Credit Management of Standard Bank Ltd

INTRODUCTION:

The Bank will put reliance on market forces and provide increased inducement to savers to mobilize savings and hold fast to profitability potential to allocate funds to the users of such sectors of trade, commerce and industries as may be consistent with the socio-economic objectives of the nation. Bank is a financial intermediary whose prime function is to move scarce resources in the form of credit from savers to those who borrow for consumption and investment. In a modern society, banks are very much important to the economy because of their ability to create money. Lending comprises a very large portion of a bank’s total assets and forms the backbone of the bank. Interest on lending constitutes the highest proportion of income of a bank. As such, credit quality remains the prime indicator of a bank’s success. Unsound Credit reduces the ability of a bank to provide credit towards good borrowers and undermine liquidity and solvency. Therefore good lending practice is very important for the profitability and success of a bank.

To achieve a perceptible improvement in the credit delivery system of the bank, it is necessary to develop a sound credit policy and use modern techniques for credit appraisal. Lending involves the risk of default. Proper analysis of the credit proposals is required to assess the risks in a quantifiable manner and then find out ways and means to cover the risk.

The degree of risk associated with a credit must be judged properly before approval. Lending is a judgment, which depends on the ability to assess the shortcomings in the proposal and identify the risk involved. The ability to take proper and timely measures to minimize the risk is very important for the purpose.

The modern concept of lending has shifted from the security-oriented approach to business viability one. The emphasis is given on the likelihood of repayment, business viability, management competence and management integrity of the proposed debtor. As the prevailing legal system of the country makes it difficult for the bank to depend on collateral, the ultimate security of the bank is the commercial success of the borrower. Adequate emphasis on management and business risks is important as much as analysis of security risk.

OBJECTIVE OF THE STUDY

Specifically, the study seeks to achieve the followings:

  • To acquire knowledge of credit management activities in SBL.
  • To identify the factors that must be considered and analyzed in determining creditworthiness of borrowers.
  • To apprise credit management with special emphasis on credit scoring.
  • To analyze the credit performance of Standard Bank Ltd.
  • To identify the problems with credit management system and suggested measures.

METHODOLOGY OF THE STUDY

In order to accomplish the study objectives, the under mentioned methods were taken:

  • Some techniques are used to analyze the effective credit management system of SBL. Among these techniques.

SOURCES OF DATA

The set of information has been collected from secondary sources.

Secondary sources are as under:

  • Different circulars issued by Bangladesh bank.
  • Different circulars issued by credit division of Standard Bank Ltd.
  • Credit manual of Standard Bank Ltd.
  • Annual reports of Standard Bank Ltd.

LIMITATION OF THE STUDY

As the report is prepared in a short span of time, it could not be made comprehensive and conclusive. Moreover, the accuracy of the report is largely depended upon the information obtained from the relevant sources. Greater emphasis was given to collect information from informal sources like discussion with clients and credit officials instead of reviewing full range of credit files, which may appear to be an inherent limitation of the study.

Historical Background of Standard Bank Limited

  • Objectives of the Bank
  • Shareholding Position
  •    Board of Directors
  •  Management of the Bank
  • The Hierarchy (organogram) of Management of the Bank
  • Capital Structure of the bank
  •  Profits and operational result
  •  Branch Expansion
  •  Future Plan of the Bank

 Historical Background of Standard Bank Limited

After many years of independence, the “Private Banking Sector” had been launched when in March 1983 the Government of Bangladesh came to a historical decision that their own authority would operate Pubali and Uttara bank privately. During that the time another 7 (seven) private banks had got the license to operate privately. Afterwards, every Govt. provided license for doing banking business in private sector. Consequently, Standard Bank Limited, a third generation bank, has commenced its journey as a public limited company on May 11, 1999 under the company act 1994. The Bank starts its commercial operation, setting a new standard in banking sector, on June 03, 1999.

At present, about 4 Govt. banks, 30 private banks, 10 foreign banks and 5 specialized banks totaling 49 (forty nine) schedule banks are doing banking business in the country. Another 44 application for opening private bank have been submitted to the Govt. for approval. (Source: Fortnightly Bank – Insurance, vol. – 14, 16 – 30 Sept. 2008.)

Objectives of the Bank

The motto of the Standard Bank is to explore a new horizon of innovative modern banking creating an automated and computerized environment providing one stop service and prepare itself to face the new challenges of globalization and 21st century. One of the main objectives of the Bank is to be a provider of high quality products and services to attract its potential market.

Shareholding Position

                                                                       As on 31-12-2008       

Particulars No. of Shares   %
Sponsors

8906275

45.00%

ICB

835243

4.25%

ICB Investor’s A/c

421007

2.14%

Financial Institutions

2824406

14.36

General Public

6686349

33.99%

Total

19673280

100%

 Board of Directors

Chairman

Ln. Kazi Akramuddin Ahmed

Vice Chairman

Mr. Shamsul Alam

Directors

Mr. Kamal Mostafa Chowdhury Mr. Md. Monzurul Alam

Mr. Mohammad Nurul Islam                Mr. Mohammed Abdul Aziz

Mr. Nani Gopal Saha                          Mr. Harun-Or-Rashid

Al-Haj Mohammad Ayub            Managing Director, ICB

Mr. Ferozur Rahman                           Mr. Md. Harun Salam

Mr. Harun Rashid Chowdhury

  Management of the Bank

The Management team of the Bank consists of highly motivated, well-educated and highly skilled and dynamic executives who have been contributing substantially in the continued growth and progress of the bank.

The Managing Director of the Bank Mr. Mosharraf Hossain is one of the senior bankers having meritorious performance and distinctive competence. In 35 years of banking career he is well known as an innovative, efficient and an all rounder banker to his colleagues and customers.

 The Hierarchy (organogram) of Management of the Bank

Capital Structure of the bank

The Bank has commenced its operation on 3rd June 1999 with an authorized capital of Tk.750 million and paid up capital of Tk.200 million. The authorized capital of the Bank has been enhanced to Tk. 3000 million and the paid up capital amounted to Tk. 1967 million as on December 31, 2008. The total shareholders equity and reserve stood at Tk. 2,992,503,239 including sponsors capital as on December 31, 2009.

  Profits and operational result

The Bank has earned an operating profit of Tk. 900.00 million during the year 2008 compared to Tk. 750. million during the year 2007, showing an increase of 20%. The Bank has earned substantial amount profit during the last year compared to preceding year. The progress was possible due to the pragmatic policies and right direction of the Board of Directors as well as active support and co-operation of its valued client and shareholders.

 Branch Expansion

The bank has opened four new branches during the last year and the total number of branches stood at 29 (Twenty Nine) as on 2008. Out of which 14 branches are authorized dealer. These AD branches are fully equipped and capable of handling all types of Foreign Exchange business and transactions. The Bank plans to open six new branches at Dhaka, Mohakhali/Banani at Dhaka city, Barisal and Joypara, Narayanngonj, Dhaka in order to make available of their banking facilities to every areas of the country during the       year 2008.

  Future Plan of the Bank

The management of the Bank intends to expand their network of branches and for the purpose they have selected sites for opening six more branches including four rural branches. The management desire to open new era by introducing —

  • On-line banking         
  • Credit Card                
  • Lease Financing
  • Merchant Banking
  • Debit Card  

 Credit Management: An overview

Bank’s lending activities may be classified into Following broad segments:

   Loan Pricing Policies

 Credit Management: An overview

As a scheduled commercial bank, Standard Bank Limited undertakes financial intermediation for the deployment of its funds keeping in mind the following objectives:

a)   Risk minimization

b)   Loan Administration Cost Minimization

c)   Profit generation

d)   Adherence to regulatory, ethical and social norms.

Profit motivation is very important for viable operation and the growth of the bank. But it would also respond adequately to the socio-economic objectives formulated by the government from time to time for accelerating the pace of economic development of the country.

The objective of the credit management of the Bank is to build up a balanced portfolio mix. The focus on an effective and responsive financial intermediation will thus vest on the one hand on channeling funds to a set of clientele having proven track record and on the other hand on socially and economically desirable activities for which finance is sought.

Before disbursement of the loans. The bank will

a)   Follow principles of sound lending

b)   Comply with legal requirements of the country

c)   Meet regulatory requirement of Bangladesh Bank

d)   Maintain policy of transparency and accountability

e)   Ensure 100% transparency in loan sanction adjudging social, economical & ethical aspect to and value to the GDP of the country specially emphasizing on earning Foreign exchange & creation of employment opportunities.

f)     Keep in place sound loan monitoring and supervision including loan risk grading and early alert system.

  Standard Bank’s lending activities may be classified into

Following broad segments:

  1. Trade & Commerce
  2. Industries (Small, Medium & large)
  3. Agriculture and Agro based ventures
  4. Consumer financing
  5. Real Estate and Civil construction
  6. Work Order Finance

 Trade & Commerce

The broad category under ‘ trade & commerce’ would encompass large business houses dealing in imported consumer items, medium and small import business houses trading in similar lines and finally, shopkeepers, distributors, wholesalers, retailers and small manufacturers scattered throughout the country.

 Industries

The domain of industrial financing would basically comprise

  •   Capital financing in the form of term loans
  •   Working Capital financing
  •   Financing of small and cottage industries.

 Consumer Financing

Consumer financing is being used as an effective tool to help the people of fixed income group, specially, the service holder to meet up their need for household appliances, vehicles and professional equipment

 Real Estate and Civil Construction

The global performance of this sector both in terms of business and recovery rate has been by and large satisfactory. The bank’s policy should be to carefully weigh any investment in this sector only on a selective basis.

 Agriculture and Agro-based Ventures

Agriculture is the mainstay of Bangladesh economy being a major contributor to the GDP. Standard Bank will remain keen to contribute towards the growth of economy in financing the agro-based ventures of firms/companies, specially in agriculture proper, poultry, fishery and hatchery. Financing will also be provided to export oriented shrimp culture and fish processing industries.

Work Order Finance

Purchase/construction of road & building/land development made by government, semi government, autonomous bodies, corporate bodies, multinational companies, joint venture companies in large scale through open tender requires financing of work order to patronize concern bodies/suppliers/contractors to execute the work schedule. Standard Bank Limited shall take interest in the segment of financing to participate in nation building activities.

Loan Pricing Policies

The Bank would price loans to recover Bank’s cost of funds and administrative costs. At the same time, the price is high time to recover an increment for loan losses while making sufficient profits to reach the goals set by SBL’s board of directors. The bank’s loan pricing will be calculated in line with the following basic formula :

Loan Yield = (A) Cost of Funds + (B) Admin. Cost + (C) Loan Loss

                      Reserve + (D) Profit

Each factor is considered in the following manner:

(A)        The Cost of Funds used in the loan pricing: An appropriate cost of funds factor is the 90-day rate for large Fixed Deposits. This rate is approximately what it costs the Bank to fund a loan.

(B)        Loan Administrative Cost: The best way to determine Bank’ s loan administrative cost is probably through functional cost analysis program of last year.

(C)        Loan Loss Reserve: The Bank will maintain a 1% loan loss reserve on all its performing loans. Reserves and provisions will be created on classified loans as per directives of the Bangladesh Bank.

(D)        Profit: The profit goal of pricing is one that will ensure a return 20% on stockholders equity for Standard Bank with a capital-to-assets ratio of 8% or as may be prescribed by the Bangladesh bank from time to time.

Summary of indicative allocation of loanable funds Of SBL :

Sl. No.Particulars

For the year 2009

1

Trade Finance and Working Capital

50%

2

Industries

15%

3

Small industries and various sectoral finance

01%

4

Real Estate & Civil Construction

05%

5

Agro- Based Financing

04%

6

Lease Financing

05%

7

Consumer Financing

05%

8

Work Order Finance

15%

 

Total

100%

The following chart shows the allocation of loanable funds of Standard Bank Ltd for the year 2008:

Credit Approval Process

  • Credit Risk Grading:
  •  Credit Administration

Credit Approval Process

All proposals for loan and other facilities should ordinarily be initiated from the branches.

The loan proposals wherever necessary must be sent to Head Office in proper Credit Line Proposal (CLP) duly supported by required information and documentary evidence. Industrial loan proposals must accompany properly conducted feasibility report. For working capital to industrial clients, full work-sheet showing working Capital requirement of the industry must accompany the CLP.

Branches shall send proposal to Head Office within lending ceiling of the branch, which is determined by its deposit position and manpower capacity. In exceptional cases and with prior permission from Head Office, proposals beyond the limit can be sent to Head Office. Branches must ensure that only viable proposals are sent to the Head Office. All loan proposals must be discussed at Branch Credit Committee (BCC) before the same are forwarded to Head Office and shall bear signatures of all members of BCC. Before sending any proposals for any facility following additional conditions must be fully satisfied by the branches. Head Office Credit Committee (HOCC) must also see that these conditions have been fulfilled.

No objection of the concerned bank/banks should be obtained if the borrower is in debt with them.

Report from Credit Information Bureau (CIB) of Bangladesh Bank that the borrowers or their allied accounts are not having any sticky loans with other banks should accompany the proposal.

Copies of statements of all types of accounts viz. C.C. (Hypo), C.C. (Pledge), PAD, LIM & Current Account etc. maintained by the borrowers shall accompany CLP and will be critically examined to determine the behaviour of the accounts and volume of business to justify the amount of the proposed loan. This will be required for new accounts as well as old accounts for sanction and also for renewal/enhancement. Financial statements viz. Balance Sheet, Fund Flow Statements, Cash Flow Statements, Trading Income Statements should be obtained and sent along with necessary ratio analysis to show improvement or deterioration in the financial position of the customers in comparison with the past performance. Basic areas of analysis should cover –

–         Asset-equity Ratio

–         Debt-equity Ratio

–         Fixed Asset to Equity Ratio

–         Stock-Working Capital Ratio

–         Inventory to Sales Ratio

–         Debtors Turnover Ratio

–         Creditors Turnover Ratio

–         Retained Profit to Net Profit Ratio

–         Current Ratio

–         Quick Ratio

–         Gross Profit to Sale

–         Net Profit to Net Capital Fund

The following diagram illustrates the approval process:

 Credit Risk Grading:

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.

Having considered the significance of credit risk grading, it becomes imperative for the banking system to carefully develop a credit risk-grading model, which meets the objective outlined above.

The Lending Risk Analysis (LRA) manual introduced in 1993 by the Bangladesh Bank has been in practice for mandatory use by the Banks & financial institutions for loan size of BDT 1.00 crore and above. However, the LRA manual suffers from a lot of subjectivity, sometimes creating confusion to the lending Bankers in terms of selection of credit proposals on the basis of risk exposure. Meanwhile, in 2004 end Bangladesh Bank provided guidelines for credit risk management of Banks wherein it recommended, interalia, the introduction of Risk Grade Score Card for risk assessment of credit proposals.

Since the two credit risk models are presently in vogue, the Governing Board of Bangladesh Institute of Bank Management (BIBM) under the chairmanship of the Governor, Bangladesh Bank decided that an integrated Credit Risk Grading Model be developed incorporating the significant features of the above mentioned models with a view to render a need based simplified and user friendly model for application by the Banks and financial institutions in processing credit decisions and evaluating the magnitude of risk involved therein.

Bangladesh Bank expects all commercial banks to have a well-defined credit risk management system, which delivers accurate and timely risk grading. This manual describes the elements of an effective internal process for grading credit risk. It also provides a comprehensive, but generic discussion of the objectives and general characteristics of effective credit risk grading system. In practice, a bank’s credit risk grading system should reflect the complexity of its lending activities and the overall level of risk involved.

Definition of Credit Risk Grading (CRG)

  • The Credit Risk Grading (CRG) is a collective definition based on the pre-specified scale and reflects the underlying credit-risk for a given exposure.
  • A Credit Risk Grading deploys a number/alphabet/symbol as a primary summary indicator of risks associated with a credit exposure.
  • Credit Risk Grading is the basic module for developing a Credit Risk Management system.

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.

CREDIT RISK GRADING SCORE SHEET

Reference No.:

 

Date:
Borrower 
Group Name (if any) Aggregate Score:
Branch:  
Industry/Sector Risk Grading:  
Date of Financials   
Completed by   
Approved by   

Number

Grading

Short

Score

 

1

Superior

SUP

Fully cash secured, secured by government guarantee/international bank guarantee

2

Good

GD

85+

3

Acceptable

ACCPT

75-84

4

Marginal/Watchlist

MG/WL

65-74

5

Special Mention

SM

55-64

6

Substandard

SS

45-54

7

Doubtful

DF

35-44

8

Bad/Loss

BL

<35

Criteria                        Weight

Parameter

Score

Actual Parameter

Score Obtained

A. Financial Risk                  50%

1. Leverage: (15%)

Less than 0.25×

15

0.53

 

Debt Equity Ratio (×) – Times

0.26× to 0.35 x

14

 

Total Liabilities to Tangible Net worth

0.36× to 0.50 x

13

 

0.51× to 0.75 x

12

 

All calculations should be based on

0.76× to 1.25 x

11

 

Annual financial statements of the

1.26× to 2.00 x

10

 

Borrower (audited preferred)

2.01× to 2.50 x

8

 

2.51× to 2.75 x

7

 

More than 2.75×

0

 

2. Liquidity: (15%)

Greater than 2.74×

15

54.00

 

Current Ratio (×) -Times

2.50× to 2.74 x

14

 

Current Assets to Current Liabilities

2.00× to 2.49 x

13

 

1.50× to 1.99 x

12

 

1.10× to 1.49 x

11

 

0.90× to 1.09 x

10

 

0.80× to 0.89 x

8

 

0.70× to 0.79 x

7

 

Less than 0.70×

0

 

3. Profitability: (15%)

Greater than 25%

15

78.00%

 

Operating Profit Margin (%)

20% to 24%

14

 

(Operating Profit/Sales) X 100

15% to 19%

13

 

Criteria                        Weight

Parameter

Score

Actual Parameter

Score Obtained

A. Financial Risk                  50%

10% to 14%

12

 

7% to 9%

10

 

4% to 6%

9

 

1% to 3%

7

 

Less than 1%

0

 

4.  Coverage: (5%)

 

Interest Coverage Ratio (×) – Times

 

Earning before interest & tax (EBIT)

More than 2.00×

5

10.00

 

Interest on debt

More than 1.51× Less than 2.00×

4

 

More than 1.25× Less than 1.50×

3

 

More than 1.00× Less than 1.24×

2

 

Less than 1.00×

0

 

Total Score- Financial Risk

 

50

 

 

B. Business/ Industry Risk 18%

 

1. Size of Business (in BDT crore)

> 60.00

5

75.00

 

30.00 – 59.99

4

 

The size of the borrower’s business

10.00 – 29.99

3

 

measured by the most recent year’s

5.00 – 9.99

2

 

total sales. Preferably audited numbers.

2.50 – 4.99

1

 

< 2.50

0

 

2. Age of Business

> 10 Years

3

10

 

> 5 – 10 Years

2

 

The number of years the borrower

2 – 5 Years

1

 

engaged in the primary line of business

< 2 Years

0

 

3. Business Outlook

Favorable

3

Favorable

 

Critical assessment of medium term

Stable

2

 

prospects of industry, market share

Slightly Uncertain

1

 

and economic factors.

Cause for Concern

0

 

4. Industry Growth

Strong (10%+)

3

No Growth (<1%)

 

Good (>5% – 10%)

2

 

Moderate (1%-5%)

1

 

No Growth (<1%)

0

 

5. Market Competition

Dominant Player

2

Dominant Player

 

Moderately Competitive

1

 

Highly Competitive

0

 

6. Entry/Exit Barriers

Difficult

2

Difficult

 

Average

1

 

Easy

0

 

Total Score- Business/Industry Risk

 

18

 

 

C. Management Risk            12%

 

1. Experience

More than 10 years in the related line of business

5

More than 10 years in the related line of business

 

Quality of management based on total

5–10 years in the related line of business

3

 

# of years of experience of the senior

1–5 years in the related line of business

2

 

Management in the Industry.

No experience

0

 

2. Second Line/ Succession

Ready Succession

4

Succession within 2-3 years

 

Succession within 1-2 years

3

 

Succession within 2-3 years

2

 

Succession in question

0

 

3. Team Work

Very Good

3

Very Good

 

Moderate

2

 

Poor

1

 

Regular Conflict

0

 

Total Score- Management Risk

 

12

 

 

D. Security Risk                   10%

 

1. Security Coverage (Primary)

Fully Pledged facilities/substantially cash covered / Reg. Mortg. for HBL

4

Registered Hypothecation (1st Charge/1st Pari passu Charge)

 

Registered Hypothecation (1st Charge/1st Pari passu Charge)

3

 

2nd charge/Inferior charge

2

 

Simple hypothecation/Negative lien on assets

1

 

No security

0

 

2. Collateral Coverage (Property Location)

Registered Mortgage on Municipal corporation/Prime Area property

4

Registered Mortgage on Pourashava/Semi-Urban area property

 

Registered Mortgage on Pourashava/Semi-Urban area property

3

 

Equitable Mortgage or No property but Plant and Machinery as collateral

2

 

Negative lien on collateral

1

 

No collateral

0

 

3. Support (Guarantee)

Personal Guarantee with high net worth or Strong Corporate Guarantee

2

Personal Guarantee with high net worth or Strong Corporate Guarantee

 

Personal Guarantees or Corporate Guarantee with average financial strength

1

 

No support/guarantee

0

 

Total Score- Security Risk

 

10

 

 

E. Relationship Risk              10%

 

1. Account Conduct

More than 3 years Accounts with faultless record

5

More than 3 years Accounts with faultless record

 

Less than 3 years Accounts with faultless record

4

 

Accounts having satisfactory dealings with some late payments.

2

 

Frequent Past dues & Irregular dealings in account

0

 

2. Utilization of Limit

More than 60%

2

65.00%

 

(Actual/projection)

40% – 60%

1

 

Less than 40%

0

 

3. Compliance of Covenants /

Full Compliance

2

Full Compliance

 

Conditions

Some Non-Compliance

1

 

No Compliance

0

 

4. Personal Deposits

Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits

1

Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits

 

No depository relationship

0

 

Total Score- Relationship Risk

 

10

 

 

Grand Total – All Risk

 

100

 

 

 Number 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/Watch List

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.
  •     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

  •     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.

Head Office shall sanction or place proposals to the Board/Committee for sanction of loans only if it meets the criteria under credit policy. Loans shall not be approved and shall be recalled if:

The lending limit of the bank exceeding 80 % of deposits

–         Sectoral limit is exhausted or exceeded.

–         Collateral value is less than two times of the proposed loan with exception of Cash Credit in pledge or security is in the form of financial instruments.

–         Debt Service Ratio is less than 2-3 times, Rate of Return is less than 10%, pay back period exceeds 5 years in case of Term Loans and current ratio is less than 2 times.

–         Sales turnover is less than 4 times of the loan asked for and turnover in the account was less than 3 times of the loan.

–         Equity is less than the limit prescribed from time to time for various items.

–         Cash flow statement indicates insufficient liquidity due to low turnover, market debt and over trading.

–         Cash flow statement, which is to be obtained quarterly in case of Cash Credit of Tk.15 lac and above, indicates deterioration in the financial position through diversion of fund for acquisition of assets not beneficial to the company/industry.

–         Finally, letters issued from Head Office sanctioning/approving loans and advances must clearly state in detail all the terms and conditions so that there remains no confusion or difficulty in implementation of the project or operation of loan account. The sanction letters shall state :

–         Limit of loans/advances/facilities

–         Nature of loans/advances

–         Validity period of limit for utilization

–         Rate of interest/commission/fees on loans/advances/ facilities

–         Margins to be retained

–         Details of securities to be obtained against the loan/advance/ facilities and instructions about creating legal charges on the securities

–         Other conditions if any.

–         Special enabling conditions namely the conditions    of –

The right of the Bank to recall/revoke loans/facilities any time during the limit period without any reason; revise or modify any terms or conditions of loans during the currency of the limit and for which Bank shall not be responsible for any loss or losses of the customer;

The right to engage independent financial and/or technical consultant to examine the position of accounts, factory operation for protecting the interest of the Bank;

 The right to convert part of the loan into equity and if so provided in Memorandum and Articles of Association of the borrowers/ customers; and

 The right of the Bank to obtain pre-dated cheques to meet installment of loan under letter of deposit of cheques and right to obtain undertaking-cum-declaration of the borrower to the effect that till repayment of the loan in full they shall not initiate any banking account with other banks.

Security and Documentation:

The security and documentation of Loans and Advances provided by Standard Bank Limited is done at Branch office. The security for loan is shown in the following:

i)

Fixed deposit receipts issued by any branch of the Bank.

ii)

Balance in other deposits account with the approval of Head Office.

iii)

Govt. Promissory Notes.

iv)

Pratyrakhya Sanchay Patra, Bangladesh Sanchay Patra.

v)

ICB Unit Certificates.

vi)

Life Insurance Policies.

vii)

Shares of various companies approved by Head Office from time to time and quoted on the Stock Exchange.

viii)

Stocks and goods in trade, pledged or hypothecated.

ix)

Hypothecation of power driven vehicles or watercrafts.

x)

Immovable property.

xi)

Imported merchandise pledged or hypothecated.

xii)

Trust receipts.

xiii)

Govt./Corporation Salary and Pension Bills.

xiv)

Import bills (PADs)

xv)

Bills purchased.

xvi)

Schedule Bank/Insurance guarantees.

xvii

Export bills.

 CREDIT PROPOSAL & SANCTION

Application for Advance/limit: 
1.The party seeking a secured advance against any acceptable security must make an application to the branch where he maintains his operative account.
2.Advance may be allowed only after getting a limit sanctioned by the authorized officials. 
 Conducting preliminary study:
1.Conduct a preliminary study of the affairs of the intending borrower by consulting the following:
i)Borrower’s application
ii)Reports in confidence regarding the state of business of the intending borrower through available means.
iii)Borrowers own mode of dealings.
iv)Statement of accounts of the borrower with own and other banks.
v)Statement of assets and liabilities ( in detail)
vi)Balance sheet/profit & loss accounts (in case of limited company) for 3 years.
vii)Memorandum & Articles of Association
viii)Income Tax certificates.
ix)Trade and other reports.
Interview of the proposed borrower: 
1.Interview the intending borrower covering the following points : 
a)Present & future prospect of the party’s business.
b)Total investment in this business.
c)Borrower’s stake in the business.
d)Amount of advance required.
e)Experience in the line.
f)Purpose.
g)Period of advance required for.
h)Source of repayment.
i)Party’s previous banker, if any.
j)Present liabilities with any other branch of the same bank or other banks and conducts of the advances.
k)Securities offered against advances from other branch of the same bank or other bank.
l)Proposed margin against the advance.
m)Security offered against the proposed advance.
n)Type of charge to be created against the proposed security.
o)Terms of repayment.
 Banker’s satisfaction:
 1.Before final selection of the borrower it should be ensured that:
i)The party possesses character, capacity and capital.
ii)Account is a remunerative.
iii)Nature of transactions in the account is at least moderate. Dealing items and primary security of the party possess the quality of easy marketability, durability & storability. Procurement and sales arrangements are satisfactory.
iv)Purpose of financial accommodation is genuine.
v)Collateral security offered possesses the quality of easy marketability and is not encumbered and its valuation is judiciously assessed so as to leave sufficient margin after covering the advance and belongs preferably to the borrower. Real estate taken as collateral should preferably be located in the urban centre with a homestead or other kinds of constructions.
vi)Period for which the accommodation has been sought is allowable.
vii)Repayment arrangement is acceptable.
viii)Means, standing and respectability of the applicant and the guarantors (if any) are satisfactory.
ix)Credit worthiness of the applicant is reasonable.
x)Location of the business is good.
xi)Confidential opinion has been obtained from :
a) Other banks.
b) Head Office and /or branches.
xii)Clean CIB report has been obtained from Bangladesh Bank.
Filling of credit proposal form:
1.a)The applicant has submitted credit proposal together with owner’s declaration in the specified format detailing appropriate particulars/information.
b)The information furnished in the credit proposal form verified by the manager/branch in charge and the officer in charge, Advance Department. The branch officials shall be fully satisfied about correctness of the information/particulars and genuineness of the papers/documents, while processing the loan proposal before sending the same to the sanctioning authority.
 Approval of limit:
1.The sanctioning authority on receipt of the proposal shall scrutinize the same and ensure that :
i)The proposal bears all pertinent information relating to the advance and the borrower.
ii)The borrower has signed the proposal form for credit.
iii)All necessary papers/documents have been enclosed with the proposal duly checked and verified by the branch.
iv)The officer in charge, Advance Department & the branch manager has signed the proposal jointly.
v)The proposal has been duly recommended.
vi)The proposal does not fall within the existing credit restrictions.
vii)Minimum margin requirement against the advance is proposed.
viii)The primary security has got easy marketability, durability and storability.
ix)The engineer and branch manager as per proforma circulated by Head Office judiciously assesses valuation of the property offered as collateral security.
 x)The intending borrower is not a defaulter of the Bank/other banks including DFIs.
xi)There is no letter of request from other banks for not allowing and or stoppage of facility to the proposed borrower.
xii)Working capital may be considered on project financed by any other bank including DFIs subject to favorable status report and obtaining “No Objection Certificate” from the financing institution.
xiii)Where 2nd charge on the fixed and floating assets (in case of a limited company) or 2nd mortgage on real estate is offered, clearance shall be obtained from the 1st mortgagee in respect of creation of 2nd charge on the property together with the confirmation that the documents will be held by them on behalf of the Bank and that they shall not part with the same without consent of the Bank.
 Post sanction formalities:
1.After receiving the limit sanction advice, the branch shall.
i)Convey the terms and conditions stipulated in the sanction advice to the proposed borrower in writing.
ii)Obtain acceptance of the terms and conditions on duplicate copy of the letter.
iii)Complete documentation in all respect.
iv)Loan sanction advice issued by the Head Office containing some clause meant for the branch only should be excluded while sending the loan sanctioning advice to the borrower. 
Disbursement of advance:
1.After being fully satisfied about the execution of all documents and observance of all formalities, disburse the advance to the party in accordance with the procedure hereinafter prescribed in the manual keeping in view the nature of security provided by the party.

 Credit Administration

The credit administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of loan facilities. For this reason, it is essential that the functions of Credit Administration be strictly segregated from relationship Management/Marketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level.

Credit Administration should be in place to ensure the following:

Disbursement:

  • Security documents are prepared in accordance with approval teams and are legally enforceable. Standard loan facility documentation that has been reviewed by legal counsel should use in all cases. Exceptions should be referred to legal counsel for advice based on authorization from an appropriate executive in CRM.
  • Disbursement under loan facilities are only be made when all security documentation is in place. CIB report should reflect/include the name of all the
  • Lenders with facility, limit and outstanding. All formalities regarding large loans and loans to directors should be guided by Bangladesh Bank circulars and related section of Banking companies act. All credit approval terms have been met.

Custodial Duties:

  • Loan disbursements and the preparation and storage of security documents should be centralized in the regional credit centers.
  • Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets pledged as collateral.
  • Security documentation is held under strict control, preferably in locked fireproof storage.

 Compliance requirements:

  • All required Bangladesh Bank returns are submitted in the correct format in a timely manner.
  • Bangladesh Bank circulars/regulations are maintained centrally, and advised to all relevant departments to ensure compliance.
  • All third party service providers (valuers, lawyers, insurers, CPAs etc.) are approved and performance reviewed on an annual basis. Banks are referred to Bangladesh Bank circular outlining approved external audit firms that are acceptable.

 Credit Monitoring:

To minimize credit losses, monitoring procedures and systems should be in place that provide and early indication of the deteriorating financial health of a borrower. At a minimum, systems should be in place to report the following exceptions to relevant executives in CRM and RM (Relationship Manager) team.

  • Past due principal or interest payments, past due trade bills, excesses, and breach of loan covenants.
  • Loan terms and conditions are monitored, financial statements are received on a regular basis and any covenant breaches or exceptions are referred to CRM and the RM team for timely follow-up.
  • Timely corrective action is taken to address findings of any internal, external or regulator inspection/audit.
  • All borrower relationship/loan facilities are reviewed and approved through the submission of a Credit application at least annually.

Computer system must be able to produce the above information for central/head office as well as local review. Where automated systems are not available, a manual process should have the capability to produce accurate exception reports. Exceptions should be followed up on and corrective action taken in a timely manner before the account deteriorates further.

 Loan portfolio:

During the year 2003-2008, the loans and advances disbursed at an increasing rate. From year 2003-2008, it has been observed that the total loans and advances of the Bank stood at Tk.3495.71 million in yr. 2003, Tk.4952.24 in yr. 2004, Tk.7801.09 million in yr 2005, Tk.10183.59 million in yr. 2006, Tk.12634.12 million in yr 2007 and Tk.17130.09 million in yr 2008. Banks loan portfolio consist of 18 products i.e Cash Credit, Loans general, Loans against Trust Receipt, Loans against Imported Merchandise (LIM), Payment Against Documents (PAD), Consumer Finance Scheme (CFS), Car Loan Scheme, House Building Loans (HBL), Packing Credit (PC), Transport Loans, Hire Purchase Scheme, Loan against Cash Incentive, SOD-General, SOD-FO, HBL, IDBP, Foreign Bills Purchase (FDBP), SOD-Import, SOD-Export. The Bank has been continuing to explore and diversify the area of operation to extend credit facilities throughout the years to the various sectors of the economy. In distributing loans the Bank mainly concentrated on agriculture and fishery sector, industry sector, whole sale /retail trading, hotel/restaurant, real estate, service sector & transport sector.

Table 1 it is observed that the highest ratio (28.3 %) of loans as of 2008 is observed for Cash Credit, followed by SOD (19.9 %), IDBP (11.9%) and SOD-FO (9.1%) .It is also observed from this table that 69.1 percent of the total loans is disbursed against Cash Credit, SOD-General, SOD-FO and IDBP.

At a Glance of Deposit, Advance, Classified Loan & Recovery

Figure in million

Particulars

2004

2005

2006

2007

2008

2009

Total Deposit

4,101.56

5,612.42

8,731.00

12,043.39

14,220.80

19,210.38

Total Advance

3,495.71

4,952.24

7,801.00

10,183.59

12,634.12

17,310.09

Total Classified Loan

18.32

23.11

33.36

46.33

126.80

263.14

Total Recovery

3.70

4.28

5.90

6.20

9.20

11.70

Rate of Classification

3.70%

4.28%

5.90%

6.20%

9.20%

11.70%

 Growth of Deposit, Advance, Classified Loan & Recovery

Figure in %

Particulars

2005

2006

2007

2008

2009

Growth of Deposit

36.80%

55.60%

38.00%

18.07%

35.08%

Growth of Advance

41.60%

57.50%

30.50%

24.06%

37.00%

Growth of Classified Loan

26.14%

44.35%

38.87%

173.00%

107.50%

Growth of Recovery of Classified Loan

15.67%

37.80%

5.08%

48.38%

27.20%

Table 1: Year wise Loan disbursement from 2004-2009

In percentage:

Loans portfolio:

2004

2005

2006

2007

2008

2009

Cash Credit

60.0%

28.9%

30.3%

29.6%

29.8%

28.3%

Loan General

0.0%

0.6%

2.1%

3.7%

5.3%

7.5%

Loans against trust receipt

0.0%

1.7%

2.2%

5.4%

5.5%

6.5%

Loans against imported merchandise

0.0%

7.4%

4.1%

3.8%

3.2%

2.5%

Payment against documents

0.0%

7.7%

3.0%

3.0%

1.6%

1.8%

Consumer Credit scheme

0.0%

0.5%

2.7%

2.2%

1.2%

0.5%

House building loans

0.0%

5.7%

2.2%

2.1%

4.3%

3.7%

Packing credits

0.0%

3.8%

2.6%

2.9%

2.7%

1.9%

Transport Loans

0.0%

0.0%

2.1%

1.9%

1.3%

1.0%

Car loan scheme

0.0%

1.4%

0.4%

0.3%

0.1%

0.3%

Secured overdraft-general

10%

32.5%

30.3%

27.8%

22.2%

19.9%

Secured overdraft Financial obligation

30%

1.5%

6.1%

8.3%

8.2%

9.0%

Secured overdraft Import

0.0%

0.0%

0.0%

1.3%

1.9%

2.3%

Secured overdraft Export

0.0%

0.0%

0.6%

0.5%

1.3%

2.1%

Inland bills purchased and discount

0.0%

7.8%

11.3%

8.8%

10.8%

11.9%

Foreign Bills purchased and discounts

0.5%

0.0%

0.2%

0.1%

0.2%

Staff loan

0.0%

0.0%

0.0%

0.1%

0.5%

0.6%

Table 2: Year wise Loan disbursement from 2004-2009

Product-wise Loans portfolio:

       Figure in million

Sl. No.

Products

2004

2005

2006

2007

2008

2009

1

Cash Credit  2,097.60    1,431.13  2,363.40    3,014.17    4,308.31        4,898.76

2

Loan General               –         29.71     163.80       376.77       669.60        1,298.26

3

Loans against trust receipt               –         84.18     171.60       549.88       694.87        1,125.15

4

Loans against imported merchandise               –       366.45     319.80      386.95       404.29           432.75

5

Payment against documents               –       381.30     234.00       305.49       202.14           311.58

6

Consumer Credit scheme               –         24.76     210.60       224.03       151.61             86.55

7

House building loans               –       282.26     171.60       213.84 `           640.47

8

Packing credits               –       188.18     202.80       295.31       341.12           328.89

9

Transport Loans               –               –     163.80       193.48       164.24           173.10

10

Car loan scheme               –         69.33       31.20         30.55         12.63             51.93

11

Secured overdraft-general        349.50    1,609.64  2,363.40    2,637.98    2,804.75        3,444.69

12

Secured overdraft Financial obligation     1,048.61         74.28     475.80       845.19    1,035.99        1,557.90

13

Secured overdraft Import               –               –               –       132.38       240.05           398.13

14

Secured overdraft Export               –               –      47.80         50.92       164.24           363.51

15

Inland bills purchased and discount               –       386.26     881.40       896.10    1,364.47        2,059.89

16

Foreign Bills purchased and discounts               –         24.76               –         20.37         12.63             34.62

17

Staff loan               –               –               –         10.18         63.17           103.86
Total 3,495.71  4,952.24  7,801.00  10,183.59  12,634.12   17,310.03

 Significant Concentration:

It is observed from the year 2008 that highest amount of advances was made in the forms of Trading Finance of Tk. 5117.73 million, followed by SME & Others Loan of Tk. 2000.20 million & 4222.89 million respectively.

 Table 4: Sector wise Loan disbursement from 2004-2009

                                                                   In Percentage

Sl. No.

Sector

2004 (%)

2005 (%)

2006 (%)

2007 (%)

2008 (%)

2009 (%)

1

Agro based

0.33%

0.00%

0.00%

0.53%

0.52%

0.43%

2

Trading

48.17%

48.96%

40.02%

42.37%

27.47%

29.56%

3

Real Estate & Service

5.80%

5.83%

4.51%

4.07%

4.05%

3.50%

4

Transport

3.10%

3.10%

1.37%

0.54%

0.54%

4.92%

5

Textile

10.51%

15.00%

18.00%

13.68%

8.54%

8.71%

6

Food & Allied

0.27%

0.40%

0.60%

1.30%

1.30%

3.84%

7

Cement & Ceramic

6.39%

0.35%

0.80%

0.70%

0.70%

0.37%

8

Telecom

0.00%

0.00%

0.00%

1.40%

3.98%

5.03%

9

Pharmaceuticals

3.59%

0.45%

1.20%

0.76%

1.21%

0.60%

10

Leather, Chamical & Cosmatic

0.86%

0.95%

1.85%

1.75%

2.18%

1.35%

11

Airline

0.00%

0.00%

0.00%

1.40%

1.39%

2.35%

12

Cold Storage

0.70%

0.45%

0.40%

0.00%

5.03%

0.31%

13

SME

0.24%

0.20%

15.00%

16.98%

16.88%

11.56%

14

Engineering

5.43%

7.35%

3.64%

0.33%

0.32%

2.06%

15

Special Loan

0.00%

0.00%

0.00%

0.00%

0.00%

0.12%

16

Health

2.17%

3.50%

2.98%

0.68%

0.68%

0.90%

17

Others

12.43%

13.47%

9.63%

13.51%

25.20%

24.40%

 

 

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

 

 

 

 

 

 

 

 

 Table 5: Sector wise Loan disbursement from 2004-2009

Sl. No.

Sector

2004

2005

2006

2007

2007

2008

1

Agro based      11,552,000                   –                  –      53,326,758      66,100,000

      73,700,000

2

Trading 1,683,912,095  2,424,380,452 3,121,794,429 4,294,166,379 3,470,941,154

 5,117,338,000

3

Real Estate & Service    202,650,731     288,579,000    352,052,770    412,737,814    511,600,000

    605,500,000

4

Transport    108,403,252     153,579,000    106,885,660      54,778,924      67,900,000

    851,000,000

5

Textile    367,540,000     742,838,154 1,404,171,642 1,386,679,504 1,079,300,000

 1,507,600,000

6

Food & Allied       9,536,000 19,809,017.43      46,805,721    132,227,771    163,900,000

    664,700,000

7

Cement & Ceramic    223,500,000      17,332,890      62,407,629      70,994,776      88,000,000

      64,500,000

8

Telecom                  –                   –                  –    141,666,849    503,014,126

    871,100,000

9

Pharmaceuticals    125,336,000      22,285,145      93,611,443      77,000,000    153,500,000

    104,000,000

10

Leather, Chamical & Cosmatic      30,156,000      47,046,416    144,317,641    177,000,000    275,700,000

    234,200,000

11

Airline                  –                   –                  –    141,666,849    175,600,000

    406,561,000

12

Cold Storage      24,371,000      22,285,145      31,203,814    635,100,000

      54,491,026

13

SME       8,527,720        9,904,509 1,170,143,035 1,720,546,295 2,132,722,990

 2,000,200,000

14

Engineering    189,687,000     363,990,695    284,169,123      32,996,436      40,900,000

    356,500,000

15

Special Loan                  –                   –                  –

      20,800,000

16

Health      75,892,000     173,328,903    232,395,805      69,381,259      86,000,000

    155,000,000

17

Others    434,379,104     666,895,032    750,994,854 1,369,329,557 3,183,841,730

 4,222,899,974

        3,495,442,902        4,952,254,358       7,800,953,565     10,134,499,171     12,634,120,000     17,310,090,000

It is depicted from the table 5-3 that total loans of Standard Bank Limited Bank has significantly concentrated on disburse loans for industrial development of the country in the year from 2003 to 2008.

Particulars of Loans and advances:

It is observed that as on December 2009, Tk. 11391.71 million amount of loans considered good in respect of which the Bank is fully secured whereas Tk 4756.88 million amount of loans considered good which the banking company holds no security other than the debtor’s personal guarantee & Tk.1151.61 million amount of loans secured by the personal undertaking of one or more parties in addition to the personal security of the debtors.

From the table 6, In the year 2009, it is observed that 65.81 percent of the total loan portfolio is fully secured, 6.71% loans are secured by the personal undertaking of one or more parties in addition to the personal security of the debtors.

 Table 6: Year wise particulars of Loans from 2003-2008 in terms of Security

2004

2005

2006

2007

2008

2009

1) Loans considered good in respect of which the Bank is fully secured

91.50%

89.32%

86.72%

75.56%

53.73%

65.81%

2) Loans considered good against which the Bank holds no security other than the debtors personal guarantee

6.40%

7.66%

10.66%

14.74%

46.27%

27.48%

3) Loans considered good secured by the personal undertaking of one or more parties in addition to the personal security of the debtors

2.10%

3.02%

2.62%

9.70%

0.0%

6.71%

 Table 7: Year wise particulars of Loans from 2003-2008 in term of Security

Sl No

2004

2005

2006

2007

2008

2009

1

1) Loans considered good in respect of which the Bank is fully secured

3197.925

4423.1264

6764.16

7694.2748

6788.2482

11391.711

2

2) Loans considered good against which the Bank holds no security other than the debtors personal guarantee

223.68

379.3232

831.48

1500.9742

5845.7518

4756.788

3

3) Loans considered good secured by the personal undertaking of one or more parties in addition to the personal security of the debtors

73.395

149.5504

204.36

987.751

0

1161.501

 Loans Classification:

The most important indicator used to identify problems with asset quality in loan portfolio is the amount of classification loan. From table 8-9 it is observed that amount of unclassified loans is Tk.17047.00 million as on December 2008, bad or loss loan is of only Tk 263.14 million. This table reveals that only 1.54 % of total loans and advances is classified in nature, which indicates Standard Bank is performing well in maintaining asset management.

 Table 8: Year wise loan classification from 2003-2008

Figure In Million

Classification of Loans

2004

2005

2006

2007

2008

2009

Unclassified99.48%99.54%99.53%99.55%99.01%98.48%
Classified Specific
Bad/Loss0.52%0.46%0.43%0.45%0.99%1.52%

From the table 10 it can be observed that the amount of classified loans is increasing at an increasing rate while the amount of unclassified loans is increasing.

 Table 10: Year wise loan classification from 2004-2009

 Comparison with the Industry:

From the table 11is is observed that, total bank credit 55.67 percent and 36.52 percent are concentrated in Dhaka and Chittagong respectively and the remaining exposure is in other cities viz Khulna  (6 %),Sylhet ( 1%).

Table 11 Geographical location wise (division) distribution for the year 2007:
IndustrySBL
Dhaka66.2%55.67%
Chittagong17.6%36.52%
Sylhet1.9%1.81%
Khulna5.9%6.0%
Barisal1.6%0.0%

 Present situation of Law suits for recovery is given below:

CourtTotal CaseSettled

Money Loan Court

21

CMM Court

6

1

Pending

25

  •  Credit Monitoring Process
  •  Credit Recovery Process

Credit Monitoring Process

1.  Monitoring and Supervision of Loans & Advances
a)Check the diary showing terminal dates of receipt of all statements of advances and statements of accounts. Reminders by telex/call/fax will be issued if any statement remain un-received at Head Office 3/5 days after due date.
b)Total of outstanding amounts shown in various statements of advances of a branch must agree with the balances shown/reported in the statement of affairs of the branch. Officer concerned in Advances Department must report difference if any to Managing Director. Similarly total outstanding loans and advances reported by individual branches as per statements must agree with total loans and advances of the Bank as per consolidated statement of affairs prepared in Head Office.
c)Concerned Officers in Advance Department will then check/verify every loan accounts reported whether it is within limit and security shown is clear and value of security is correct and enough to secure the outstanding loan amount.
d) i)If the loan officer at Head Office finds any discrepancy  such as the loan exceeds approved limit or exceeds security value or not covered by approved limit or the limit expired or there is no change in the outstanding compared to previous months viz. static or contrary to any other terms of limit, he should immediately take up with branch manager for clarification/ adjustment etc. and put up notes to the In-charge or the Managing Director.
 ii)Borrowers enjoying credit limit of Tk.1.00 (one) crore and above would be required to submit every quarter –Projected operating statements (Trading/Profit and Loss Account) for next year; and Projected fund flow statement for next year and the credit officer at Head Office shall verify Whether on verification of date as per statements actual operational results (production, sales, profit) conformed to the projected figures or whether there was any divergence without plausible explanations. Whether end use of bank credit is according to the purpose for which it was approved. If any unfavourable changes in asset positions are found due to loss or diversion, it should be located immediately through urgent inquires and brought to the notice of the Managing Director suggesting remedial measures.
 iii)In cases of all cash credit to industrial borrower for Tk.10.00 (ten) lac and above, monthly progress report should be obtained to show comparative production and sales, working capital need on the basis of current asset and current liability in the proforma prescribed for the purpose.
e)If the officer finds that a loan against Trust Receipt (LTR) is remaining unpaid beyond due date and PADs are unpaid for more than 30 days from the date of receipt of same in case of shipment from Europe/America/ South America he should pursue the concerned branch and bring it to the notice of In-charge of credit division at Head Office. Special attention must be paid in case of PADs with shipment from Hong Kong, Singapore, Malaysia or India remains unpaid for 15 days.  In case of shipment by land route by truck from neighbouring countries not more than 7 days should be allowed and Head Office must keep a watch over timely retirement of the documents.
f) i)All fresh facility statement must be checked thoroughly within 2/3 days of their receipt and comments if any must be sent to the branches quickly. Head Office must see that branches regularly send Fresh Facility Statement as per policy directives already issued. The branch manager shall give no unauthorised facility.
    ii)If on examination of statement of advances any irregularity is detected in loan accounts as stated in para (b) and reliability or repayment is unlikely, then the branch must be asked to explain the situation. Head Office should establish contact with borrowers if necessary and officers from Head Office shall go to the branch for expediting recovery of the loans. Help from specialized account department may also be sought in extreme cases.
    ii)Stern measures shall be initiated against the branch manager and credit officers if the default is attributed to their negligence or indulgence given to the borrowers.
g) i)In-charge of Head Office Credit Department shall prepare rosters every 3 months for on-site inspection of advances at branches by officers from Head Office. Such roaster shall remain only with the In-charge of Department and not known to any one. Inspecting Officers from credit department shall use spot inspection guidelines on advance during regular on-site inspection.
    ii)Individual advance account with irregular transactions showing outstanding over Tk.25.00 lac in C.C. (Hypo)/LTR, Tk.50.00 lac in C.C. (Pledge) must be inspected by Head Office once in 2 months and in case of Tk.50.00 lac in C.C. (Hypo)/LTR and Tk.1.00 Crore and above in C.C. (Pledge)/LIM must be inspected once a month; (report will be made to the In-charge/Managing Director).
h) i)In case of term loans to industries in amount of Tk.20.00 lac and above upto Tk.50.00 lac, officers from Head Office Industrial Credit Department (ICD) must make on-site inspection every 2 months and in case of loans exceeding Tk.50.00 lac once a month.
ii)In case of Acceptance Bills liability in garment industries under Back-to-Back L/Cs for Tk.50.00 lac and above inspection must be made weekly.
i)Head Office shall prepare monthly statement of overdue loans and advances on the basis of principles conveyed to the branches in dealing with the advances and statement of classified loans half-yearly on the principles of classification of Bangladesh Bank. Head Office Credit Committee must discuss overdue and classified accounts every month and suggest measures to the Managing Director for improvement in recovery of overdue and classified loans.
j)Court cases filed by the branches must also be reviewed once a month by Head Office Credit Department for further actions.
k)Head Office shall prepare every month a consolidated statement of loans and advances to indicate Bank’s exposure in each type of loans and advances on the basis of risks involved and sectoral distribution for purposes of controlling excessive exposure in unwanted portfolios.  Officer-in-Charge of Credit Department, Head Office shall try to keep loan portfolios within the limits approved in policy and place to the Managing Director.

Credit Recovery Process

Actions in case of non-recovery and the penal rate:

Suit is the final steps to be taken in respect of recovery of an advance, when all endeavors of the Bank i. e. personal contact, moral suasion, request, notice for repayment of the advance turned fruitless.
 Legal Notice:
1.As preparatory to filling suit, the branch shall serve legal notice upon the borrower(s), guarantor(s). Directors of the company (in case of advance against Ltd. Co.) through the legal adviser/panel lawyer under registered post demanding adjustment of the liabilities within a specific time.
 Checking documentation and collecting property particulars:
1.Documentation of the advance shall be checked to ensure that these are not barred by limitation for taking legal action. Full particulars of the assets of the borrower and co-obligants of the advance shall be ascertained.
 Preparing review form:
1.Review form in respect of each party detailing therein full particulars about the borrower, his assets and the advance shall be filled in as per the proforma circulated by Head Office. While filing in the review form, chance of recovery shall be clearly mentioned. The review form shall be sent to the competent authority with due recommendation stating the reason for filing suit. 
 Filing of suit and special points of attention: 
1.On receipt of approval immediate steps shall be taken to file suit through the Bank’s legal adviser/panel lawyer. While filing suit it shall be ensured that all the necessary parties, partners, directors (in case of Ltd. Co.) guarantor, as the case may be are made defendants in the suit and steps are taken to attach the assets before judgment. In case of mortgage of immovable property either by way of equitable mortgage/or by registered mortgage, mortgage/title suit and not money suit shall be filed.
 Post suit follow up: 
1.After filing of suit its quickest disposal shall be arranged through the conducting lawyer, through constant and frequent liaison with him.For effective follow up the suit filed the following steps should be taken:-
a)Quick service of summons on the defendants shall be arranged through the lawyer. 
b)When the suit is decreed in favor of the Bank steps shall be taken to serve the decree by the court and obtain a copy of the decree immediately. 
c)Branch shall ensure that the borrower/judgment debtor in terms of the decree pays the dues and in case of default execution case shall be filed without any delay.
 

 

d)After filling of the suit but before the issuance of the decree if any borrower/obligator comes forward to settle the case amicably, a compromise petition of the party mentioning therein the terms of compromise shall be sent to the competent authority seeking their approval. If approved a compromise decree shall be obtained from the court through the suit-conducting lawyer and it shall be ensured that the liability is settled in accordance with the compromise decree. In case of its violation, the case shall be revived and conducted in the usual manner with approval of the competent authority.
 Difficulties in filing suit:
1.Banks usually face, amongst others, the following difficulties in filing and continuing suits:
a)Demand/Legal notice cannot be served for lack of proper and correct address.
b)Detailed description of property to be attached (other than mortgaged property) cannot be given to the court.
c)The documents may be found to be time barred.
 Recording of detailed particulars of the borrowers:
In order to avert the above situation/difficulties the following steps should be taken:-
a)At the time of opening of account as well as before making advances name, father’s name, business address, residential and permanent address of the borrower, guarantor, partners/directors of the company shall be recorded.
 Maintenance of particulars of assets and verification thereof:

 

b)Before allowing advance, full particulars of the property and assets of the borrower/obligates shall be checked through documentary evidences and a clear note with regard to the particulars of the property shall be kept in the file of the borrower.
Periodical checking of documents:
c)Documents of each advance shall be periodically examined and actions shall be taken well ahead of the expiry of the limitation period of documents. Process for filing suit shall be started well in advance of the expiry date of the validity of each document.
 Filing of suit with deficit court fee:
1.Sometimes occasion may arise to file suit to save a case from the mischief of limitation act. Under such situation the branch with deficit court fee of Tk. 1 shall file suit, after serving due legal notice, without waiting for formal approval of the competent authority. On filing suit detailed review form with full particulars of filing of suit, shall be sent to the competent authority, seeking their disposal instruction. On receipt of the instruction, the suit shall be disposed of accordingly.

Findings & Conclusion

Findings

Some of the major problems and suggestions thereto are discussed below:

1) The competitive environment in the banking industry in Bangladesh is quite complex. There are nationalized banks having extensive branch networks, holding huge deposits and enjoying certain prerogatives. There are leading international commercial bank branches with focused business objectives, low cost of funds, state-of-the-art technologies and highly skilled human resources. SBL is still in the process of being fully automated. Highly organized and automated foreign bank branches operating in Bangladesh pose a threat to SBL’s ability to compete.

2) Without proper documentation sometimes bank gives loans to renowned personalities, which is a violation of loan policy of the bank. Bank should disburse loans after completion of all loan documentation formalities.

3) Bank sometimes gives much importance on the collateral rather than the character of the party. The cash generation ability of the business, which is much important for the credit recovery. If a loan get stuck up then it is very difficult to realize through selling the collateral. Besides it is time consuming process also.

4) Availability of skilled human resources are a constraint but that can be removed by focusing on training and also through recruitment of qualified personnel at all levels on a regular basis.

5) Lack of monitoring exists at some branches which may causes severe impact on loan portfolio as well as bank’s asset-liability management. So SBL management must recognize this risk and should be very careful to avoid any such pitfall through its activities.

6) Very often, Branch officer does not visit the project field to check whether the credit is being used in proper purpose. This should be avoided and Head Office must monitor at regular interval.

7) In some branches of Standard Bank Ltd, specific job segregation is not done. Same officer is preparing the project profile, maintaining the security, disbursing the credit and involves monitoring the credit.

8) Credit administration as per the Bangladesh Bank guideline (CRM) is not properly implemented. It is very much needed to implement it without further delay.

9) Risk in loan portfolio can be diversified away by seeking profitable ventures and avenues.

Conclusion

Systematic risk in the form of classified debts originating from the borrowers end due to their management failure, financial imprudence, unfavorable shift in the market for their products and services, negative external and uncontrollable impact on the industry in which the borrower’ s ability to conduct business as usual. Standard Bank Ltd routinely scrutinizes all its clients and the associated risks systematically using up-to-date risk evolution techniques and thereby have been able to contain its asset quality so far. Some other risks are external to SBL, as they are to any other bank. Being a new generation Bank, Standard Bank Limited (SBL) has been able to maintain a very low classified portfolio over the last 9 years of operation. SBL’s present classified loan portfolio stands at 1.52 % of the total loan portfolio, against an industry average of around 18.27%. The selection of right and prospective borrowers, proper loan documentation, timely monitoring and supervision of disbursed loans make the bank in a financially sound position compared to other private commercial banks in the industry. The credit risk management guideline of Bangladesh Bank helped a lot to attain efficiency in credit management, which is truly reflected in the loan portfolio.

REFERENCES:

1)   Standard Bank Ltd. Annual Reports.

2)   Standard Bank Ltd. Credit Manual.

3)   Bangladesh Bank. Quarterly and Annual reports.

4)   Different circulars issued by Bangladesh Bank.

5)   Different circulars issued by credit division of Standard Bank Ltd.

Standard Bank Ltd