installment

basis or in lump sum having no subsequent debit except by way of interest, incidental

charges, etc. is called a loan.

After creation of loan, there will be only repayment by borrower. A loan once repaid in full

or in part cannot be drawn again by the borrowers if the borrower desires further

accommodation; it will be treated as separate transaction.

The amount of loan is debited to the customer’s name on a loan account to be opened in the

ledger and paid to the borrower either in cash or by way of credit to his current account or

saving account.

Loans are given to the parties who have specific source of income or who desire to pay in

lump sum. Project loan (for small or large industries, agro based industries & technology

development project and loan portfolio guarantee scheme)

B. Over Draft:

Advance in the form of overdraft are always allowed on a current on a current account

operated upon by cheques. The customer may be sanctioned a certain limit within which he

can overdraw his current account within a Stipulated period.

Overdraft facility is generally granted to businessman for financing worked capital

requirement and high net worth individual to overcome temporary liquidity crunch.

C. Cash Credit:

Cash credit as a form of advance, is a separate account by itself and is maintained in a

separate ledger. It is operated upon like an overdraft account. The borrower may operate the

account within stipulated limit as and when required. The drawing is subject to drawing

power.

Cash credit is generally given to trader, industrialists for meeting their working capital

requirements. The primary security of cash credit facility is stock of goods, which may be

hypothecated or pledged (Which is to be highly discouraged by NBL) to the Bank.

D. Bills Portfolio

Trade related credit facilities, such as bills portfolio E.G. PAD (it is an accounting step),

LIM. This form of credit facilities may be used for financing important raw materials/capital

machinery.

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The above-mentioned loan facilities may be said of broader class: again these four broad

categories can be illustrated through different segmentation:

Terms Loan: Term loans are often used to financing the acquisition of capital assists. Loan

agreements often contain restrictive covenants and loan is repayable in accordance to

amortization schedule.

Secured Over draft (SOD)

Overdrafts for longer periods are normally granted against the Security of tangible assets

such as pledge/lien of FDR, Bonds, ICB unit certificate etc. They are called Secured

overdrafts/collateralized overdraft. Descriptions overdraft will depend upon the nature and

type of security charged to tile Bank.

Loan against Packing Credit (PC): A Credit under this head is granted to exporters to

facilitate purchase of raw materials for the purpose of manufacturing and exporting goods.

The credit is granted after the evidence of a letter of credit or firm contract in favor of the

borrower and against the Security of inventory purchased by the borrowers, and in exportable

package.

Cash credit (C.C) An advance under this head is granted for financing inventory, which may

be hypothecated or pledged, to the Bank as security limit is advised to the borrowers. This is

also fluctuating form of lending.

Payment against document (PAD):

PAD is associated with import and export financing. The Bank opening L/C is bound to

honor its Commitment to pay for import bills when these are presented for payment provided

that it is drawn strictly in terms of letter of Credit.

The foreign correspondent that negotiates the document, debits the amount thus advanced on

behalf of the importer the a/c of the opening bank. The opening bank on receipt will lodge the

shipping documents to their books and will respond to the documents.

Loan against imported Merchandise (LIM):

Parties, who are not in a position to retire the documents, they may be allowed to retire their

PAD through LIM account for a maximum period of 90 days for industrial raw materials and

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45 days for commercial items, on returning sufficient margin on the landed cost of the goods

or as prescribed by the Bangladesh Bank.

And if they are reluctant to provide the aforesaid margin, goods may be allowed to be cleared

through LIM account to save the consignment. Under such circumstances goods are cleared

only through clearing agents,

Loan against trust receipt (LTR):

It is a document that creates the bankers lien on the goods and practically amounts of

hypothecation of the proceeds of sale in discharge of the lien.

The customer on whose account the branch issued an L/C may wish to obtain documents of

the title to goods received under the I/s so that he can obtain delivery of the goods and

arrange to retire the bill out of the sale proceeds of goods. Advances against a Trust Receipt

obtained from the customer are allowed (for a maximum period of 180 days) when the

documents covering an import shipment are given without payment.

The customer holds the goods or their sale proceeds in trust for the bank, till such time, the

loan allowed against the trust receipt is fully paid of.

Foreign Bills Purchased (Clean) Amounts advanced against three purchase of a negotiable

instrument are classified under this head. Bills are sent for the collection. The bank acquires

the ownership of the negotiable instrument and arranges to cover th3e exchange rise.

Local Bills Purchased (clean): A bill drawn and payable within the country in which the

branch operates and purchased by the branch is classified under is classified under this head.

This bill is not accompanied by documents of title of goods.

Foreign Bill Discounted Here the amount of the interest calculated at the rate from the date

of purchase to the expected date of return remittance is decocted from the face value of the

while granting the advance.

Other Bank’s Acceptance Purchased an advance granted against a bill accepted another

bank, for the remaining period of its tenure.

Demand Loans (Dl) It is short-term loans, which may be called by the bank at any time.

Usually they are made for periods of three months to one year to cover short term funding

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requirements. There is no principal reduction during the loan term; the entire balance

becomes due on maturity.

Staff Loan Advance to member of staff is granted according to the policies laid down by the

bank. Advance is allowed to member to of staff who is in the bank’s permanent employee

only.

Loan and Advances for 5 years.

Showing the following table total loan and advance and represent it’s graphically

In million

Particular 2004 2005 2006 2007 2008

Loan& Advance 23129.65 20200.64 21677.96 22257.1 22844.4

The Graph indicated upward trend of loan and advances over the last fiver years.

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3.3) Advances against Security & Collateral:

Secured loans offer a greater of protection to the bank than unsecured loans. Repayment of a

secured loan is by no means ensured simply by the existence of collateral. Proper

documentation and an effective monitoring system are vitally important. There is no hard and

fast rule for establishing a proper monitoring system and each loan must be given action

appropriate to the situation.

Securities mainly may be in the following ways:

Documents of Goods (Import L/C Documents along with bill of lading.

Trust receipt form

Hypothecation of good

Personal guarantee of all direct loans

RJSC on fixed assets

All securities are not suitable for all types of loans and advances. Each Security has its own

suitability. Specific securities to be obtained by the bank against the varies types of advances,

such as:

1.Loans: Various kinds of Govt. bonds, share quoted in the stock exchange, debenture, fixed

deposit, receipt, hypothecation of vehicles, immovable properties such as land & building,

machinery, etc.

2. Overdraft: Varies kinds of Govt. bonds, shares quoted in the stock exchange debenture,

fixed deposit receipt, life insurance, policies, work order, etc.

3. Cash Credit: Pledge or hypothecation of goods, produce and merchandise, etc.

4. Inland bills purchased: Bill it self

5. Pad: Shipping documents for imports.

6. LIM: Pledge of imported merchandise.

7. LTR: Trust Receipt obtained in lien of important documents.

8. Foreign Bills Purchased: Shipping documents for exports.

The following is a discussion of some, but not all, types of collateral frequently used in

secured lending, and some important considerations in the area of monitoring the collateral.

A. Land&builddigs

Land and buildings have become increasingly more acceptable securities in the recent years,

mainly due to steady inflation. Land and buildings are accepted as collateral in high grade, in

modern banking, to strengthen the bank security and reduce the risk factor considerably. It

30

should always be remembered that the word ‘Land’ denotes not only the ground but also any

building or fixtures upon it. Consequently, if the borrower creates a mortgage of his land in

the bank’s favor and then proceeds to build a factory on that lend, the building automatically

becomes part of the bank’s security.

B) Stock bond, exchanger& other secretes

Advances against stock and share certificate, bonds scripts and other stock exchange security

will be allowed will be allowed in accordance with bank’ credit policy. These instruments are

one of the very common terms of security offered to the bank, and possess many advantages.

They are readily marketable: easily transferable and the market value can easily be

determined accurately.

C. The fixed deposit receipt: While allowing advance against fixed deposit receipt, the

following points to be scrutinized by the branch:

1. The fixed Deposit receipt is not in the name of the minor.

2. The depositor on revenue stamp of adequate value duly discharges it and his signature

is verified.

3. If the receipt is issued in joint names, all shall discharge it

The depositors named in the receipt on revenue stamp of adequate

Value.

4. If other branch of the Bank or other Bank has issued the deposit

Receipt, the branch where the advance is being allowed shall

Obtained under joint signature of two officers of the issuing

Branch/bank, a confirmation that the lien has been duly registered

With them.

5. The lien of the bank to be marked in red ink on the deposit receipt against which

advance has been allowed. On adjustment of the advance, lien shall be released under

signature of two officers on the back of the fixed deposit receipt.

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D. Inventory

A borrower should normally be granted credit facilities against hypothecation of goods in

which he usually deals. The credit officer should check the price of the goods offered as

security to establish the range of price fluctuation. If the range is wide, there will be

reservations about accepting the goods as security for the advance unless the branch manager

can take an adequate margin. When considering an advance secured by inventory it is

important to verify that the borrower has the title to goods intends to hypothecate to the Bank.

Title to the goods can be verified by reference to the original invoices.

3.4) Credit Process & Structure:

In order to fully understand NBL’s procedures relating to sanctioning and control of

advances, a necessary first step is to examine NBL’s Organization structure. The

Organization structure has two levels –Branch and corporate office. The Credit Line Proposal

Moves through various management approval levels according to its amount. There are three

approval levels that are as under-.

Branch Manager

Credit Committee at Corporate Office

Board of Directors of the Bank.

The first level of Organization NBL is the Branch. Typical branch functions have been split

into four main categorized: General Banking, credit, Foreign Exchange and Accounting. Size

of the advance function depends on the number of borrowers and the size and complexity of

their accounts. The branch credit officer is responsible for the following duties.

Processing of Credit Line Proposals for approval and renewal by the Credit

Committee/Board, whichever is applicable?

Select the proposal to critical financial analysis using sophisticated tools to

determine financial soundness and acceptability of risk.

Ensuring that security is perfected for new Credit Line Proposals and review such

Securities on a periodic basis,

Monitoring of temporary loan payments on a monthly basis,

Periodic visits to branches and client in order to understand the operations of

Specific accounts first hand.

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After processing the credit line proposal, Credit Department will put up a memorandum to

Credit Committee. It is the responsibility of the Credit Committee to review and approve or

reject the credit line proposals above the branch manager’s discretionary powers.

There a Credit line proposal requiring Boards approval will pass through the other two

sanctioning levels before being presented to the Board. Credit line proposals of lower values

that do not need Boards approval will pass through one two approval levels listed above,

dependent or their amount.

3.5) Credit Approval Process:

The Credit Approval Process of sanctioning a loan is as follows:

Credit Line Proposals must be prepared for all credit facilities, except temporary overdrafts.

For meeting urgent and lone financial requirements branch manager may consider temporary

overdrafts in all account. Such facility must be fully temporary overdraft, he must ensure that:

33

Getting loan proposal from

partyCollection

Information Evaluating project & proposal

About Project

About party BR level evaluation

Legal assessment Evaluating

collateral

Evaluation by agent

Branch level Usual Recovery

Recovery of the loan

Supervision of loans

Sanctioning & disbursing

loan

Decision

Principal Officer Level

Legal recovery

Banks lending criteria are satisfied

The amount to be sanctioned is within his discretionary powers.

Overdraft is adjusted within a very short period, not more than 7 days from the

date overdraft is allowed.

The branch manager must follow the progress of adjustment of temporary overdraft on a

daily basis.

A loan application may be received only from an existing customer of the Bank who has

established a reliable relationship. In all cases, the Bank Basic lending Criteria must be

satisfied and its policy of “Know your customer” implemented to the full.

Satisfactory track records with the Bank, but for the Bank to grow and prosper, new customer

must be actively sought. This is the prime responsibility of branch manager.

The Credit Line Proposal originated in the branch and is completed by officer dealing with

advances after branch manager has interviewed the borrowers. The branch manager and

credit-sponsoring officer both sign the Credit Line Proposal when it has been completed to

their satisfaction. Prescribed forms of Credit Line Proposal are then being completed.

The Papers to be prepared at the time of initiating a loan are as follows:

Credit line proposal

Credit report

Spread sheen

Credit Risk Analysis

Loan application form

The branch manager must follow the instructions set out in the following sections when

compelling credit Line Proposal:

A. Information Required:

Although no list can be completed comprehensive to all situations, the following guide

should be used for any corporate client:

Last three annual financial statement and opinion of auditor; if available

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Last interim financial statement

Amount of credit required and use of proceeds

Sources of repayment

Tangible collateral available with title searches and an independent valuation, if

appropriate

Tangible collateral available with title searches and an independent valuation, if

appropriate

Intangible security available

Other existing bank lines and bank debt and nature of security/collateral offered.

Detailed description and history of ownership, if a business borrower

Background information about the owners and the experience and background of

management

Certificate of Incorporation and by laws or Memorandum and Articles of

Incorporation (or equivalent documents )if a business borrower

Certificate of good standing, where applicable

Partnership Agreement (if applicable)

Detailed knowledge of the business cash conversion cycle

Management projections and forecasts

Borrowers market and principal trade areas

Information about the industry, tile borrower’s position in tile industry, and tile competitive

environment.

Major Suppliers, reliability of supply,

Major’s customers, reliability of sales projections, and term of sale

Detail about inters company transactions with affiliates.

Details about transactions with owners or other member of management including

amounts due to over due from principals

Composition and aging of inventory

Details about composition, aging, and concentration of receivables

Recent credit agency report (such as CIB) if available

Bank, trade and character references reference

Regulatory constraints or licenses required.

Any and all other license of the assists of the borrower or guarantor

35

B. Analysis of the customer

The analysis should provide answer in the following major areas:

Borrower’s Net Worth

Working Capital

Profitability

Capital Gearing

Cash Flow

Credit Risk Analysis:

1. Borrower’s Net Worth: Net worth is calculated by deducting total debt liabilities from

total assets. Debt liabilities comprise all claims on the borrower by third parties such as

banks, trade creditors and the government (for taxes assessed on the borrower but not yet

paid). Total assets include all tangible current assists such as stock and debtors, all tangible

fixed assets such as property, machinery and equipment. Intangible assists consist of

preliminary expenses in connection with setting up the business, discounts in connection with

issue of shares, goodwill and the cost of patents and trademark.

2. Working Capital: Whether the current assists as shown in the borrower’s accounts are

sufficient to meet the borrower’s current commitments and liabilities. The type and nature of

current assets should also be studied. For commutation of working capital current liabilities

are deducted from the current assets. The day-to-day running cost of a business requires

finance over and above. What is necessary for purchase of fixed assets? Therefore, the branch

manager will ensure that the borrower’s liquidity is sufficient to support his proposed activity

level

3. Profitability: Whether there are sufficient earnings to repay the credit facilities requested

by the borrower and sufficient balance will be left over to provide a sufficient return on

equity as well as to provide funds for his future operations. The reason for deterring

profitability is to know whether

The borrowers capital is eroding

The borrowers present cash flow may restrict future business growth

The borrower’s return on capital is adequate for this type of business.

36

4. Capital Gearing: How does the amount of equity in the business compare with the

borrowed funds? Some borrower tends to trade with largely borrowed money and invest as

little of there own capital as possible. This is not considered a good banking proposition. A

high ratio may represent a high or low risk; where earnings banking proposition. A high ratio

may represent a high or low risk; where earnings are sufficiently high and stable. A higher

level of gearing may be satisfactory. The Ability of a firm to continue service and repay its

debts is more function of reliability of earnings and inevitably cash flows than that of debt

itself.

5. Cash Flow: When assessing the borrowers liquidity and profitability, the timing of the

borrower’s commitments must be considered. His commitments must be placed in such a way

that the business will not face a cash shortage in the foreseeable future.

The following important ratios are analyzed at the time of considering a credit line proposal:

Current Ratio

Acid Test Ratio;

Debt coverage Ratio

Receivables to Sales Ratio

Stock Turnover Ratio;

Return on Investment (ROI)

There are many other ratios, which may help in analyzing the Borrower’s financial statement.

6. Credit Risk Analysis:

The Risk Rating System is tool, which sets a uniform framework for assessing and

monitoring risk in a credit portfolio. Tile risk rating system is used to indicate the perceived

degree of risk. It is intended to provide a uniform, bank wide system to measure credit quality

and provide early warning of deteriorating credits.

The risks are mainly of two types:

(i) Business Risk

(ii) Security Risk.

Business Risk: It is mainly of two types:

A. Industry risk

B. Company risk

37

Industry risk:

a. Supplies Risk: What is the risk of failure due to disruption in the supply of

Inputs. In case of such risk the following items to be studied:

Labor

Equipment

Premises

b. Sales Risk: What is the risk failure due to disruption in sales? In case of such

Risk the following items to be studied:

Competitive Pressure

Regulatory

B. Company Risk:

a. Performance risk: What is the risk that the company position is so weak that

It cannot perform well enough to repay loan given external condition. In such case

The following items to be observed:

Quality,

Price

b. Resilience Risk: What is the risk of failure due to lack of resilience to unexpected external

condition. In such case the following items to be observe:

Leverage

Consumption’s

Dependability

Management Risk: The risk related to the management is of two categories:

Management integrity risk

Management Competence risks

Security risk: This type of risk is of two types:

a. Security Control risk: What is the risk that the bank fails to realize the security;

38

Raw Materials Power Others

Barriers to entry Customer concentration

Strategies Cash flow forecasts

Liquidity Management honesty

b. Security Covering Risk: What is the risk that the bank realize security value less than the

expenses, Security Covering risk should be analyzed by considering the following items:

Speed of liquidation

Liquidation value

Supporting documentation:

When the relationship officer is preparing the Credit Line Proposal, he used to prepare

supporting documentation, and those are as follows:-

Credit Report from the branch manager;

Credit Report from third parties/banks CIB Report;

Spread Sheet;

Stock Inspection Report;

Loan application form along with copies of relevant papers;

Credit Risk Analysis.

Some of the above supporting schedules may be omitted from certain Credit Line Proposal if

considered not of much significance/relevance.

Conveying offer to borrower

The offer/facility letter is sent out to the borrower whenever the bank sanctions or renews a

credit facility in his favor.

I he precise format of the offer/facility letter is to be determined by Corporate Office

covering the completion procedures for security documents. However, the Following

requirements are common to all cases:

Borrower’s Name

Subject;

Amount of the facility

Repayment schedule

39

Discount rate Discount factor

P.V of Security Types of security

Interest Rates: Fees for the facility Security of the facility Availability facility by the

Borrower

3.6) Documentation for Credit:

Loans or other Credit exposure must be supported by proper documentation. It is vitally

important to the Bank’s credit quality to have and to maintain documentation, which will

complete, correct and properly executed. Failure to obtained and maintains documentation

may not prevent the bank from informing its rights against a borrower, and every precaution

must be taken to prevent such situations.

Standard form documentation should be used whenever possible to reduce legal

expenses and minimizes documentation errors;

After the properly executed loan documentation has been collected and signed off

for completeness by the concerning credit officer, the Credit Department is

responsible for itemizing, filling, maintaining and safeguarding documents.

For term facilities where there is no change in the terms and conditions of the

facility, the documentation must reviewed and such review revered in writing at

least annually by the sponsoring credit officer.

Each advance or Credit Line proposal should be meticulously documented and retained in a

separate folder divided into the following six sub-sections:

Correspondence;

Financial Statements

Credit Reports/Information;

Sanction/Survey Reports,

List of charge Documents/ Certificate with validity

Besides acquiring document from the borrower the credit department of the bank is to supply

various statements to the office as well as the Bangladesh Bank. The reports to be sent are as

follows:

1. Monthly CIB statement of Tk. I core and above

2. Monthly statement of Credit (Rescheduled /Increased/Newly sanctioned)

3. Monthly statement of Deposit held by Government Sector;

4. Monthly statement of Bank loans &Advances held by Government Sector;

5. Monthly statement of loan in Agro-based industry;

6. Quarterly statement of Industrial Credit;

40

7. Quarterly statement of loans disbursed irregularly;

8. Quarterly statement of Outstanding & Classification Status of Loans

9. Disbursed during last 5Years;

10Quarterly statement of SBS-3

11. Quarterly statement of Loans to the Bank’s Director

12. Monthly statement of loans to the Director of other Banks;

13. Quarterly Statement of Branch Summery of Loan Classification & Provision;

14. Quarterly CIB statement of Tk. lack below I crore;

Quarterly statement regarding sanctioning of large loan;

15. Monthly statement of loan under Agricultural Credit;

16. Monthly statement of Recovery against Classified loans;

17. Quarterly statement regarding Write off –

18. Half-yearly Statement regarding loans disbursed in Tannery Sector;

19. Half-yearly statement regarding suit filed –and settled in Artha-Rin dalat and others;

20. Half –yearly statement regarding suit filed and settled in two insolvency and three Artha –

Rin Adalat

21. Half yearly Statement regarding Loans disbursed in Jute Sector

22. Half yearly Statement of Sector wise Advance;

23. Half-yearly statement regarding loans & Advances of Tk 1 Crore and above.

3.7) Management of Delinquent Advances:

Loan Classification & provisioning:

Bangladesh bank has introduced a system covering loan classification, the suspension of

interest due, and the making of provisions against potential loan losses, which is to be

followed by all scheduled banks operating in Bangladesh. Bangladesh bank will inspect the

classification interest suspense, and provisioning carried out by the bank. Bank will maintain

adequate records to enable the inspection team of Bangladesh Bank to verify the

classification, interest suspense calculation and provisioning calculations on a loan basis.

According to Bangladesh bank’s circular-No. 16 dated 06-12-198 and Circular No. 2 dated

10-01-1999, all loans and advances have been classified into four categories as under-

Continuous loan (e.g. overdraft, cash credit, etc.)

Demand loan (e.g. LIM PAD etc.)

41

Fixed Term Loan

Short Term Agricultural and micro Credit

Assets quality ratings break down into two main categories:

Satisfactory

Delinquent/Classified

Delinquent/Classified assets comprise of the following sections:

Sub-Standard;

Doubtful;

Bad & Loss.

Basis for loan Classification:

Bank must be responsible for classification of its loan portfolio in accordance with the

guidelines provided by Bangladesh Bank form time to time through circular/ Circular letter.

Beside this usually the loans are classified on the basis of two fundamental criterions;

1. Qualitative Judgment: Basically it is the outcome of bankers experience and intelligence.

The banker can estimate loan recovery possibility of the borrower. Here he uses the EWS

(Early Warning Signals) method.

2. Overdue Criteria: If the borrower becomes irregular in refunding the loan then the loan

could be classified he basis of time duration of irregularity such as:

Unclassified: The loan which recovery is regular;

Classified: The loan of which the recovery period matures before 6months

Doubtful: The loan of which the recovery period mature before 9month

Bad loan: The loan of which the recovery period matures before 12 months and about what

the management decided that the loan be recoverable.

Provision:

Incase of continuous loan, demand loan and term loan, the rates to be applied to the base are:

1. Sub Standard 20%

2. Doubtful 50%

3. Bad & Loss 100%

The base for provisions on classified loans is the balance outstanding in the loan ledger for

the loan less any interest taken in an interest suspense account which is also included in the

42

loan ledge, lese the value of eligible security. A general privation of 1% to be makes against

all unclassified loans

The eligible securities are

1) Deposits on which lien is marked 100%

2) Gold/ Gold ornaments physically held by the bank

of present market value 100%

3) Government Bond and sanchay patra on which lien is marked 100%

4) Guarantee given by Government of Bangladesh Bank 100%

5) Goods with a ready market that are held in the control of the bank of market value

50%

6) Mortgage land & building of market value 50%

In case of Short-Term agricultural and Micro Credit

All other loans except bad loans 5%

( i.e. Substandard , doubtful, Irregular & regular)

2) All bad & loss 100%

Treatment of interest:

Interest will continue to be charged on Substandard and doubtful loans of advances which

will however not be credited to Income Account.

If a loan advance is classified as bad and loss, then application of interest on that account to

be suspended immediately. If the bank feels to file a suit in tile court for recovering of

outstanding advance from a customer, then the interest to be applied up to suit filed dated and

it is to be kept in Interest Suspense Account.

Any recovery or payment received from classified loan is normally first applied as a

reduction of interest (i.e. interest income) and then the principal amount to be adjusted.

In all cases, Bangladesh Bank’ Procedure of loan Classified and provisioning is to be strictly

complied with by all concern’

Rescheduling of Loan:

If the loan Become classified then giving the chance to the borrower the rescheduling of the

loan is make and here the borrower is to pay back first the 10% of the outstanding loan first

and then the rest amount gets treated as the new loan and continued accordingly.

43

Accounting Procedure for loan provisioning:

After every maturity date the interest on loan (Income) is credited from the borrower account

by debiting his account. And the treatment is as follows:

Party a/c................................Debit

Interest on loan ....................Credit

By an example the accounting procedure of provisioning can be shown an by such practical

instance a brief idea can be generated over this concept:

A borrower outstanding loan is tk 32000 of which the principal is 20000 and interest is tk

12000 at the time of provisioning the interest earlier debited from his account to be shifted to

the interest Suspense account as

Interest on loan a/c ................................Debit

Interest Suspense a/c................................Credit

Again if the loan is rescheduled or the borrower paid partial amount of his due then the

amount again will be shifted to the income account by the reverse of the above entry.

3.8) Credit Performance: Liquidity & Profitability:

The bank disburses credit in different sectors of the economy considering the credit recover

capability of the borrower. Besides they consider a number if factors at the time of offering

credit line proposal such as:

Customer’s reputation in the market;

Net worth of the firm

Demand of the credit

Social cost of the credit;

Opportunity & threat of the borrower in the market

Competitive strength & weaknesses of the borrower in the market

Necessity of the project in the society.

44

According to the policy of the bank it discouraged the credit against the security as pledge.

They prefer authenticated documents fro disbursement of credit.

At the time of evaluating performance of the credit operation of the bank regarding its

liquidity and profitability a number of facts are to be considered such as:

Total deposit of the bank in different category;

Total liquid capital/working capital of the bank;

Running profit of the bank;

Investment opportunities of the bank;

Economic condition of the state;

Time duration of the banking operation;

Fixed asset volume and the Depreciation rate etc.

Here it is to be remembered that the bank has gone to the operation just before two and half

years so it is very obvious that the bank may carry a huge idle deposit and the lazy liquid

capital;

1.The bank is carrying a huge liquid capital.

2.The utilization of the deposit is satisfactory since a bank is to invest its 80% of the deposit

whereas this bank invests its 96% of the deposit.

3.Return on paid up capital is to be increased as it indicates the operating effectiveness of the

company.

4.On the basis of operating efficiency it can be said that the profitability of the bank is to

some extent sound.

45

CHAPTER FOUR

Investment Structure

4.1 Introduction:

Commercial banks are known as lending institutions. Making loans to business houses and

industrial enterprises has been their popular activity. Making loans can also be called one

kind of investment. Bank is an institution which is engaged in the business of money and

loan. The more loans a bank can provide the better and beneficial for the bank it will be.

Loans can be of different types. National Bank Limited provides different types of loans

which are briefly discussed in the below:

a) Secured overdraft (SOD):

Overdrafts for longer periods are normally granted against the Security of tangible assets

such as pledge/lien of FDR, Bonds, ICB unit certificate etc. They are called Secured

overdrafts/collateralized overdraft. Descriptions overdraft will depend upon the nature and

type of security charged to tile Bank.

b) Cash credit (C.C):

An advance under this head is granted for financing inventory, which may be hypothecated or

pledged, to the Bank as security limit is advised to the borrowers. This is also fluctuating

form of lending.

c) Loans (General):

This type of loan is provided for general purpose.

d) House Building Loans (HBL):

This type of loan is given to the fixed or low income people for housing purposes.

e) Loan against trust receipt (LTR):

It is a document that creates the bankers lien on the goods and practically amounts of

hypothecation of the proceeds of sale in discharge of the lien.

46

The customer on whose account the branch issued an L/C may wish to obtain documents of

the title to goods received under the I/s so that he can obtain delivery of the goods and

arrange to retire the bill out of the sale proceeds of goods. Advances against a Trust Receipt

obtained from the customer are allowed (for a maximum period of 180 days) when the

documents covering an import shipment are given without payment.

The customer holds the goods or their sale proceeds in trust for the bank, till such time, the

loan allowed against the trust receipt is fully paid of.

f) Payment against document (PAD):

PAD is associated with import and export financing. The Bank opening L/C is bound to

honor its Commitment to pay for import bills when these are presented for payment provided

that it is drawn strictly in terms of letter of Credit.

The foreign correspondent that negotiates the document, debits the amount thus advanced on

behalf of the importer the a/c of the opening bank. The opening bank on receipt will lodge the

shipping documents to their books and will respond to the documents.

g) Consumer Credit Scheme:

National Bank’s Consumer Credit Scheme gives you a great opportunity to buy household

and office items on easy installments. This scheme gives you the advantage of part payment

to cope with the high price tags of many necessary home and office appliances.

Television, Refrigerator, VCR, Personal Computer, Photocopier, Washing Machine,

Furniture, Microwave Oven, Car, and a number of other expensive items are now within your

buying range. With this scheme NBL makes better living possible for people living of fixed

income. Customers can buy those home and office equipment’s without over taxing their

budget.

h) Credit Card:

The most modern technology based facility for making hassle free financial transactions and

drawing of each money all over the world is given by credit card.

NBL introduced master card in 1997. Now, NBL are the issuer and acquire of two most

popular brands of credit card of the world, namely master card and VISA card.

47

4.2 General Analysis:

Table: 1 Distribution of given loan amount for different loan products (TK. in Million) of NBL during the period 2005-2008

Loan Products

Year Secured

Overdraft

Cash

Credit

Loans

(General)

House

Building

Loans

Loans

Against

Trust

Receipts

(LTR)

Payment

Against

Documents

(PAD)

Consumer

Credit

Scheme

Credit

Card

Total Mean

2005 5728.12 7180.32 4776.30 727.24 3102.82 1015.73 88.94 324.12 22943.59 2867.95

2006 5054.20 8144.07 6816.39 850.12 4621.25 1488.55 55.53 305.37 27335.48 3416.94

2007 4708.33 9179.95 8497.24 966.94 6066.19 1674.47 48.20 264.76 31406.08 3925.76

2008 5757.55 11204.56 12643.02 1640.05 10183.94 1761.33 55.42 253.12 43498.99 5437.37

Total 21248.20 35708.90 32732.95 4184.35 23974.20 5940.08 248.09 1147.37

Mean 5312.05 8927.225 8183.2375 1046.0875 5993.55 1485.02 62.0225 286.8425

Comment: From the above table: 1 we can see different types of loan products and their given amount in different years. Mean loan amount of

different types of loan products is increasing from 2005 to 2008.So it is better for the bank in the future.

48

Table: 2 Distribution of interest income for different loan products (TK. in Million) of NBL during the period 2005-2008

Loan Products

Year Secured

Overdraft

(SOD)

Cash

Credit

(CC)

Loans

(General)

House

Building

Loans

(HBL)

Loans

Against

Trust

Receipts

(LTR)

Payment

Against

Documents

(PAD)

Consumer

Credit

Scheme

(CCS)

Credit

Card

Total Mean

2005 716.02 1077.05 764.21 101.81 496.45 162.52 14.23 97.24 3429.53 428.69

2006 631.77 1221.61 1090.62 119.07 739.40 238.17 8.88 91.61 4141.13 517.64

2007 588.54 1376.99 1359.56 135.37 970.59 267.92 7.71 79.43 4786.11 598.26

2008 719.69 1680.68 2022.88 229.61 1629.43 281.81 8.87 75.94 6648.91 831.11

Total 2656.02 5356.33 5237.27 585.86 3835.87 950.42 39.69 344.22

49

Table: 2.1.a Interest income of Secured Overdraft

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

716.02 631.77 588.54 719.69

Table: 2.1.b Growth rate of Secured Overdraft’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK. in

Million)

2007

(TK. in

Million)

Growth

(%)

2007

(TK. in

Million)

2008

(TK. in

Million)

Growth

(%)

716.02 631.77 -11.77% 631.77 588.54 -6.84% 588.54 719.69 22.28%

Figure: 1 Showing Growth rate of Secured Overdraft’s interest income & Year

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

50

Table: 2.2.a Interest income of Cash Credit

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

1077.05 1221.61 1376.99 1680.68

Table: 2.2.b Growth rate of Cash Credit’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK. in

Million)

2007

(TK. in

Million)

Growth

(%)

2007

(TK. in

Million)

2008

(TK. in

Million)

Growth

(%)

1077.05 1221.61 13.42% 1221.61 1376.99 12.72% 1376.99 1680.68 22.05%

Figure: 2 Showing Growth rates of Cash Credit’s interest income & Year

13.42% 12.72%

22.05%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

51

Table: 2.3.a Interest income of Loans (General)

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

764.21 1090.62 1359.56 2022.88

Table: 2.3.b Growth rate of Loans (General)’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK. in

Million)

2007

(TK. in

Million)

Growth

(%)

2007

(TK. in

Million)

2008

(TK. in

Million)

Growth

(%)

764.21 1090.62 42.71% 1090.62 1359.56 24.66% 1359.56 2022.88 48.79%

Figure: 3 Showing Growth rates of Loans (General)’s interest income & Year

42.71%

24.66%

48.79%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

52

Table: 2.4.a Interest income of House Building Loans (HBL)

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

101.81 119.07 135.37 229.61

Table: 2.4.b Growth rate of House Building Loans (HBL)’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK. in

Million)

2007

(TK. in

Million)

Growth

(%)

2007

(TK. in

Million)

2008

(TK. in

Million)

Growth

(%)

101.81 119.07 14.50% 119.07 135.37 13.69% 135.37 229.61 69.62%

Figure: 4 Showing Growth rates of House Building Loans (HBL)’s interest income & Year

14.50% 13.69%

69.62%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

53

Table: 2.5.a Interest income of Loans against Trust Receipts (LTR)

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

496.45 739.40 970.59 1629.43

Table: 2.5.b Growth rate of Loans against Trust Receipts (LTR)’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK. in

Million)

2007

(TK. in

Million)

Growth

(%)

2007

(TK. in

Million)

2008

(TK. in

Million)

Growth

(%)

496.45 739.40 48.94% 739.40 970.59 31.27% 970.59 1629.43 67.88%

Figure: 5 Showing Growth rates of Loans against Trust Receipts (LTR)’s interest income

& Year

48.94%

31.27%

67.88%

0.00%

20.00%

40.00%

60.00%

80.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

54

Table: 2.6.a Interest income of Payment against Documents (PAD)

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

162.52 238.17 267.92 281.81

Table: 2.6.b Growth rate of Payment against Documents (PAD)’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK. in

Million)

2007

(TK. in

Million)

Growth

(%)

2007

(TK. in

Million)

2008

(TK. in

Million)

Growth

(%)

162.52 238.17 46.55% 238.17 267.92 12.49% 267.92 281.81 5.18%

Figure: 6 Showing Growth rates of Payment against Documents (PAD)’s interest income &

Year

46.55%

12.49%5.18%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

55

Table: 2.7.a Interest income of Consumer Credit Scheme (CCS)

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

14.23 8.88 7.71 8.87

Table: 2.7.b Growth rate of Consumer Credit Scheme (CCS)’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK.

in

Millio

n)

2007

(TK. in

Million)

Growth

(%)

2007

(TK.

in

Millio

n)

2008

(TK. in

Million)

Growth

(%)

14.23 8.88 -37.60% 8.88 7.71 -13.18% 7.71 8.87 15.05%

Figure: 7 Showing Growth rates of Consumer Credit Scheme (CCS)’s interest income &

Year

-37.60%

-13.18%

15.05%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

2005-2006 2005-2006 2007-2008

Year

Gro

wth

ra

te

Series1

56

Table: 2.8.a Interest income of Credit Card

2005

(TK. in Million)

2006

(TK. in Million)

2007

(TK. in Million)

2008

(TK. in Million)

97.24 91.61 79.43 75.94

Table: 2.8.b Growth rate of Credit Card’s interest income

2005

(TK. in

Million)

2006

(TK. in

Million)

Growth

(%)

2006

(TK. in

Million)

2007

(TK. in

Million)

Growth

(%)

2007

(TK. in

Million)

2008

(TK. in

Million)

Growth

(%)

97.24 91.61 -5.79% 91.61 79.43 -13.30% 79.43 75.94 -4.39%

Figure: 8 Showing Growth rates of Credit Card’s interest income interest income & Year

-5.79%

-13.30%

-4.39%

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

57

Comment: From the above table: 2 we can see different types of loan products and their

interest income in different years. Mean interest income of different types of loan products

is increasing from 2005 to 2008.So it is better for the bank in the future. But from table: 2.1

to 2.8 we can observe that best growth rate of interest income in Loans (General), House

Building Loans (HBL) & Loans against Trust Receipts (LTR) and worst growth rate of

interest income in credit card. For the time being, it can be said that credit card sector is not

good. But for better comments, we should go for regression analysis which has been done in

Table: 3 and 4.

4.3 Regression analysis:

We know that,

Y=a+bX

Where,

Y= Interest income

X= Loan amount

a= Intercept

b=Regression coefficient

58

Table: 3 Linear regression analysis between loan amount of different loan products and

interest income of different loan products during period 2005-2008:

Loan products Intercept(a) Regression

coefficient(b)

P- value

Secured

Overdraft(SOD

)

-.017 .125 .000

Cash Credit .012 .150 .000

Loans

(General)

.004 .160 .000

House Building

Loans(HBL)

.028 .140 .000

Loans Against

Trust Receipts

(LTR)

-.001 .160 .000

Payment

Against

Documents

(PAD)

.008 .160 .000

Consumer

Credit

Scheme(CCS)

-.003 .160 .000

Credit Card .006 .300 .000

(The above linear regression calculation table has been done by using the data of table: 1

and 2.)

P***<0.001; P**<.01; P*<.05

59

Comment:

From the table: 3, it can be said that if we give 1 million loan in Secured Overdraft

(SOD) then on an average the rate of interest during the given period(2005-2008)

will increase by .125 million. So from this viewpoint it is seen that the best earning

sector is credit card which shows regression coefficient is .300. Loans (General)

Loans, Against Trust Receipts (LATR), Payment against Documents (PAD) and

Consumer Credit Scheme (CCS) are showing better position. But Secured Overdraft

(SOD) is showing worst position.

Table: 4 Linear regression analysis between loan amount of different loan products and

Year of different loan products during period 2005-2008:

Loan products Intercept(a) Regression

coefficient(b)

P- value

Secured

Overdraft(SOD)

56995.477 -25.758 .936

Cash Credit -2621313.365 1310.860 .018

Loans

(General)

-5064451.419 2528.101 .023

House Building

Loans(HBL)

-571859.825 285.525 .096

Loans Against Trust

Receipts

(LTR)

-4546413.845 2268.830 .038

Payment Against

Documents

(PAD)

-484633.748 242.272 .060

Consumer Credit

Scheme(CCS)

21710.151 -10.789 .238

Credit Card 51173.689 -25.361 .021

(The above linear regression calculation table has been done by using the data of table: 1)

P***<0.001; P**<.01; P*<.05

60

Comment:

From the table: 4 it is seen that on an average in Secured Overdraft (SOD) sector the

decreasing rate per year is -25.758 million. From the table: 3, it can be said that if we give 1

million loan in Secured Overdraft (SOD) then on an average the rate of interest during the

given period(2005-2008) will increase by .125 million. But it is also seen that among the

above stated loan products, Secured Overdraft (SOD) gives less interest income to the bank.

From the table: 4 we can see that on an average in Loans

(General) sector the increasing rate per year is 2528.101 million significantly which is really

better for the bank. Besides these, on an average in Credit Card sector the decreasing rate

per year is -25.361 million significantly but from table: 3 it is observed that on an average in

Credit Card, the rate of interest during the given period(2005-2008) will increase by .300

million which is the best interest income earning sector among all other sectors. So bank

should emphasize this sector and give more loans by using Credit Card.

4.4 Conclusion:

In conclusion we can say that the overall loan products are good. But some loan products do

not show good performance. The bank should give an extra effort to increase investment.

61

CHAPTER FIVE

Liquidity Performance of NBL

5.1 Introduction:

One of the important tasks, the management of any bank faces, is ensuring adequate

liquidity at all times. A bank is considered to be liquid if it has ready access to immediately

spendable funds at reasonable costs at precisely the time those funds are needed. To meet

current or short term obligations adequate liquidity is needed. In fact, liquidity is a

precondition for the endurance of a firm. Liquidity ratios measure the ability of a firm to

meet its short-term obligations and reflect the short-term financial strength of a firm. So

measuring liquidity performance of NBL, some liquidity ratios have been used. These ratios

are

a) Current Ratio

b) Working Capital

c) Cash Position Indicators

d) Liquid Securities Indicator

e) Riskless Assets Position

f) Net Treasury Fund Position

5.2 Evaluation of liquidity performance:

Liquidity Ratio Analysis

a) Current Ratio:

Table: 1 showing current ratio at different years

Year 2005 2006 2007 2008

Current Ratio 1.68: 1.00 1.76: 1.00 1.83: 1.00 1.87: 1.00

62

Figure: 1 showing current ratio at different years

2003

2004

2005

2006

2007

2008

2009

1.55

1.6

1.65

1.7

1.75

1.8

1.85

1.9

Series2 Series1

Series2 2005 2006 2007 2008

Series1 1.68 1.76 1.83 1.87

1 2 3 4

Table: 2 showing growth rate of current ratio

2005

(Ratio)

2006

(Ratio)

Growth (%) 2006

(Ratio)

2007

(Ratio)

Growth (%) 2007

(Ratio)

2008

(Ratio)

Growth (%)

1.68 : 100 1.76:1.00 4.76% 1.76:1.00 1.83:1.00 3.98% 1.83:1.00 1.87:1.00 2.19%

Figure: 2 showing growth rate of current ratio

4.76%

3.98%

2.19%

0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%5.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

Series2

63

Comments:

From the above Table: 1 and figure: 1 we can see that current ratio is

increasing. So it is better for the bank to maintain liquidity. Bank’s liquidity

power is increasing. For that reason, customer will rely on bank. Current ratio

is better in 2008 in respect of previous year. But from the above Table: 2 and

figure: 2, it is seen that growth rate of current ratio is not so much satisfactory.

In 2005-2006 growth rate of ratio is 4.76% but in 2006-2007 and 2007-2008, it

is decreasing. So bank has to increase its growth rate of ratio. By analyzing the

current ratio, it can be said that the liquidity position of NBL is satisfactory.

b) Working Capital: current asset - current liabilities

Table: 3 Showing Working Capital at different years

2005 2006 2007 2008

6966019150 13294056812 18014474306 20012281423

Figure: 3 Showing Working Capital at different years

0

5000000000

10000000000

15000000000

20000000000

25000000000

Year

Ta

ka Series1

Series2

Series1 2005 2006 2007 2008

Series2 6966019150 1329405681 1801447430 2001228142

1 2 3 4

64

Table: 4 showing growth rate of Working Capital

2005

(TK)

2006

(TK.)

Growth (%) 2006

(TK.)

2007

(TK.)

Growth (%)2007

(TK.)

2008

(TK.)

Growth (%)

6966019150 13294056812 90.84% 13294056812 18014474306 35.51% 1801447430620012281423 11.09%

Figure: 4 showing growth rate of Working Capital

90.84%

35.51%

11.09%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

Year

Gro

wth

Series2

Series2 90.84% 35.51% 11.09%

2005-2006 2006-2007 2007-2008

Comments:

From the above Table: 3 and figure: 3 we can see that working capital is increasing. So it is

better for the bank to have more working capital so that it can help in maintaining proper

liquidity as well as profitability. Bank’s liquidity power is increasing. Working capital is

better in 2008 in respect of previous year. But from the above Table: 4 and figure: 4, it is

seen that growth rate of working capital is not so much pleasing. In 2005-2006 growth rate

of working capital is 90.84% but in 2006-2007 and 2007-2008, it is decreasing. So bank has

to increase its growth rate of working capital. By analyzing the working capital, it can be

said that the liquidity position of NBL is pleasing.

65

c) Cash Position Indicators:

Table: 5 Showing cash position at different years

Year 2005 2006 2007 2008

Cash Position Ratio .92 : 1.00 .85 : 1.00 .82 : 1.00 .82 : 1.00

Figure: 5 showing cash position at different years

0.92

0.85

0.82 0.82

0.8

0.82

0.84

0.86

0.88

0.9

0.92

0.94

2004 2005 2006 2007 2008 2009

Year

Ra

tio

Series1

Table: 6 showing growth rate of cash position

2005 2006 Growth (%) 2006 2007 Growth (%) 2007 2008 Growth (%)

.92 : 1.00 .85 : 1.00 -7.61% .85 : 1.00 .82 : 1.00 -3.53% .82 : 1.00 .82 : 1.00 0%

66

Figure: 6 showing growth rate of cash position

-7.61%

-3.53%

0%

-8.00%

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

Year

Gro

wth

Series2

Series2 -7.61% -3.53% 0%

2005-2006 2006-2007 2007-2008

Comments:

From the above Table: 5 and figure: 5 we can see that cash position is decreasing. So it is

not good sign for the bank. Bank’s liquidity control is decreasing. Cash position is better in

2005 in respect of other years. But from the above Table: 6 and figure: 6, it is seen that

growth rate of cash position is not so much pleasing. So bank has to increase its growth rate

of cash position. By analyzing cash position, it can be said that the cash position of NBL

should be increasing for better liquidity control.

d) Liquid Securities Indicator:

Table: 7 Showing Liquid Securities Ratio at different years

Year 2005 2006 2007 2008

Liquid Securities Ratio .04 : 1.00 .03: 1.00 .11 : 1.00 .09 : 1.00

67

Figure: 7 Showing Liquid Securities Ratio at different years

0.040.03

0.11

0.09

0

0.02

0.04

0.06

0.08

0.1

0.12

2004.5 2005 2005.5 2006 2006.5 2007 2007.5 2008 2008.5

Year

Rat

ioSeries2

Table: 8 showing growth rate of Liquid Securities Ratio

2005 2006 Growth (%) 2006 2007 Growth (%) 2007 2008 Growth (%)

.04 : 1.00 .03 : 1.00 -25% .03 : 1.00 .11 : 1.00 226% .11 : 1.00 .09 : 1.00 -18%

Figure: 8 showing growth rate of Liquid Securities Ratio

-25%

226%

-18%-50%

0%

50%

100%

150%

200%

250%

Year

Gro

wth

Series2

Series2 -25% 226% -18%

2005-2006 2006-2007 2007-2008

68

Comments:

From the above Table: 7 and figure: 7 we can see that liquid securities ratio is increasing. So

it is better for the bank to have more liquid securities in case of liquidity shortage. Liquid

securities ratio is better in 2007 in respect of previous year. But in 2008 it has decreased.

Again from the above Table: 8 and figure: 8, it is seen that growth rate of liquid securities

ratio is not so much pleasing. In 2006-2007 growth rate of liquid securities ratio is really

good but in 2007-2008, it has decreased. So bank has to increase its growth rate of liquid

securities ratio. By analyzing the liquid securities ratio, it can be said that bank should keep

attention about the liquid securities.

e) Riskless Assets Position:

Table: 9 Showing Riskless Assets Position at different years

Year 2005 2006 2007 2008

Riskless Assets Position .96 : 1.00 .94: 1.00 1.02 : 1.00 .98 : 1.00

Figure: 9 Showing Riskless Assets Position at different years

0.96

0.94

1.02

0.98

0.92

0.94

0.96

0.98

1

1.02

1.04

2004 2005 2006 2007 2008 2009

Year

Ra

tio

Series1

69

Table: 10 showing growth rate of Riskless Assets Position

2005 2006 Growth (%) 2006 2007 Growth (%) 2007 2008 Growth (%)

.96 : 1.00 .94 : 1.00 -2.08% .94 : 1.00 1.02 : 1.00 8.51% 1.02 : 1.00 .98 : 1.00-3.92%

Figure: 10 showing growth rate of Riskless Assets Position

-2.08%

8.51%

-3.92%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%8.00%

10.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

rat

e

Series1

Comments:

From the above Table: 9 and figure: 9, we can see that Riskless Assets Position is not in

steady position. So it does not seem to be good for bank in maintaining proper liquidity.

Riskless Assets Position is better in 2007 in respect of other years. But from the above

Table: 10 and figure: 10, it is seen that growth rate of riskless assets position is not so much

pleasing. In 2006-2007 growth rate of riskless assets position is 8.51% but in 2007-2008, it

has decreased. So bank has to increase its growth rate of riskless assets.

f) Net Treasury Fund Position:

Table: 11 Showing Net Treasury Fund Position at different years

Year 2005 2006 2007 2008

Net Treasury Fund Position .07 : 1.00 .05 : 1.00 .06 : 1.00 .06 : 1.00

70

Figure: 11 Showing Net Treasury Fund Position at different years

0.07

0.050.06 0.06

0

0.02

0.04

0.06

0.08

2004 2005 2006 2007 2008 2009

Year

Ra

tio

Series1

Table: 12 showing growth rate of Net Treasury Fund Position

2005 2006 Growth (%) 2006 2007 Growth (%) 2007 2008 Growth (%)

.07: 1.00 .05: 1.00 -28.57% .05 : 1.00 .06 : 1.00 20% .06 : 1.00 .06: 1.00 0%

Figure: 12 showing growth rate of Net Treasury Fund Position

-28.57%

20%

0%

-40.00%-30.00%

-20.00%-10.00%

0.00%10.00%

20.00%30.00%

2005-2006 2006-2007 2007-2008

Year

Gro

wth

ra

te

Series1

Comments:

From the above Table: 11 and figure: 11 we can see that Net Treasury Fund Position is more

or less in good position. So it is better for the bank to have more Net Treasury Fund so that

it can help in maintaining proper liquidity. Net Treasury Fund is better in 2005 in respect of

other years. But from the above Table: 12 and figure: 12, it is seen that in 2005-2006 growth

rate of Net Treasury Fund Position is -28.57%but in 2006-2007, it is 20% and in2007-2008,

it is 0%.It is neither good nor bad. So bank has to increase its growth rate of Net Treasury

Fund Position.

71

Net liquidity gap:

Table: 13 Showing Net liquidity gap at different years

2006 2007 2008

3,274,259,431 4,568,391,288 6,126,266,738

Figure: 13 Showing Net liquidity gap at different years

2006 2007 2008

3,274,259,431

4,568,391,288

6,126,266,738

0

1000000000

2000000000

3000000000

4000000000

5000000000

6000000000

7000000000

Year

Tak

a Series2

Series1

Series2 2006 2007 2008

Series1 3,274,259,431 4,568,391,288 6,126,266,738

1 2 3

Table: 14 Showing growth rate of Net liquidity gap

2006 2007 Growth (%) 2007 2008 Growth (%)

3,274,259,431 4,568,391,288 39.52% 4,568,391,288 6,126,266,738 34.10%

72

Figure: 14 Showing growth rate of Net liquidity gap

39.52%

34.10%

31.00%

32.00%

33.00%

34.00%

35.00%

36.00%

37.00%

38.00%

39.00%

40.00%

Year

Gro

wth

Series2

Series2 39.52% 34.10%

2006-2007 2007-2008

Comments:

From the above graph it is seen that net liquidity gap has been increased from 2006 to 2008.

It is actually good sign for the bank. Because bank can easily meet its short term obligation in

case of financial crisis by maintaining more liquidity.

5.3 Conclusion:

In conclusion we can say that the overall liquidity performance of NBL is good. But in

some cases corrective measure should be taken by the bank. So the bank should give an

extra endeavor to increase the efficiency of liquidity management.

73

CHAPTER SIX

Credit Appraisal Process

6.1 Credit Appraisal Process (Theoretical Part):

1) Application for Loan

The prospective borrower has to apply to the Branch for by filling up of a specific

Application form. The Application form (Request for credit Limit) contains following

particulars –

a) Name of the Applicant-------------

Firm/company----------------------

b) Address:

i) Present ---

ii) Permanent –

iii) Factory /showroom

c) Nature of A/C and no—

d) Telephone /Fax no

i) Office—

ii) Resident--

e) Particular of proprietor’s /partners /directors name, Father’s /Husband’s/Mother’s Name,

permanent Address, age, Designation.

f) Name of Business /Industry.

g) Date of Establishment /Incorporation

h) Nature and amount of Limit—

I) Purpose—

j) Period—

K) Mode of Repayment –

j) Trade license number, date and expiry date (photocopy of trade license enclosed)

74

2) Credit worthiness, background and track record of the borrower.

3) Financial standing of the borrower supported by financial statement and other

documentary evidences.

4) Legal jurisdiction and implication of applicable of laws.

5) Effect of any applicable regulations and laws.

6) Purpose of the loan.

7) Tenure of the loan.

8) Viability of the business concern.

9) Cash flow analysis and also projection thereof.

10) Quality, value and adequacy of security, if available.

11) Risk taking capacity of the borrower.

12) Entrepreneurship and managerial capabilities of the borrower.

13) Reliability of the sources of the borrower.

14) Volume of risk in relation to the taking capacity of the bank or company concern.

15) Profitability of the proposal to the bank or company concern.

16) Credit risk grading (CRG):

Credit risk grading is an important tool for credit risk management as it helps the Banks &

financial institutions to understand various dimensions of risk involved in different credit

transactions. The aggregation of such grading across the borrowers, activities and the lines

of business can provide better assessment of the quality of credit portfolio of a bank or a

branch. The credit risk grading system is vital to take decisions both at the pre-sanction

stage as well as post-sanction stage.

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

lend or not to lend, what should be the loan price, what should be the extent of exposure,

what should be the appropriate credit facility, what are the various facilities, what are the

various risk mitigation tools to put a cap on the risk level.

At the post-sanction stage, the bank can decide about the depth of the review or renewal,

frequency of review, periodicity of the grading, and other precautions to be taken.

75

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

banking system to carefully develop a credit risk-grading model that meets the objective

outlined above

Definition of Credit Risk Grading:

The Credit Risk Grading (CRG) is a collective definition based on the pre-specified

scale and reflects the underlying credit-risk for a given exposure.

A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary

indicator of risks associated with a credit exposure.

Credit Risk Grading is the basic module for developing a Credit Risk Management

system.

Functions of Credit Risk Grading:

Well-managed credit risk grading systems promote bank safety and soundness by

facilitating informed decision-making. Grading systems measure credit risk and

differentiate individual credits and groups of credits by the risk they pose. This allows bank

management and examiners to monitor changes and trends in risk levels. The process also

allows bank management to manage risk to optimize returns.

Use of Credit Risk Grading:

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

ensure a common standardized approach to assess the quality of individual obligor,

credit portfolio of a unit, line of business, the branch or the Bank as a whole.

As evident, the CRG outputs would be relevant for individual credit selection,

wherein either a borrower or a particular exposure/facility is rated. The other

decisions would be related to pricing (credit-spread) and specific features of the

credit facility. These would largely constitute obligor level analysis.

Risk grading would also be relevant for surveillance and monitoring, internal MIS

and assessing the aggregate risk profile of a Bank. It is also relevant for portfolio

level analysis.

76

Numbers and Short Name of Grades Used in the CRG:

The proposed CRG scale consists of 8 categories with Short names and Numbers are

provided as follows:

GRADING SHORT NAME NUMBER

Superior SUP 1

Good GD 2

Acceptable ACCPT 3

Marginal/Watchlist MG/WL 4

Special Mention SM 5

Sub standard SS 6

Doubtful DF 7

Bad & Loss BL 8

Credit Risk Grading Definitions:

A clear definition of the different categories of Credit Risk Grading is given as follows:

Superior - (SUP) - 1

Credit facilities, which are fully secured i.e. fully cash covered.

Credit facilities fully covered by government guarantee.

Credit facilities fully covered by the guarantee of a top tier international

Bank.

Good - (GD) - 2

Strong repayment capacity of the borrower

The borrower has excellent liquidity and low leverage.

The company demonstrates consistently strong earnings and cash flow.

Borrower has well established, strong market share.

Very good management skill & expertise.

All security documentation should be in place.

Credit facilities fully covered by the guarantee of a top tier local Bank.

Aggregate Score of 85 or greater based on the Risk Grade Score Sheet

Acceptable - (ACCPT) - 3

These borrowers are not as strong as GOOD Grade borrowers, but still

demonstrate consistent earnings, cash flow and have a good track record.

Borrowers have adequate liquidity, cash flow and earnings.

77

Credit in this grade would normally be secured by acceptable collateral (1st

charge over inventory / receivables / equipment / property).

Acceptable management

Acceptable parent/sister company guarantee

Aggregate Score of 75-84 based on the Risk Grade Score Sheet

Marginal/Watch list - (MG/WL) - 4

This grade warrants greater attention due to conditions affecting the

borrower, the industry or the economic environment.

These borrowers have an above average risk due to strained liquidity, higher

than normal leverage, thin cash flow and/or inconsistent earnings.

Weaker business credit & early warning signals of emerging business credit

detected.

The borrower incurs a loss

Loan repayments routinely fall past due

Account conduct is poor, or other untoward factors are present.

Credit requires attention

Aggregate Score of 65-74 based on the Risk Grade Score Sheet

Special Mention - (SM) - 5

This grade has potential weaknesses that deserve management’s close

attention. If left uncorrected, these weaknesses may result in a deterioration

of the repayment prospects of the borrower.

Severe management problems exist.

Facilities should be downgraded to this grade if sustained deterioration in

financial condition is noted (consecutive losses, negative net worth,

excessive leverage),

An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.

Substandard - (SS) - 6

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 credit shall apply.

An Aggregate Score of 45-54 based on the Risk Grade Score Sheet.

Doubtful - (DF) - 7

78

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 is not yet classified as

Bad & Loss.

Bangladesh Bank criteria for doubtful credit shall apply.

An Aggregate Score of 35-44 based on the Risk Grade Score Sheet.

Bad & Loss - (BL) - 8

Credit of this grade has long outstanding with no progress in obtaining

repayment or on the verge of wind up/liquidation.

Prospect of recovery is 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 & loss credit shall apply.

An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.

How to Compute Credit Risk Grading:

The following step-wise activities outline the process for arriving at credit risk grading.

Step I : Identify all the Principal Risk Components

Step II : Allocate weight ages to Principal Risk Components

Step III : Establish the Key Parameters

Step IV : Assign weight ages to each of the key parameters.

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

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

Credit Risk Grading Process:

79

Credit Risk Grading should be completed by a Bank for all exposures (irrespective

of amount) other than those covered under Consumer and Small Enterprises Financing

Prudential Guidelines and also under the Short-Term Agricultural and Micro - Credit.

For Superior Risk Grading (SUP-1) the score sheet is not applicable. This will be

guided by the criterion mentioned for superior grade account i.e. 100% cash covered,

covered by government & bank guarantee.

Credit risk grading matrix would be useful in analyzing credit proposal, new or

renewal for regular limits or specific transactions, if basic information on a borrowing

client to determine the degree of each factor is a) readily available, b) current, c)

dependable, and d) parameters/risk factors are assessed judiciously and objectively.

Relationship manager should ensure to correctly fill up the Limit Utilization Form

in order to arrive at a realistic earning status for the borrower.

Risk factors are to be evaluated and weighted very carefully, on the basis of most

up-to-date and reliable data and complete objectivity must be ensured to assign the

correct grading. Actual parameter should be inputted in the Credit Risk Grading Score

Sheet.

Credit risk grading exercise should be originated by Relationship Manager and

should be an on-going and continuous process. Relationship Manager shall complete

the Credit Risk Grading Score Sheet and shall arrive at a risk grading in consultation

with a Senior Relationship Manager and document it as per Credit Risk Grading Form,

which shall then be concurred by the Credit Officer in consultation with a Senior

Credit Officer.

All credit proposals whether new; renewal or specific facility should consist of a)

Data Collection Checklist, b) Limit Utilization Form c) Credit Risk Grading Score

Sheet, and d) Credit Risk Grading Form.

The credit officers then would pass the approved Credit Risk Grading Form to

Credit Administration Department and Corporate Banking/Line of Business/Recovery

Unit for updating their MIS/record.

The appropriate approving authority through the same Credit Risk Grading Form

shall approve any subsequent change/revision i.e. upgrade or downgrade in credit risk

grade.

80

Exceptions to Credit Risk Grading:

Head of Credit Risk Management may also downgrade/classify an account in the

normal course of inspection of a Branch or during the periodic portfolio review. In such

event, the Credit Risk Grading Form will then be filled up by Credit Risk Management

Department and will be referred to Corporate Banking/Line of Business/Credit

Administration Department/Recovery Unit for updating their MIS/records.

Recommendation for upgrading of an account has to be well justified by the

recommending officers. Essentially complete removal of the reasons for downgrade

should be the basis of any upgrading.

In case an account is rated marginal, special mention or unacceptable credit risk as

per the risk grading score sheet, this may be substantiated and credit risk may be

accepted if the exposure is additionally collateralized through cash collateral, good

tangible collaterals and strong guarantees. These are exceptions and should be

exceptionally approved by the appropriate approving authority.

Whenever required an independent assessment of the credit risk grading of an

individual account may be conducted by the Head of Credit Risk Management or by the

Internal Auditor documenting as to why the credit deteriorated and also pointing out the

lapses.

If a Bank has its own well-established risk grading system equivalent to the

proposed credit risk grading or stricter, then they will have the option to continue with

their own risk grading system.

Credit Risk Grading Review:

Credit Risk Grading for each borrower should be assigned at the inception of lending and

should be periodically updated. Frequencies of the review of the credit risk grading are

mentioned below:

Number Risk Grading Short Review frequency (at least) 1 Superior SUP Annually 2 Good GD Annually3 Acceptable ACCPT Annually 4 Marginal/Watch list MG/WL Half yearly 5 Special Mention SM Quarterly 6 Sub-standard SS Quarterly7 Doubtful DF Quarterly 8 Bad & Loss BL Quarterly

81

MIS on Credit Risk Grading:

Bank should have comprehensive MIS reports on credit risk grading to evaluate

entire credit portfolio of the Bank.

MIS reports as should be prepared and circulated at least on a quarterly basis.

Financial Spread Sheet (FSS):

A Financial Spread Sheet (FSS) has been developed which may be used by the Banks while

analyzing the credit risk elements of a credit proposal from financial point of view.

The FSS is well designed and programmed software having two parts. Input and Output

Sheets. The financial numbers of borrowers need to be inputted in the Input Sheets, which

will then automatically generate the Output Sheets.

17) Yield from the facility.

18) Market aspect.

19) Total global exposure of the borrower.

20) CIB status:

There is possibility of hiding information about the current liability and transaction with

other bank. So to get the appropriate information about the creditability of the customer.

The branch office collects CIB report through the head office. It is known that all the banks

have to send liability position of the client. The CIB authority provides the related

information for which he is asked for.

21) Credit Approval Process

National Bank, conducts its banking operation under branch banking system. For

administrative control and smoothening its day-to-day operation and extension of

appropriate and quick services, quick credit delivery, some branches have been placed

under some Regional offices. Responding to the requirement of customers in the state of

lack of full computerization facilities of the branches and on line banking facilities some

credit sanctioning powers have been delegated to the Branch Managers and the Regional

Managers.

82

Credit proposals are generally originated at branch. However proposals may also be

received at Head Office for syndication and also from big clients, Financial Institutions.

At the branch level, the officers/executives of credit department will have full knowledge of

the policy & procedures of credit operations. The credit officers/executives after obtaining

credit applications through Branch Manager along with all required papers /documents

ensure sufficiency and consistency of the papers/documents. They will originate credit

proposals, prepare detailed credit memorandum after undertaking a thorough credit check

and conducting credit risk assessment of the client in light of credit policy Guidelines of the

Bank. The fully documented Credit Memorandum (CM) will be placed to the Branch Credit

Committee by the In charge credit. Credit committee after thoroughly & critically

examining the proposal will recommend it to the Branch Manager who will approve credit

under his delegated authority. When the proposal falls beyond the power of the Branch

Manager, it will be sent by the branch Manager to the Regional Manager with his

recommendation. Regional Manager will get the proposal critically examined by the credit

officers and recommended by credit committee at Regional Office and will approve under

his delegation of business power, if the proposal is found approval worthy.

When the proposal falls beyond Regional Manager's power he will send it to Head Office,

Credit Division. Divisional Head, Credit will get credit and risk assessed by Credit officials.

The proposal being found acceptable will be placed to Head Office credit committee if the

proposal falls under the delegated authority of the Management. When the proposal will be

under the approval authority of the Executive Committee, the proposal, having been

assessed by the credit Officers/Executives will be placed to the EC, through Divisional

Head, Credit, DMD (credit) and the Managing Director, where the approval will be

accorded. If a proposal does not meet the basic lending criteria as per CRM guidelines and

banking norms, it will be declined and Credit Operations Division will inform the decision

to the branch accordingly. Head office Credit Operations Division will keep credit files

under proper control number and its use will be restricted to the authorized officials only.

83

Flow chart for approval Processor Loans & Advances

Credit Application processed by credit officers and recommended by. Credit In Charge of the branch.

Branch Credit Committee

Regional Officer

Regional Office Credit Committee

Regional Head

Head Office, Credit Division

Head Office Credit Committee

Deputy Managing Director (Credit)

Managing Director

Executive Committee (EC)

Branch Manager

San

ctio

n/ D

ecli

ne

San

ctio

n/ D

ecli

ne

San

ctio

n/ D

ecli

ne

84

MANDATORY CHECKING:

o Proposed Credit facilities are compliant of the existing banking regulations.

o CRG has been done.

o Other analysis and assessment has been done properly.

o Competent authority as per Bank's policy approves facilities in writing.

o All Credit approvals are given on a one-obligor basis.

o Limit is approved as per authority delegated in the rule book.

o Standard facilities are described using standard language.

o Large loans are approved within the ceiling advised by Bangladesh Bank.

o Fresh approvals, renewal, rescheduling, compromise agreement for large loan

accounts are placed for approval by the Board as per Bangladesh Bank Guidelines.

o Proposal incorporates that facilities are subject to banking regulation, which shall be

mentioned in the sanction letter also.

o Approval authorities check that pricing of the facilities are within the Bank's

declared band.

Appeal Process

Any declined credit will be represented to the next higher authority for re-assessment/

approval.

Credit Administration (For HO, Regional Office & Branch)

Credit Administration function will be critical in ensuring that proper documentation

and approvals are in place in respect of disbursement of loan facilities. Credit

Administration functions will comprise the following: -(Refer to Flow Chart as

Appendix-J)

Disbursement:

Before disbursement of the approved facilities, branch Credit Administration shall ensure

that the following steps have been properly followed:

85

a) Approval has been obtained.

b) Standard loan facility documentation including security documentation has been

completed.

c) Limit Creation & documentation Check List has been completed.

d) Credit officer & Credit Administration officer of the branch has jointly signed

documentation checklist before disbursement.

e) The approved terms and other requirements have been adhered to by the branch.

f) 0 Branch Credit Administration Unit/ (HO Credit Administration - if required)

issues security-compliance certificate and Loan Disbursement /Limit Loading

Checklist & Authorization Form before disbursement.

g) Branch Credit Administration Unit/ (HO Credit Administration - if required) check

collateral.

h) Bank's legal adviser ensures that the Bank's security interests are perfected.

i) Incomplete documentation receives a temporary waiver from approving authority.

j) Branch Credit Administration Unit/ HO Credit Administration ensure that all

disbursements are covered by approved credit lines.

k) Authorized officers as per our bank's policy disburse facilities.

l) Evidence of disbursements is properly documented.

m) Unauthorized approvals are surfaced and proper actions are taken.

n) Excess over limit are allowed under pre-fact credit approvals.

In order to administer credit in a proper manner under the present institutional & operational

set up, tasks of credit administration will be done in the following manner: -

1. A copy of sanction letter will be sent by the credit sanctioning

authority to HO Credit Administration Division / Branch and Regional Office (as the

case may be). Branch Credit Administration on receipt of the sanction letter will

complete full documentation and formalities as per terms of sanction and send a

compliance to HO credit administration with a copy to Regional office along with a

list of documents obtained. For exception of full documentation, branch will mention

in the compliance certificate about the documentation, which could not be completed

for genuine reasons and request credit administration for allowing them to disburse,

pending completion of those documents with specific mention about time within

which incomplete documentation will be completed.

86

2. Head office credit administration will examine the sufficiency

of the documentation. If documentation is found to have not been properly done, HO

credit administration will advise the branch to complete full documentation and

confirm and disburse credit after completion of documentation. Where branch seeks

permission for disbursement keeping some documents incomplete. HO, Credit

Administration Division if considers such exception acceptable, will issue

authorization to disburse with the condition to complete incomplete documentation

within specific time limit.

3. Branch credit administration will keep the documents under

their strict control preferably in locked fire proof storage and will ensure that all the

terms of approval has been complied where against drawing will be allowed.

Custodian

a) Obtaining Security Documentation as per approval

b) Safely Storing Loan/Security Documents Cash collateral such as Fixed Deposit

Receipt, Script, Bonds, Marketable Securities etc. are under dual control in fireproof

vault and for this purpose two custodians and their alternates are to be identified in

writing.

c) Periodic Review of Documentation

d) Ensuring insurance of the insurable objects.

e) Ensuring maintenance of Safe in & safe out register properly to track their

movement,

f) Releasing of collateral of debt obligation instruments under appropriate approval.

g) Ensuring keeping current Insurance policy in the vault and renewal of the policy on

a timely basis.

* Periodically Means: Risk Grade Review Frequency

> 6 Quarterly

4-5 Semi-annuals

1-3 Annually

Compliance requirements of credit administration:

a) Credit administration shall submit all required Bangladesh Bank returns on credit in

specific format in a timely manner.

b) Credit Administration Division shall maintain Bangladesh Bank circulars/

regulations/guidelines relating to credit centrally, ensure issuance of corresponding

87

circulars and advise all relevant departments to ensure compliance of the contents of

the circular.

c) All 3rd party service providers like, valuers, lawyers, CPA's etc shall be approved

and their performance reviewed on annual basis.

Credit Monitoring

To minimize credit losses, monitoring procedures and system should be reinforced and

more effective system should be developed in view of varied complexities involved in

various types of credit. The procedures and system must provide early indication of

deteriorating financial health of a borrower.

At a minimum, report on the following to be generated and submitted to management and

instruct the branch to regularize the same.

a) Overdue principal & interest (Monthly)

b) Overdue trade bills (Monthly)

c) Excess over limit/ Excess over facility approved (Monthly). Status reports on Excess

over Limit and expired credit limit on a regular basis.

d) Status reports on drawing power and Collateral shortfall on a regular basis.

e) Breach of loan covenants/ terms and conditions/Documentations deficiencies

(Fortnightly)

f) Non payment and late payment

g) Branch monitors OD/CC facilities on a regular basis to ensure accounts turn over.

h) Non-Receipt of Financial Statements in time (Annually)

i) Objections of internal/external or regulator Inspection/ Audit and advise corrective

measures timely,

j) Details of Early Alert Accounts and preparation of list of delinquent account &

Special Mention Account (SMA). (Monthly)

k) Identification of early alert accounts, delinquent account & Special mention

account (Monthly)

l) Identification of the accounts, which have assumed SMA status due to non-renewal.

(Monthly)

m) Listing of the accounts, which shall be SMA if not renewed with in 2 months and

taking necessary measures. (Monthly)

88

n) Status of timely renewal of limits and informing Branch, regional Office & Credit

Division, Head Office 2 months ahead of expiry limit dates.

Early Alert Process:

An account that has risks or potential weakness of material nature, requiring monitoring,

supervision or close attention by the Management will be brought under Early Alert

Process; otherwise these weaknesses will result in deterioration of repayment prospects for

the assets or in the bank's credit position at future date.

In order to keep an account on track, early Identification, prompt reporting and pro-active

management of Early Alert Accounts will be placed under the responsibility of dealing

credit officials and must be undertaken on a continuous basis. An Early Alert Report shall

be completed by the Branch credit officers and sent to the HO Credit Administration for any

account showing signs of deterioration within 7 days from the identification of weakness.

Early Identification and prompt reporting of deteriorating credit sign to be done to ensure

quick action to protect banks interest. When an account will show breach of loan covenants

or adverse market rumors an Early Alert report should be raised. An Early Alert Account,

when shows that the symptoms causing Early Alert classification have been regularized, the

account will be reclassified as a Regular account under the approval of Credit

Administration.

As part of Early Alert Process the following takes will be performed:

I. Control mechanism to be made more effective and where required to be devised, to

ensure that calls/inspections are made regularly on the clients and documented.

II. Regular inspections will be conducted to confirm that bank's security / collateral is

secured.

III. Call /Early Alert Reports to be analyzed by branch & Head office credit

administration to ensure that affairs of the borrower are being run on expected lines

and there are no material changes in the status of borrower,

IV. Relationship Manager/ credit officer shall regularly monitor the performance of the

clients business as well as repayment and shall prepare status report,

V. Relationship Manager/ credit officer shall prepare Early Alert Report with in days

after identification of weakness and signs or deterioration.

89

Credit Recovery:

Recovery Unit (RU) will directly manage accounts with the status of Sub-standard /DF/BL.

Exit accounts graded 4-5 may also be transferred to RU for efficient exit, based on

recommendation of In-charge credit

Recovery Unit (RU) shall: -

a) Determine Account Action plan/ Recovery strategy.

b) Make all out efforts to maximize recovery including placing customers into

receivership or liquidation as appropriate.

c) Provide for adequate and timely loan loss provision, based on actual and expected

losses.

d) Reschedule accounts as per norms.

e) Review classified accounts.

f) Initiate legal action as per norms.

g) Follow up Court cases regularly and ensure that necessary steps are taken for early

resolution.

6.2 A practical case related to credit appraisal process of lease finance:

6.2.1) Lease Application Form

The Manager

National Bank Limited

Muradpur Branch

Chittagong

Sub: Application for Lease Financing facility of Tk 12,50,000/- for procurement of Vehicle.

Dear Sir,

I / we intend to avail of Lease Finance facility from National Bank Ltd. ,Muradpur Branch, Chittagong. I / we

furnish the following particulars and bind myself/ourselves to furnish you with any other information and

comply with the required formalities which you may need any time.

Photo

90

A. General Information

1. Name of the applicant M/S.Rehab Steel Prop: Md.Azhar Uddin---------------------

2. Name of the Group (if any)

------------------------------------------------------------------------------------------------------+

3. Business Address Janata Iron Market, Sagorica Road, P.S-Pahartali, chittagong----------

------------------------------------------------------------------------------------------

------------

Telephone No. ----------------------------------------------Mobile no.

01815632724,01678063450

Fax No. ----------------------------- E-mail-------------------------------------------------------------

4. Permanent Address Bhatiary (Hajee Badshah Meah Bari),P.S-Sitakunda, Chittagong---------

------------------------------------------------------------------------------------------

-----------

5. Factory Address

----------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------

---------

6. Legal Status (tick mark) 1) Individual 2) Ö Proprietorship 3) Partnership

4) Private Limited. 5) Public Limited. 6) Others

7. Date of establish /Date of incorporation / Date of commencement of business -2005---

8. Nature of Business Seller of Scrap items( MS Malting Scrap & MS Plate)

Proposal

1. Lease Finance amount required for Tk.12,50,000/--------------------------------------------

2. Period (in months ) (Tick mark) 1) 24 2) 36 3) Ö 48 4) 60 5) Others

3. Purpose Ö 1. Vehicle 2. Capital Machinery 3. Medical Instruments

4. Equipment 5. Consumer Durable 6. Others

4. Description of the Equipment/ Vehicles (Tick Mark)

Ö 1. Quotation (attach) 2. Pro forma invoice (attach)

91

3. For sale and lease back arrangement (Original Documents)

a) LC Copy b) Bill of Lading c) Bill of Entry

d) Country of Origin e)Comm. Invoice f) Packing list.

C. Company information (if the applicant is a company /firm)

01. In case of Proprietor firm/ Partnership firm/ Limited Company:

A. Name of Company / Firm: M/S.Rehab Steel

B. (Memorandum and Articles of Association alongwith Certificate of Incorporation and copy of

registered partnership deed are to be attached)

C. (1) Office address with phone no/ Fax / Email: Janata Iron Market, Sagorica Road,

P.S- Pahartali,Chittagong

D.

………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

…………………

(2)Registered address:

…………………………………………………………………………………………..

Contact person/Phone/ Designation: Md.Azhar Uddin......

No. of employee : 03 (Three)

E Mill/Factory address with phone no.:

F. Share capital :

(i) Authorised Capital : Tk. ................................. divided into ...................... shares of Tk. .............

each

(ii) Paid up Capital :

Tk............................................................................................................................

G. Trade License no 42714.......................... Date..18.09.2007................... Validity 30.06.08.

H. TIN : 346-107-5121 ..... IRC /VAT Regd. no., if any .........................................

……………….

92

I. Particulars of Directors/Partners/Proprietor

Name Position /

Status

Relationship

with MD/

Chairman

Age Residential Address and

Permanent Address with

Telephone number

Shareholding Net

worth as

on……

(as per

enclosed

statement

)

Amount %

Md.Azhar Uddin Proprietor

36

years

Chemon Ara House,Near

Bahutala Colony,Agrabad

C/A , Chittagong

Permament Address:

Bhatiry, P.S-Sitakunda

Chittgong

100%

191.12 lac

(If required the particulars of directors/ partner/ proprietor may be furnished in separate sheet.)

(J) Educational qualification and business experience of Proprietor/all Partners/all the Directors and

Share Holders: -(As per enclosed Annexure) S.S.C , 08 years

02. In case of Individual :

Name : .......................................................................................……...........................

Father's / Husband's Name : ..............................................................................................................

Mother's Name : .................................................................................................................

Date of Birth : ..................................................................................................................

Marital Status : ..................................................... Sex: ...................................................

Residential Address : .................................................................................................................

93

Permanent Address : .................................................................................................................

: Occupation : .............................................. Monthly Income

Passport no. (if any) : ...................... Issued on: ...................... Issued by..................................

Income from other source : Source ..................................... Monthly Income : .................................

Monthly expense :……………................... Monthly net income: .............................…….

Telephone : Office: .............................. Residence : ............................ Mobile: ...............................

Fax……………………………………Email………………………………………………………..

Trade License no....…......................... Date............................... Validity ........................................

TIN : ................…….................. IRC /VAT Regd. no., if any ...........................................

Net worth as on …………….………………………………….……….. (as per enclosed statement)

D. Bank Information (maintaining the day to day transaction)

Name of the Bank:-National Bank Ltd.------------ Branch : Pahartali, Chittagong----

Type of account (tick mark) 1) Current Deposit 2) Savings Deposit 3) Others

Account number and date of opening:..CD 33007131 DT-02.02.2006 .,CC-37000446 DT 31.12.06

Last 3 years transaction record

Year No. of transactions Dr. Sum Cr. Sum.

2007(cc –h) 2,31,84,940.00 2,23,96,766.00

E. Brief description of existing business

Line of business: Whole seller of Scrap Iron.

Name of the product:…………………………………………………………………………………….

94

Market details:…………………………………................……………………………………………..

…………………………………………………………………………………………………….

Others………………………………………………………………………………………………………….

…………………………………………………………………………………………………………….

F. (i) Financial Performance of the Firm/Company for last 3 years:

Particulars Year-1 Year-2 Year-3

Sales 2,98,50,500.00 4,26,00,373.00

Net Profit after Tax 17,84,600.00 22,97,176.00

(ii) Financial Performance of the sister concerns for last 3 years:

Particulars Year-1 Year-2 Year-3

Sales N/a

Net Profit after Tax

G. Description of Equipment proposed under this Lease (Pls. attach Indent/

Quotation/ Proforma Invoice)

Description of equipment with country of

origin and year of manufacturing

No. of

Unit

Unit Price

Tk.

Total Price Remarks

In FC In Taka

Totoyota Hiace ,Super GL Microbus 01 17,50,000/- 17,50,000/-

H. Name and Address of Supplier and mode of delivery

Name and Address of supplier Delivery Schedule Mode of Delivery Remarks

MAXIM car Centre 1 day after confirmed

order

( Details in separate sheet may be furnished, if necessary)

95

I. Place of installation of Equipment/Capital Machinery:…………….

………………..

…………………………………………………………………………

J. Procurement cost of Equipment

C&F Cost/Procurement Cost Tk. 17,50,000/-..................................

(as per quotation / Indent / Proforma Invoice)

Less: Down Payment, if any Tk. ..............................................

Sub Total Tk.17,50,000/-........................................

Add: Duty / VAT / Other Cost etc. Tk. ..............................................

Total Procurement Cost Tk.17,50,000/-.......................

Acquisition Cost/Lease Finance Tk.12,50,000/-.

J. Expected Date of Lease Execution/ Disbursement :

K. ..............................………………

L. Financial projection from Lease Asset :

Particulars Year-1 Year-2 Year-3 Year-4 Year-5

N/A

M. Particulars of guarantor (s), if any :

Name, Father's/ Husband's

Name and Mother's

Residential and

Permanent Address

Age Profession Net worth Relationship

with Applicant

Md.Bazlur Rahman

Father’s Name :Hajee

Badshah Meah

Mother’s Name :Nurjahan

Begum

Bhatiary, Sitakunda,

Chittagong

---do---

38 yrs Business 147.91 Lac Brother

96

(Details of Guarantor (s) to be furnished in separate sheet in above format along with Net worth Statement)

N. Description and Type of security offered by the Applicant

Full Description of Securities Owner Value of Security Remarks

O. Liability Position of the Applicant with National Bank Ltd., all branches (Both

funded & non funded) as on 31.12.2007

Name of the

branch

Nature of

Limit

Amount of

Limit

Validity of

Limit

Outstanding

(in crore)

Type and

Value of

Collateral

Securities

Annual

Turn

Over (in

crore)

Overdue

Status as on..

Classifi

cation

StatusAmt. Period

NBL,Pahart

ali, branch,

Chittagong

CC(H) 30.00 lac 31.12.2008 7.88 lac 88.82 lac 223.97

lac

Uc

(If required the liability position may be furnished in separate sheet.)

P. Liability Position of the sister concern / Group of the Applicant with National

Bank Ltd., (Both funded & non funded) as on 10.06.2008

Name of the

branch

Nature of

Limit

Amount of

Limit

Validity

of Limit

Outstanding

(in crore)

Type and

Value of

Collateral

Securities

Annual

Turn

Over (in

crore)

Overdue

Status as on…

Classifi

cation

StatusAmt. Period

N/A

(If required the liability position may be furnished in separate sheet.)

97

Q. Liability position of the Applicant and its sister concern/Group with other

banks (Both funded & non funded) …10.06.2008…

Name of the

borrowing Concern /

Group

Name of Bank

Branch

Nature of Limit Amount of

Limit

Validity of

Limit

Outstandi

ng in

crore

Overdue

Status as on…

Classific

ation

StatusAmt. Period

N/A

(Details of liabilities of the Applicant with other Branches of National Bank Ltd. be enclosed in above format.)

R. Details of Financial Commitment with other Leasing Companies / Bank under Lease Finance as on 10.06.2008…

Name of the Leasing

Company/ Bank

Type of Asset

Leased

Lease

Amount, Tk.

Outstanding,

Tk.

Lease

Term

Date of

Expiry

Overdue

Status as on

Amoun

t of

monthl

y rental

Amt. Period

NIL

I/We do hereby declare that the particulars furnished above are true and correct to the best of my/our

knowledge. I/We authorise you to obtain and / or verify information from any source regarding my/our credit

worthiness.

Yours faithfully,

(Seal & Signature of the Applicant)

Name:

98

6.2.2) Limit proposal and approval form:

National Bank Ltd.

Muradpur Branch

Chittagong

LEASE PROPOSAL FORM

Reference No.AHU/MRD/LEASE-01 Date 11.06.2008

Sub: Application for Lease Financing facility of Tk 12,50,000.00…. for procurement

of Capital Machinery/ Equipment / Consumer durable / Medical instrument /

Vehicles etc.

CRG Information: (a) Risk Grading:

(b) Aggregate Score:80

(Pls. attach evaluation sheet)

01. Particulars of the client

a) Name of the Account : M/S Rehab Steel..

b) Address :

i) Business/Show room/shop : Janata Iron Market, Sagoriza Road,

P.S-Pahartali, chittagong.

………………………………...

Phone ........................................................

ii) Office : …………………………………………...

…………………………………………...

Phone No. ……………………………...

iii) Factory : ………………………………………………

……………………………………………..

Phone No. ………………………………...

99

c) Account No. & date of Account

opening

: CD-713, Date: 02.02.06 & CC-37000446,

Date:31.12.06 Maximum Balance : Tk.5.08

lac. Minimum Balance Tk. .01 lac

Average Balance Tk. 8.10 lac Dr.

Summation : 231.85 lac Cr.

Summation :223.97 lac (During last one

year).

d) Sanction status of Lease : Fresh

e) Legal Status :

f) Date of Incorporation/Establishment : 2005

g) Date of Commencement of business :

h) TIN : 346-107-5121

i) Nature of Business : Whole seller and retailer of Scrap Iron

j) Net worth of business (calculation

to be enclosed)

: TK.98,85,574.00

k) Market/Place of business/area of

operation / name of major buyer

etc.

: Throughout Bangladesh.

l) History of relationship with the customer (How & when the relationship started/state if repayment and adjustment have been regular)

: The Party has been banking with our NBL, Pahartali branch, chittagong with full of satisfaction since 02.02.2006 and also availing CC (H) facility of Tk.30.00 lac since 31.12.2006.

m) Purpose of Lease : For private use

n) Capital Structure (For Ltd.

Company)

:

i) Authorized Capital : Tk……………….

ii) Paid up capital : Tk………………

iii) Total capital Funds(Paid-up Capital + Retained Earnings + reserves + Others)

:

o) Investment in business (For

Individual & Firm)

: TK.98,85,574.00

100

02. Name of individual borrower/ Proprietor /

Partners / Directors

:

Name Father’s Name,

Mother’s Name,

Husband’s Name

Address Age

(years)

Share

%

Status Net worth

as on……

(as per

enclosed

statement)

Permanent

Phone No.

Present

(Residential)

Phone No.

Md.Azhar

Uddin .

Hajee Badshah

Meah. &

Nurjahan Begum

Bahtiary,P.S-

Sitakunda ,

Chittagong

Chemon ara

House,Near

bahutala

colony ,Agrab

ad,

Chittagong

36

years

100% propri

etor

183.24

lAC

03. Date of application submitted by the customer: 10.06.2008

04. Place of installation of Equipment/Capital Machinery:

05. Procurement cost of Machinery/ Equipment:

(Pls. verify price competitiveness)

C&F Cost/Procurement Cost Tk. 17,50,000.00.............................................

(as per quotation / Indent / Proforma Invoice)

Less: Down Payment, if any Tk. ..............................................

Sub Total Tk.17,50,000.00 ..............................................

Add: Duty / VAT / Other Cost etc. Tk. ..............................................

Total Procurement Cost Tk. 17,50,000.00....................

Lease Finance Tk.12,50,000.00 .........................................

06. Particulars of the Guarantor (where applicable) :

(i) Guarantor’s Name : Md.Bazlur Rahman

(ii) Address :

a) Permanent : Bhatiary, P.S-Sitakunda, Chittagong

101

b) Present (Residential) : Bhatiary, (Badshah Meah Bari),

Sitakunda , Chittagong

(iii) Relationship of the Guarantor with the

applicant

: Brother

(iv) Guarantor’s back ground : Prop of M/S .Earfan Steel ,

(v) Net worth of the Guarantor : (Pls. attach net-worth statement)

07. Liability Position of the Applicant with National Bank Ltd., all branches (Both

funded & non funded) as on 04.06.2008

Name of the

branch

Nature of

Limit

Amount of

Limit

Validity of

Limit

Outstanding

(in crore)

Type and

Value of

Collateral

Securities

Annual

Turn

Over (in

crore)

Overdue

Status as on…

Classifi

cation

StatusAmt. Period

NBL ,PAH

ARTALI

BR., CTG

CC (H) 30.00 LAC 31.12.2008 29,49,787.00 Reg mort of

30.83 dec

land valuing

88.82 lac

2,23,96,7

66.00 as

on

31.12.07

N/A uc

(If required the liability position may be furnished in separate sheet.)

08. Liability Position of the sister concern / Group of the Applicant with National Bank Ltd., (Both funded & non funded) as on

Name of the

branch

Nature of

Limit

Amount of

Limit

Validity

of Limit

Outstanding

(in crore)

Type and

Value of

Collateral

Securities

Annual

Turn

Over (in

crore)

Overdue

Status as on….

Classifi

cation

StatusAmt. Period

N/A

(If required the liability position may be furnished in separate sheet.)

102

09. Liability position of the Applicant and its sister concern/Group with other banks

and financial institution (Both funded & non funded)……………

Name of the

borrowing Concern /

Group

Name of Bank

Branch

Nature of Limit Amount of

Limit

Validity of

Limit

Outstandi

ng in

crore

Overdue

Status as on….

Classific

ation

StatusAmt. Period

N/A

(Details of liabilities of the Applicant with other Branches of National Bank Ltd. be enclosed in above format.)

10. CIB report (Applicant and Guarantor): CIB enclosed received date 08.05.2008

11. Securities (Details to be mentioned separately for each limit) :

i) Primary security : Ownership of Leased Assets

…48 nos. post dated cheques.

ii) Collaterals (Valuation certificate with

mention of forced sale value to be

enclosed as per Head Office circular

letter no. …………….. dated

………….. )

:

iii) Other securities (if any) :

12. Opinion on Customer’s Management

(Education, Training background and

past experience of key management

personnel to be mentioned)

: The party is now well established

business man and tested and trusted

customer of our NBL, pahartali branch,

Chittagong.

103

13. Factory/ site visit report ( Pls. enclose separate sheet if necessary) :

14. Existing Production details :

Item of

production

Rated Capacity (at 100%) Attainable/Attained Capacity

(at………%)

Quantity Taka Quantity Taka

15.Turnover of the account(s) during last 3-years:

Nature of

Advance

Year Dr.

Summ

Cr.

Summ.

Balance Adjustment

in time

Recycling

in timeMaximum Minimum

CC (H) 2007 231.85

lac

223.97 lac 20.22 lac 00 05 23

Cc (H) 2008 211.73

lac

182.24 lac 29.97 lac 2.08 lac - -.

16. Performance of the client/allied concern(s) (Last 3 years) with our Bank/Other Bank(s):

Import (Our Bank) :

Name of

Account

Year L/C Opened Documents retired Outstanding Remarks

No. Amount No. Amount No. Amount

N/A

Import (Other Banks) :

Name of Account Year L/C Opened Remarks

No. Amount

N/A

104

Export (Our Bank) :

Name of

Account

Year Export made Proceeds

Realized

Proceeds yet to be

realized

Remarks

N/A

Export (Other Banks) :

Name of Account Year Export made Remarks

N/A

Others (if any) :

17. Earnings from the client/allied concerns (during last 3 years) by our bank :

Name of Account Year Interest Commission Others Total

NBL,Pahartali 2007 93,821/- 93,821/-

Ctg.

do 2008 70,943/- 70,943/-

18. a) Competitive position of the customer :

(Pricing/Marketing/Special Advantage etc.)

b) How others in the same business are doing – Name of 2/3 leading companies:

19. Any adverse comments from last Inspection/Audit Report : (Our Bank and Bangladesh

Bank): N/A

20. a) Financial Statement of the Customer for the last three years

(State whether audited/unaudited and the name of the audit firm)

SALES & PROFITABILITY (For last 3 years)

Year Year Year

Sales :Cost of goods sold :

GROSS PROFIT :Selling General, Admn.

Financial expense & Depreciation

:

105

OPERATING PROFIT/LOSS

Add Other Incomes :

Less Income Tax :

NET PROFIT / LOSS

Before Income Tax :

Net Profit/Loss after Income Tax :

ASSETS & LIABILITIES

Cash in hand/at Bank :

Inventory/Stocks :

Receivables :

Others Current Assets :

TOTAL CURRENT ASSETS

Non Current Assets :

Fixed Assets :

TOTAL ASSETS

Cash Credit/Overdrafts :

Trade Payables :

Other Current Liabilities :

TOTAL CURRENT

LIABILITIES

Non Current Liabilities :

TOTAL LIABILITIES :

Equity

(Total Assets – Total Liabilities)

:

106

b) CASH FLOW FROM OPERATING ACTIVITIES

Net Profit/Net Loss :

Plus Depreciation :

Minus Dividend Paid :

Accounts Payable Increase/Decrease :

Inventory Increase/Decrease :

+/- Other Non Cash Adjustment :

NET OPERATING CASH FLOW

:

c) IMPORTANT RATIO:

Current Ratio : Current Asset :

Current Liabilities

Quick Ratio : Current Asset-Inventory :

Current Liabilities CRG ENCLOSED

Leverage : Total Liabilities :

Equity

Debt to Assets : Total Liabilities :

Total Assets

Gross Profit to

sales

: Gross Profit X 100 :

Net Sales

Net Profit to sales

: Net Profit X 100 :

Net Sales

107

Return on Equity : Net Profit X 100 :

Equity

Debt Service : Net Profit + Depreciation +Interest paid :

Coverage Ratio Interest Paid + 12 months Principal Payment

d) Comments on Financial Statements :

(Enclose Financial Statement preferably audited of the Company/Firm for the last

three years)

e) Comments on cash flow :

21. Financial projection from proposed Lease Asset under Lease Finance:

Particulars Year-1 Year-2 Year-3

Proposed Sales /Turnover

Proposed Net Profit after Tax

22. OTHER INFORMATION (IF ANY) :

23. BRANCH COMMENTS / RECOMMENDATION :

a) Comments / Recommendation :

Mr. Md. Azhar Uddin owner of M/S Rehab Steel is extremely hospitable and with a

scale of aristocracy in personal life. He is well known to us as well as in the market who

is a man of commitment. He has gathered huge knowledge in the line of trading and

Scrap Business. As a very much tested party he has been banking with our Pahartali

Branch with satisfactory transactions and adjustment of liability regularly in his loan

account. M/S Rehab Steel is a growing and prospective firm. We may able to procure

more business from them and other customers of their association in the days to come if

we can accommodate them. In view of the above and considering the party’s past good

track record, business worthiness, repayment capacity, commitment, experience , we

recommend for sanction of Tk.12.50 lac as Lease Finance Facility with validity up to

31.07.2012.

108

(b) Basic Terms & Condition of Lease:

i. Lease Amount : 12,50,000.00

ii. Lease Period : ……48. months from the date of

execution.

iii. Application Fee : Tk. 500.00 (already realized)

iv. Service Charge : Tk. 3,000/-

v. Commitment Charge : 1% lease Amount

vi. Risk Fund : 1% lease Amount

vii. Supervision & Monitoring Fee : 1% lease Amount

viii. Rate of interest for determining

Lease Rental :

15%

………………%

ix. Lease Deposit : 2 (Two) Lease Rentals

x. Lease Margin / Down Payment : 29 %

xi. Expected date of

disbursement

: 02.07.2008

xii. Others if any :

N/A

24. DECLARATION :

a) All procedures in respect of opening of Account have been complied

with

Yes/No

b) All necessary documents establishing the borrower’s legal entity

have been obtained

Yes/No

c) Generate sufficient cash flow to pay lease rentals on regular basis. Yes/No

d) Existing securities/Banking documentations and collaterals with their

valuation have been checked and they are in order

Yes/No

e) Documents establishing that proposed facility is within authorization

and borrowing powers of the applicant have been obtained

Yes/No

f) All assets offered as security/collateral have been verified to be free

from all encumbrances & acquisition.

Yes/No

g) Security documents as prescribed have been obtained/will be

obtained along with complete set of borrowing documents before

disbursements.

Yes/No

109

h) The customer is a Director/Shareholder of our bank, if yes, the extent

of share holding (value Tk………..)

Yes/No

i) The customer is a Director/share holder of other banks (If yes,

mention the name of the Bank).

Yes/No

j) The customer has got no classified liability in it’s name/in the name

of the Proprietor / Partners / Directors of the company and/or in the

name of the allied concerns in which the subject company/the above

persons have interest.

Yes/No

k) Up-to-date CIB report (date 30.04.08.) obtained / collection under

process.

Yes/No

Signature of Other Official

(Executive / Officer)

Name : MD .JAMAL UDDIN CHY.

Designation : SR.PRINCIPAL OFFICER

Signature of Manager

(Head of the Branch)

Name :ASM HELAL UDDIN

Designation : MANAGER

6.2.3 Net worth calculation (Individual)

Personal Net- worth Statement as on 31.12.2007

The Manager

National Bank Limited

Muradpur Branch Date:10.06.2008..

Chittagong...

Dear Sir,

I do hereby furnish the under noted particulars of my assets and liabilities and information.

The information furnished below are correct to the best of my knowledge.

1. Name Md.Azhar Uddin.............................…………………..

2. Father's Name / Husband's Name : .Hajee Mohammed Badshah Meah

110

3. Mother's Name : Nurjahan Begum..........

4. Residential Address :Chemon Ara Vila, Near bahutala colony,

Agrabad C/A, Chittagong

5. Permanent Address : Bhatiary, Badshah Meah’s House, P.S-Sitakunda

Chittagong

6. Telephone: Office .......................... Residence : ............................

Mobile: 01815632724,01678063450

7.a) TIN no.346-107-5121 : ....................................................……………………………………….

7.b) Occupation : seller of scrap iron........... Monthly Income :2,00,000/-..........................

7.c) Income from other source : Source .................................................... Monthly Income :

Monthly expenditure:…Tk.25,000/-

8. Description of the properties and Assets :

8.(a) Land & Building (Unencumbered):

Location & Particulars of

the Property

Area of Land/

Covered area (in

case of Building)

Ownership Market Value of

Land/Building

Total Tk =

8.(b) Land & Building (Encumbered):

Location & Particulars

of the Property

Area of Land/

Covered area (in

case of Building)

Ownership Market Value

of

Land/Building

Mortgaged

amount

(credit limit)

Mortgage

with ...................

...... (name of

Bank with

branch)

Mouza- Dakkin Jangle

Sonaichari,

5.17 dec. 10.34 lac Tk.30.00 lac NBL,Pahartali

Branch, Ctg.

111

PS-Sitakunda, Ctg.

Mouza- Bhatiary,

PS-Sitakunda, Ctg.

8.00 dec. 16.00 lac Do DO

Mouza- Bhatiary,

PS-Sitakunda, Ctg.

2.00 dec. 4.00 lac Do DO

Mouza- Bhatiary,

PS-Sitakunda, Ctg.

15.66 dec. 58.48 lac DO DO

8.(c) Investments details as on .31.12.2007..........

Name of the Concern &

address

Associated as

(Status)

Nature of Business Amount of investment

M/s Rehab Steel

Janata Iron Market,Sagoica

Road,P.S-Pahartali,

Chittagong

Proprietor Seller of Scrap iron 98,85,574.00

8.(d) Cash and Bank balances as on date

i) with National Bank Ltd.

Tk.70,000/-....................................

ii) with other Bank Tk..2,74,000/-..........

8.(e) Other Assets, if any

Tk................................................

9. Total Assets 8(a) + 8(b) + 8(c) + 8(d)+8(e) Tk=1,91,12,000/-....

112

10. Details of Liabilities

10.(a) Borrowing from Banks as on 31.12.2007..........

Name of the Bank

with Branch

Nature of

Loan

Limit sanctioned Present

outstanding

Expiry of

limit

Classification

status

National Bank limited

CC (H) 30.00 lac 7,88,174.00 31.12.2008 uc

Total Tk =30.00 lac 7,88,174.00

10.(b) Other liabilities, if any Tk .............................................

11. Total Liabilities 10(a) + 10(b) Tk. 7,88,174/-.......................

12. Net Worth (9 - 11)

Tk.1,83,24,000/- .......................................................

I authorise you to obtain any information and / or verify any information from any source

you require regarding my credit worthiness.

Yours faithfully,

(Signature of the Customer)

Name:

Date:10.06.2008

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6.2.4 ) Net worth calculation (Guarantor):

Personal Net- worth Statement as on 31.12.2007

The Manager

National Bank Limited

Muradpur Branch Date:26.06.2008..

Chittagong...

Dear Sir,

I do hereby furnish the under noted particulars of my assets and liabilities and information.

The information furnished below are correct to the best of my knowledge.

1. Name Md.Bazlur Rahman.............................…………………..

2. Father's Name / Husband's Name : .Hajee Mohammed Badshah Meah

3. Mother's Name : Nurjahan Begum..........

4. Residential Address : Bhatiary, Badshah Meah’s House, P.S-Sitakunda

Chittagong

5. Permanent Address : Bhatiary, Badshah Meah’s House, P.S-Sitakunda

Chittagong

6. Telephone: Office .......................... Residence : ..........................

Mobile: 01819611339,

7.a) TIN no.346-106-2655 : .............................................................……………………………….

7.b) Occupation : seller of scrap iron........... Monthly Income :2,20,000/-..........................

7.c) Income from other source : Source ........................................... Monthly Income : ...........................

Monthly expenditure:…Tk.20,000/-

114

8. Description of the properties and Assets :

8.(a) Land & Building (Unencumbered):

Location & Particulars of

the Property

Area of Land/

Covered area (in

case of Building)

Ownership Market Value of

Land/Building

Total Tk =

8.(b) Land & Building (Encumbered):

Schedule of Land &

Building

Area of

land

Description of

building /

structure

Value Name of

MortgageeLand Structure Total

Mouza-Bhatiary, PS-

Sitakunda, Ctg

18.00

Dec.

Residential land 27.00 lac - 27.00 lac NBL,

Pahartali

Br.

Mouza-Bhatiary, PS-

Sitakunda, Ctg

12

Dec.

Agricultural

land

24.00 lac - 24.00 lac -Do-

Mouza-Bhatiary, PS-

Sitakunda, Ctg

4 dec. -Do- 8.00 lac - 8.00 lac -Do-

Mouza-Bhatiary, PS-

Sitakunda, Ctg

2.50

dec.

-Do- 5.00 lac - 5.00 lac -Do-

Mouza-Dakkin Jangal,

Sonaichari, PS-

Sitakunda, Ctg

2.50

dec.

-Do- 5.00 lac - 5.00 lac -Do-

115

8.(c) Investments details as on .3112.2007

Name of the Concern &

address

Associated as

(Status)

Nature of Business Amount of investment

M/S.Earfan Steel,Tulatali

Road, Fouzderhat Station.

Bhatiary, Sitakunda,

Chittagong

Proprietor Seller of Scrap iron 1,19,70,926.00

8.(d) Cash and Bank balances as on date

i) with National Bank Ltd. Tk.20,000/-.................................

ii) with other Bank Tk..1,35,000/-..........

8.(e) Other Assets, if any Tk..............................................

9. Total Assets 8(a) + 8(b) + 8(c) + 8(d)+8(e) Tk=1,90,25,926/-

10. Details of Liabilities

10.(a) Borrowing from Banks as on 31.12.07.

Name of the Bank

with Branch

Nature of

Loan

Limit sanctioned Present

outstanding

Expiry of

limit

Classification

status

M/s Earfan Steel

National Bank limited

Pahartali Br, ctg.

Md Bazlur rahman

Standered Chartered

Bank

CC (H)

STD

45.00 lac

10.00

40,84,926/-

6.,50,000/-

30.06.08

30.06.2009

Uc

Uc

Total 55.00 lac 47,34,926/-

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10.(b) Other liabilities, if any Tk .............................................

11. Total Liabilities 10(a) + 10(b) Tk.47,34,926.00 ...................

12. Net Worth (9 - 11) Tk.

1,42,91,000/-...............................................

I authorise you to obtain any information and / or verify any information from any source

you require regarding my credit worthiness.

Yours faithfully,

(Signature of the Customer)

Name:

Date:26.06.2008

6.2.5 Check List:

Check List:

1) Lease Application form duly filled in.

2) Information and papers relating to:-

a) For machinery / Equipment: (i) Competitive quotations/

Invoice for proposed Machinery/ Equipment (imported/ local) along with

copy of supporting literature / catalogue. Quotation(s) of party's desired

Machinery / Equipment must be marked "Accepted" with signature of the

Applicant. (ii) Production capacity of the machinery etc.

b) For Vehicle / Lift / Generator / Air Condition etc.:

Competitive quotations along with copy of supporting literature/catalogue.

Quotation(s) of party's desired items must be marked "Accepted" with his

signature of the applicant.

117

3) Detailed break-up of personal Net worth of each individual / proprietor/

Partner/Director of the Company / Firm as per prescribed format.

4) 2 (Two) copies of Passport Size recent photograph of the Directors /Individual/

Partner/ Proprietor.

5) Certified copy of Memorandum and Article of Association along with Certificate of

Incorporation.

6) Certified copy of Commencement of business (in case of Co.)

7) Certified copy of Annual Return statements to Registrar of Joint Stock Company.

8) Board resolution to avail Lease Financing facility and also execute documents.

9) Copy of Trade License, TIN certificate, IRC duly attested by the promoters /

Directors.

10) Financial Statements (Balance sheet, Income statement, Cash flow Statement -

Preferably audited) for the last consecutive three years.

[

11) Projected Financial statements as well as cash flow statement.

12) Original Title Deed for property offered as security along with the following

documents

a) Bia deed

b) Non encumbrance certificate.

c) Certified copy of CS, RS & SA Khatian.

d) Original copy of Mutation order and certified copy of

Mutation Khatian.

e) Original copy of Up-to-date rent receipt.

13) Copy of Bank Statement duly attested by the MD/Chairman.

14) Government permission for setting up of the Industry.

15) Industry profile mentioning therein industry growth, competitive pressure (i.e. list of

competitors and their performance, barriers to prevent new competitors to enter this

industry), Competitive position (i.e. company rank in industry in terms of market

share) and strength & weakness of the company in comparison to its competitors.

16) Feasibility report of the project.

17) If the project is located / to be located in rented premises, copy of Lease Agreement

be furnished.

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18) Other relevant information / documents, if necessary.

6.2.6) CIB Report:

Inquiry Form: CIB - 1A (For Individual/ Institution)

Amount of loan applied for:

In figure: 15,00,000/-

In words: Fifteen LAC ONLY.

1. Name of the Bank/ Financial Institution: NATIONAL BANK LIMITED,

2. Name of Branch : Muradpur Branch

3. Under district of : Chittagong. Branch Code

4. Reference Nos of branch : Date :

5. Reference Nos. of Head Office : Date :

6. Borrower code :

( If available) :

7. Name of the borrower in full : M/S REHAB STEEL

8. Abbreviated Name :

9. Father’s Name ( In case of Individual) : N/A

10. Mother’s Name ( In case of Individual) : N/A

11. Husband’s name ( In case of Individual) : N/A

12. Address :

a) Permanent : .

b) Present : -

c) Business :

d) Factory :

13. Tele Phone No :

14. TIN :

15. Individual ID No.

119

To the best of our knowledge the above borrower obtained the credit facilities from

different banks/ financial institutions as mentioned below :-

Name of the banks/ financial institutions Name of the branch with districts

(i) NIL

(ii)

(iii)

Signature Head of the Branch/

Manager.

Name: ASM HELAL UDDIN,

MANAGER

Seal :

Tele Phone No.

Note: Suppressing or distortion of any information ( related to borrower/owner ) by

the banks/financial institution is punishable under Bangladesh bank Order 1972,

Chapter IV Art 48

120

(TO BE FILLED IN CAPITAL LETTER/ TYPE)

Inquiry Form : CIB – 2A(Owner information if borrower is institution.)

Name of the Bank/ Financial Institution : National Bank Ltd.

01. Name of Branch : Muradpur Branch

02. Branch Code No :

03. Reference Nos. of branch : Date :

04. Reference Nos of Head Office Date :

05. Borrower Code :

( If available ):

06. Full name of the borrower : M/S REHAB STEEL

07. Full name of the owner : MD. AZHAR UDDIN.

08. Abbreviated name of the owner : N/A

10. Father’s Name ( In case of Individual) : HAJEE BADSHA MIAH

11. Mother’s Name ( In case of Individual) : NURJAHAN BEGUM

12. Husband’s name ( In case of Individual) : N/A

13. Address :

a) Permanent :

b) Present : -

c) Business :

d) Factory :

15. TIN of the Owner _____________________________15.Owner’s ID No.*

16. Status of the owner ( Tick Only) :

Proprietor

√

Partner Chairman-

Sponsor/ Appointed

MD.

Sponsor/Appoint

ed

Director

Sponsor/

Elected

Director-

Nominated ( by

Govt.)

( by Pvt. int.)

Other

17. Name of the bank/ financial Institution/ Insurance co.(Of which the above owner is

Chairman/Director)….

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To best of our knowledge the above owner :

c) Obtained credit facilities in individual name : Yes No

d) Has got other business which obtained credit facilities from the bank/financial Institution

as

mentioned below.

Name of the owner related business/ firm with

address :

Name of bank/financial institution Name of branch with District

i ) NIL

ii)

To the best of our knowledge the above information is correct .

Signature Head of the Branch/ Manager.

Name : MD. ASM HELAL

UDDIN,MANAGER

Seal :

Tele Phone No.

Note : Suppressing or distortion of any information ( related to borrower/owner ) by

the banks/financial institution is punishable under Bangladesh bank Order 1972,

Chapter IV Art 48

* Applicable for individual only.

122

( TO BE FILLED IN CAPITAL LETTER /TYPE)

Inquiry Form : CIB – 3A (Information of group / Related Business concern)

1. Name of the Bank/ Financial Institution : NATIONAL BANK LIMITED,

2. Name of the Branch : Muradpur Branch

3. Under district of : Chittagong. Branch code No-

4. Reference Nos. of Branch : Date :

5. Reference Nos. of Head Office : Date :

6. Full Name of Borrower : M/S REHAB STEEL Borrower Code :

( If available) :

7. Name of the Group :

8. Address of Group :

a) Permanent :

b) Present :

c) Business :

9. Related Business concern :-

Name Business address

i)

ii) N/A

iii)

iv)

v)

Please write N/A or Not Applicable if the concerned borrower is neither a group nor a

subsidiary/ sister concern under declared a group.

To the best of our knowledge the above information is correct .

123

Signature Head of the Branch/ Manager.

Name:ASM HELAL

UDDIN ,MANAGER

Seal :

Tele Phone No.

Note : Suppressing or distortion of any information ( related to borrower/owner ) by

the banks/financial institution is punishable under Bangladesh bank Order 1972,

Chapter IV Art 48

124

CHAPTER SEVEN

Problem related to Credit Management

Reluctant to maintain procedures:

In spite of having strong procedures in association with credit, proper

implementation of those procedures is not seen.

High cost of fund:

The cost of fund of this bank is relatively higher than other banks.

High interest rate:

Due to increased cost of fund, the bank has to charge high interest rate on loan. Due

to this high interest rate, the bank can’t attract more customers for investment.

Inadequate information:

Some customers give improper and incomplete information about themselves while

taking loan for which risk increases

Break of commitment by clients:

Some of clients do not utilize the ‘loan amount’ for the purpose which the client

didn’t acknowledge the bank before.

Lack of strong monitoring system:

There is a lack of proper monitoring system after sanctioning loans and advances.

And this can be a cause of classified loan. The bank is efficient in client

management for which clients are not strongly motivated for further investment.

Interest rate gap:

One of the most important problems in advance is – ‘Interest Rate Gap’ which

means the negative gap between interest rate on deposit and interest rate on advance.

Usually this gap is created because of having more cost of fund.

125

Inability to reduce interest rate:

Govt. has declared to charge single digit interest rate on loan, which has been

exercised in some of the banks but NBL, still now charges two-digit interest rate

from the customer.

Unfavorable govt. policy:

Sometimes Govt. policy is not favorable for banking business.

Lack of manpower:

There are not enough officers in the ‘Advance section’ of the branch to handle all

the activities properly.

Insufficient advertisement:

There is a lack of proper advertisement for different loan scheme of the bank. It

makes the customer ignorant about the bank’s credit service.

Demotivating working environment:

Working environment of the advance section is not influencing and satisfactory

enough to attract interested candidates who are looking for a smart banking job.

126

CHAPTER EIGHT

SWOT Analysis

SWOT stands for Strength, Weakness, Opportunity and Threat. The SWOT of NBL has

been shown below:

Internal factors

Strength

Existence of strict and standard credit management.

Wide network branches with online services.

It offers diversified loan offerings.

Harmonious lender (bank) - borrower (Client) relationship.

Experienced manpower in advance/loan department.

Decreasing trend of classified loan.

Existence of some new & attractive credit scheme.

Weaknesses

Lack of modern equipment.

Lack of proper office space.

Lack of young, energetic and talented officers.

Absence of high tech computerized system.

Absence of Islamic Banking System.

Lack of proper advertisement of the products and services of advance.

SWOT Analysis

Internal Factors External Factors

Strength Weakness Opportunity Threats

127

External factors

Opportunities

It can introduce more new and attractive credit scheme.

It can set a competitive interest rate.

It can recruit young, energetic and talented officers.

It can take initiative for introducing Islamic Banking system.

Threats

Govt. policies are not in favor of the private banks.

Competitors done the credit services to customers more effectively.

Competitors offer low interest rate on loan.

Entrance of highly equipped and modern banks.

Intense competition in the credit market.

Competitors have young and energetic work force.

Govt. has imposed high rate of taxes and VAT on interest received on advance.

Remarkable progress on Islamic Banks.

128

CHAPTER NINE

FINDINGS, RECOMMENDATION & CONCLUSION

9.1) Findings are as follows:

(1) NBL has a good set of institutional owners that gives it a better Board of Directors

that many other banking companies.

(2) NBL is a bank, which has been successful in developing a professional job

environment where each officer has substantial level of authority and responsibility.

(3) NBL has started to diversify its business into different areas of the country.

(4) The growth of the NBL has so far been very steady and very high.

(5) NBL is maintaining steady profitability.

(6) NBL is maintaining good credit policy.

(7) NBL has good investment structure but in some sector it does not perform very well.

(8) NBL’s liquidity performance is satisfactory.

(9) NBL’s credit appraisal process is pleasing but some corrective measure has to be

taken.

9.2) Recommendations:

The following steps may be taken for the betterment of the bank.

(1) Branch should intensify its quality of client service. Customer services must be made

dynamic and prompt.

(2) Bank should be more innovative and diversified in its services.

(3) Put more emphasis on the depository service and create more depository services.

(4) Information system should be developed. NBL should establish its own networking

system between its branches so that they can exchange their information faster and

efficiently.

129

(5) NBL should develop their E-Banking system.

(6) NBL should always monitor the performance of its competitors in the field of credit.

(7) The bank should try to decrease the interest rate on loan in ‘single digit’ according to

the declaration of the Government. Then the bank can get more clients.

(8) Proper and effective monitoring system should be developed in order to prevent loan

default.

(9) The officers of this department to make a remarkable standard should strictly follow

advance procedure.

(10) The bank should strictly follow the ‘principal of sound lending’. The bank should not

sanction loan to the customer without all necessary documents

(11) There should have adequate advertisement for the new loan scheme in order to

influence customer.

9.3) Conclusion

In the face fierce competition from the other players of the market and strict policies being

introduced by the Government and Bangladesh Bank, NBL has established itself as

renowned private bank. On the other hand, opening more branches year by year facilitates

the expansion of network of the bank.

Banks are the pillars of the financial system. Likewise Lending is the pillar of a bank.

Without lending operations a bank has no sense. In spite of many shortcomings, NBL has

introduced some attractive credit scheme. The bank has a tremendous management side that

is still truing to make the bank more successful.

Success in the banking business largely depends on effective lending. Less the amount of

loan losses, the more of the income will be from credit operations. The more the income

form credit operations the more will be the profit of the bank. So National Bank Limited has

many strength and opportunities to make more benefit in the future.

130

References

1. Annual Report of National Bank Ltd.2006, 2007, 2008.

2. Credit Manual: Complied by Training Institute, National Bank Ltd.

3. Instruction Manual of National Bank Training Institute.

4. Office Website of the Bank: www.nblbd.com

5. National Bank Brochure.

131