Operational activities of IFIC
Credit risk is an investor’s risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Another term for credit risk is default risk.
Investor losses include lost principal and interest, decreased cash flow, and increased collection costs, which arise in a number of circumstances:
A consumer does not make a payment due on a mortgage loan, credit card, line of credit, or other loan
A business does not make a payment due on a mortgage, credit card, line of credit, or other loan
A business or consumer does not pay a trade invoice when due
A business does not pay an employee’s earned wages when due
A business or government bond issuer does not make a payment on a coupon or principal payment when due
An insolvent insurance company does not pay a policy obligation
An insolvent bank won’t return funds to a depositor
A government grants bankruptcy protection to an insolvent consumer or business
Credit Operations and Description:
The Bank is committed to provide high quality financial services/products to contribute to the growth of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country. In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is of paramount importance as the greatest share of total revenue of the Bank is generated from it, maximum risk is centered in it and even the very existence of Bank depends on prudent management of its credit portfolio. The failure of a commercial Bank is usually associated with the problem in credit portfolio. As such, credit portfolio not only features dominant in the assets structure of the Bank, it is critically importance to the success of the Bank also.
Types of Loans and Advances:
On a broad basis IFIC Bank Limited offers two types of advances –
1) Unsecured Advance;
2) Secured Advance;
Unsecured advances are granted to a constituent, which is not backed by any security.
An unsecured facility is allowed in exceptional circumstances, only for a short period, with definite repayment arrangement, subject to restrictions imposed by Bangladesh Bank or any other competent authority to a customer based on his personal credit worthiness, standing and reliability. A definite arrangement for repayment, whether by installments or otherwise, must, as a rule, is ensured.
Secured advances are granted to a constituent that is guaranteed by tangible securities subject to margin restrictions. Secured advances given by the Credit Department are classified as follows:
Loans are a type of advance allowed to a constituent for a specific purpose and for a definite period.
Types of Applicants: Individual, firms, industries;
Time Duration: Short term- Up to 12 months; Medium term- More than 12 and up to 36 months; Long term- More than 36 months;
Mode of Distribution: The total loan amount is disbursed at a time or in trances within a specific time.
Mode of Repayment: The principal and interest are repayable by installment on agreed terms.
HOUSE BUILDING LOAN:
Loans allowed for construction of house (residential or commercial) fall under this type of advance-
Types of Applicants: Individuals, firms and bank staffs;
Loan Size: Maximum 75 lac.
Loan Period: Maximum 15 years.
Mode of Disbursement: The amount of loan disbursed in three equal installments as under
Mode of Repayment: The loan amount and interest are repayable through equal specific numbers monthly installments after the completion of house.
Lease financing is one of the most convenient sources of acquiring capital machinery and equipment whereby a client is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rent.
Type of Applicants: Manufacturing concerns.
Time Duration: Maximum for five years.
Mode of payment: Payment is made directly to the seller of the machines.
Mode of Repayment: At a specific rent, which is inclusive of the repayment of principal as well as interest for adjustment of the loan.
a) Non equity payment is required by the client.
b) Exempted from the tax for the lease-financing period.
CONSUMER CREDIT SCHEME:
IFIC Bank Limited plays a pioneer role in providing necessary finance to the fixed income group for buying items that are necessary for raising the quality of living through the Consumer Credit Scheme. Through this special scheme IFIC Bank Ltd. offer Necessity, Convenience and Comfort.
Types of Applicants: Reputed Government and Private Service holders.
Time Duration: Specific period as per agreed terms and conditions.
Mode of Payment: Payment is made directly to the seller of the goods after obtaining a portion of equity from the borrower and personal guarantee.
Mode of Repayment; The loan amount and interest are repayable through equal specific numbers monthly installments after the purchases of goods.
A Credit Card is an instrument assuring the Merchant (by the Acquirer) for the payment made by the Cardholder against goods, services or withdrawing Cash from Bank/Institution or Automated Teller Machine (ATM).
IFIC Bank Limited is a member of VISA and thus issuing VISA Card in Bangladesh. IFIC Bank is offering following types of VISA Card:
Gold VISA Card- International;
Gold VISA Card-Local;
VISA Standard (Silver) Card-International;
VISA Standard (Silver) Card-Local;
All Credit Cards are issued by IFIC Bank Card Division in Head Office. Branches just dispatch the application to Card Division and deliver the issued card to its customers. It also collects the Card Bill on behalf of Card Division.
SMALL AND MEDIUM ENTERPISE CREDIT SCHEME (SME):
IFIC Bank Limited is offering a unique credit scheme only for the Small and Medium Enterprise (SME).
The main objective of the Small and Medium Enterprise Credit Scheme is to provide credit in flexible terms and conditions for the development of small and medium enterprises in the region easily accessible by the branches of IFIC Bank Limited.
The second objective of this scheme is to create opportunity for employment and economic growth through providing facilities to develop the small and medium enterprise sector of the country.
Eligibility for Application: The entrepreneur of the Small and Medium Enterprise must have following qualities to avail the credit facility under the scheme:
Minimum two years of management experiences of the business;
Age limit between 25-50 years;
Owner of a Small or Medium Enterprise;
The project must be financially viable and socially desirable;
Nature of Loan:
Wide Loan Coverage:
The scheme provides coverage for small enterprises up to Tk. 2, 50,000 and for medium enterprises up to Tk. 75, 00,000.
One Year for the continuous loan;
Maximum five years for the term loan;
Mode of Repayment:
Continuous Loan- The client as per his requirement can withdraw the total loan limit time to time subject to certain conditions.
Term Loan- The client can withdraw the total loan amount at a time.
Personal Guarantee from two persons acceptable to the Bank.
Any other acceptable securities available to the borrower.
The borrower has to maintain a Savings A/C with a compulsory deposit of 5% of outstanding loan amount per month for building up his own fund.
WOMEN Entrepreneur’s Loan (Protyasha):
Any business purpose loan for small and medium sized business, owned by women entrepreneurs.
Eligibility: Woman Entrepreneurs having two years experience in the same line of business. Monthly cash flow to support proposed loan installment
Nature of the Loan: Term Loan
Loan size: Minimum Tk 50000 and Maximum tk 3 lac
Repayment: Monthly repayment facility
Security: No collateral security
Maximum 18 (Eighteen) months for loan amount of Tk. 50,000
Maximum 24 (Twenty four) months for loan up to Tk.1.00 lac.
Maximum 36 (Thirty six) months for loan up to Tk.3.00 lac.
Interest Rate: 15.00% p.a. with quarterly rest or as revised from time to time.
To purchase of Road/Water transport for commercial use individual, business enterprises (other than public limited company) engaged in transport business at least two years experience are eligible for transport loan.
Interest Rate: 14.75% to 15.50% p.a. with quarterly rest or as revised from time to time
Loan processing fees: 1.00% on loan amount maximum tk. 10000
Service Charge: .50% on loan amount
Penal Interest: Additional 2.00% p.a. on the overdue amount, if any
Non Funded Facility
Non funded credit facility to a customer refers to a bank’s commitment to a third party on behalf of the customer. The commitment itself constitutes facility but does not involve cash outflow from the bank. The bank’s commitment essentially states that in the event of occurrence or non-occurrence of a particular event, within a particular date, due to a particular reason or reasons, a specific sum of money shall be paid by the bank to the third party upon claim in a particular manner. The non funded facilities are:
Letter Of Credit:
A Letter of Credit is a commitment (undertaking) by the Bank to pay an agreed sum to the seller of goods on behalf of the buyer (client) under precisely defined condition. This is a non funded facility provided to the client for import of goods from abroad or in some cases to procure them locally.
The letter of credit gives the seller or exporter:
Credit security by eliminating the credit risk in the sale and shipments of goods;
Credit facilities by financing the sale when the goods are in transit;
Exchange security by assuring him that the required amount is available to him under credit from the time he receives the buyer’s order and the time of shipment and presentation of shipping documents.
Once the Bank receives the L/C documents as per specified terms and condition of the L/C, the amount is transferred to the Bills under Letter of Credit (BLC) Account. As per commitment Bank pay the seller of goods through Bank and settles the outstanding BLC amount from the client before handling over the L/C documents to him.
Bank Guarantee is a contractual relationship between the account (customer) and the beneficiary. The account party requests to the Bank to issue guarantees on their behalf to the beneficiary-committing to make an unconditional payment of certain amount of money to the beneficiary, if the customer (on whose behalf it is given) becomes liable, or creates any loss or damage to the beneficiary. It is a contingent liability for the bank.
The Issuance Procedures for Bank Guarantee:
Step-1: The party looking for Bank Guarantee at first applies to the Bank in a prescribed form. In the Application, the following information should exist:
Beneficiary (name & address)
Expiry (with claim period);
Information relating to a guarantee issued under a documentary credit (in case of a foreign guarantee);
Advance Payment Guarantee against Foreign Bank Counter Guarantee
Credit Appraisal System
It is very important for the proper functioning of the credit facilities is that they are guided through a definite and structured guiding system. Every project has to be evaluated before funding. The credit worthiness and performance of the clients should also be evaluated before approval of the credit proposal. All these are done using the Credit Appraisal system. The performance of the bank is highly influenced by the presence and effective utilization of a sound and appropriate credit appraisal system.
Credit Appraisal System of IFIC Bank Ltd.
The credit appraisal is the process of identifying and evaluating the risks in any lending proposal. The steps of credit appraisal system of IFIC Bank Limited are as follows:
After receiving the loan application the credit officer completes the ‘Lending Risk Analysis’ using information provided by the applicant and if necessary he inspects the project physically. From the information provided by the borrower and collected from inspection the credit officer then completes the lending risk analysis. Lending Risk Analysis is the complete evaluation of the risks regarding the project and the applicant. This analysis is done through some quantitative and qualitative factors.
Quantitative factors are the firm’s financial performance.
Qualitative factors are the factors regarding the firm’s management, industry position, customer/supplier relation, customer’s account performance.
The credit officer also seeks information from the ‘Credit Information Bureau’ of Bangladesh bank through the Head Office about the applicant’s relationship with other banks and financial institutions that is whether he has any credit facility with any other financial institution and if he has than how is the performance of those credit facilities. In assessing any credit application the credit officer follows some distinct steps. Those are:
- Evaluating the past performance of the applicant.
- Assessing the risk of failure by identifying factors in the applicant’s present condition and past performance.
- Forecasting the future condition of the applicant and evaluating the probability of successfully adjusting the loan.
- Setting terms and conditions for the loan.
Based on the analysis the credit officer prepares the proposal and with the approval of the branch credit committee, sends it to the head office for the approval of the head office credit division and the executive committee of the board. If the proposal is approved then the credit officer contacts with the applicant and prepares the documentation for loan and makes disbursement.
Grading Risk towards Approval of the Proposal
The overall risk assessment provides four kinds of lending risk for decision-makers, which are as follows:
Bank do not approve any lending having an overall risk as “marginal” and “poor” without proper justifications except for renewal of existing facilities under compelling circumstances or for other reason such as salvage, which would also contain covenants for future improvement of the position . All credit applications rated “poor” require the approval of the board regardless of purpose, tenor or amount.
Table: 3.7 Loan Classification System (International Standard)
|Length of Overdue||Status of Classification||Rate of Provision||Frequency of Classification|
|Less than 3 months||Unclassified||1% – 5%||At least|
Quarterly, usually Monthly.
|Loans overdue for 3 months but less than 6 months||Substandard||10% – 25%|
|Loans overdue for 6 months but less than 9 months||Doubtful||50% – 75%|
Performance of IFIC Bank in Loans and Advances:
IFIC Bank Ltd provides different types of credit facilities. Credit facilities have steady growth over the last three years. Loan general and Cash Credit, on the other hand House building, Lease finance, and hire purchase all are increasing over the years.So the Performance of Different Types of Loans is given below:
Performance Evaluation of Deposit:
Deposit Mix (2011, 2010, 2009)
Total Income, Total Expense, and Profit before provision and Recovery
Income Source of year
Performance of different Bank in Loan and Advances:
In this table we show that Performance in Loan &Advances of IFIC bank is much better than Trust bank and Prime Bank.
Financial Highlights of IFIC Bank Ltd.
|Profit After Tax||7,15||1,647|
|Total loans & Advances||63,558||47,563|
|Return on Assets %||0.89%||2.37%|
|Return on Equety %||11.60%||33.12%|
|Capital Adequency Ratio||10.01%||9.78%|
|No. of Employess||2,383||2,315|
|NO. of Brances||99||95|
|No. of SMF Centers||2||2|