SME Banking of Mercantile Bank Limited

The principle objective of this report is to Sme Banking and Performance Analysis of Mercantile Bank Limited. General objectives of this reports are to become familiar with the operations of Mercantile Bank Limited, to become familiar with the SME product policy guidelines maintained by Mercantile Bank, to analysis the SME Lending procedures maintained by Mercantile Bank, to observe SME Lending activities of Mercantile Bank Limited, to state the present condition of SME financing of Mercantile Bank and to analyze the comparative performance of Mercantile Bank Limited with third generation banks.

Introduction

Banks are the blood of economy; banking system plays very important role in the economic life of the nation. The total money circulation of the economy is done through the banks. In a developing country like Bangladesh banks perform key role to make equal distribution of fund in all sectors of the economy. Side-by-side the banks also need to maintain profitability to ensure their continuity. But the intense competition between the banks exposes the banks to more risk and requires them to make innovation to sustain in the economy. SME financing is a new innovation in banking industry of Bangladesh. SME contributes more to the development of a developing country.

Realizing the importance of Commercial Banks and SME development for a developing country like Bangladesh, I have chosen to do my internship report titled-

“SME Banking & Performance Analysis of Mercantile Bank Limited”

The internship-training is an integral part of BBA degree requirement. After completion of BBA degree, students are sent to different organizations to expose them to real life management situation in the profit seeking commercial and non- profit seeking organizations. The theoretical knowledge that we acquired from class lectures, books, journals, case studies, project, workshop etc. is replenished in the practical settings. Here we also get an opportunity to realize the relevance and usefulness of the learning. Hence, I was placed in Mercantile Bank Limited, Mohakhali Branch by BBA program placement office for practical orientation in Bank.

Objectives of the study

The main objective of the study is to highlight the present SME financing practices by banks in Bangladesh and to suggest measures to make SME financing more purposeful and effective. Besides the following objectives are also to be taken under discussion:

• To highlight the importance of SME financing in Bangladesh.
• To highlight the initiative of Bangladesh Bank to promote SME financing by commercial banks.
• To become familiar with the operations of Mercantile Bank Limited.
• To become familiar with the SME product policy guidelines maintained by Mercantile Bank.
• To analysis the SME Lending procedures maintained by Mercantile Bank.
• To observe SME Lending activities of Mercantile Bank Limited.
• To state the present condition of SME financing of Mercantile Bank.
• To analyze the comparative performance of Mercantile Bank Limited with third generation banks.
• To analyze the overall performance of Mercantile Bank over the years.
• To measure the profitability and probability of book value insolvency of Mercantile Bank.
• To find out the challenging areas and recommend some better solutions for solving the problems.

Methodology

Types of research:

1. Descriptive &
2. Analytical

The study is based mainly on depth discussion with the management of the organization and published information collected from secondary sources of the organizations.

Data Selection:

Problem identification can solve the major portion of the problem. So first of all it was tried to identify required information about the study.

Data Collection:

Both primary and secondary data have been used for the purpose of the study. Following are the sources of primary and secondary data:

Major Sources of Primary Data:

• Informal interview with the officers of SME department of Mercantile Bank, Mohakhali Branch.
• Direct participatory observation: This technique of data collection is the main technique for the study. It was done by maintaining daily office hours strictly and recording daily activities in a diary book.
• Information conversation with the SME clients of Mercantile Bank Limited.

Major Sources Secondary Data:

• Annual report.
• Bank brochures.
• Bank’s Web site.
• Books, journals & magazines.

Company Profile

Mercantile Bank has been launched by a group of successful entrepreneurs with recognized standing in the society. The management of the Bank consists of a team led by senior bankers with decades of experience in national and international markets. The senior management team is ably supported by a group of professionals many of whom have exposure in the international market.

Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services and to contribute socio-economic development of the country. Mercantile Bank Limited is one of the fastest growing third generations private commercial Bank started its business operations on June 02, 1999. Presently we have a network of 65 online Branches all over the country. Mercantile Bank Limited (MBL) has achieved a remarkable growth in all the sectors of banking activity including foreign remittance. The inflow of inward foreign remittances of the Bank is increasing day by day steadily. The Bank provides a broad range of financial services to its customers and corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce and industries of the country.

The asset and liability growth has been remarkable. Mercantile Bank has been actively participating in the local money market as well as foreign currency market without exposing the Bank to vulnerable positions.

Mercantile Bank Limited started its service with a vision to serve people with modern and innovative banking products and services at affordable charge. Being parallel to the cutting edge technology the Bank is offering online banking with added delivery channels like ATM, SMS banking. And as part of the bank’s commitment to provide all modern and value added banking service in keeping with the very best standard in a globalize world.

Operational Mechanism of Mercantile Bank

Mercantile Bank has on offer a broad array of innovative financial services specially designed to match the specific requirement of the clientele ranging from large corporate houses, small and medium enterprises, to private individuals. The team of professionals assists the clients in finding the most appropriate financing package making use of the Bank’s own resources and/or organizing loan syndications, to help the clients realize their short-term goals and long-term aspirations. Rated “AA-” by the Credit Rating Agency of Bangladesh, Mercantile Bank is committed to design the best possible financing package for our clients that best fit their individual requirements, covering the entire spectrum of banking operation.

Corporate Banking

Corporate Banking unit offers banking products and services to the corporate clients customized to meet the specific needs of those organizations. Corporate Banking department manages relationship of our multinationals and large corporate clients. The products and services offered by Mercantile Bank Limited to the corporate clients are Corporate Credit, Electronic Banking, Leasing, Payments and Cash Management, Customized Loans, Trade Services etc.

Small and Medium Enterprises

The Bank intends to encourage the small and medium entrepreneurs and hence structured its SME financing activities. The Bank has set the definition of small enterprise in line with Bangladesh Bank guidelines. A special credit scheme under the name and style “Small and Medium Enterprise (SME) Scheme” has been introduced to extend credit facilities to the small and medium entrepreneurs of the country.

Syndication Financing

Syndication means joint financing by more than one bank to the same clients against a common security. This is done basically to spread the risk. It also provides a scope for an independent evaluation of risk and focused monitoring by the agent / lead bank.

In Syndication financing banks also enter into an agreement that one of the lenders may act as Lead Bank. In such case, lead bank has to co-ordinate the activities at various stages of handling the proposal i.e. appraisal, sanction, documentation, sharing of security, disbursement, inspection, follow-up, recovery, distribution of installments. / interest etc. It may also call meeting on syndication members, whenever necessary to finalize any decision.

Capital market Division

Emphasis on diversified services has been ingrained within the Bank to meet the actual and need-based requirements of the customers. MBL unlocked its first Brokerage house in 2009 named, “Mercantile Bank Limited Brokerage House”, bearing membership # 224. At the end of 2010, the Bank has 7 branches of brokerage house. Mercantile Bank Limited Brokerage House has been developed to ensure development of sound capital market and to provide higher, better and diversified services to a wide range of customers. MBL is offering high quality products and services at a competitive rate. With the aim of diversifying the product line and explore the business opportunities of capital market, Mercantile Bank Limited Brokerage House offers full-fledged international standard brokerage service with margin loan facility. MBL is also a full service Depository Participant (DP) of Central Depository Bangladesh Ltd. (CDBL). The brokerage service is designed to provide customers with necessary support profitably in the stock market.

International Trade

Mercantile Bank’s international trade business achieved 47.75 percent growth rates for import and 28.31 percent for export in 2010. The bank has been using SWIFT communication system for foreign trade arrangement. The bank had correspondence relationships with 589 banks at the end of 2010. The bank has been using SWIFT communication system.

Remittance

To strengthen the remittance business the bank has signed a number of long term arrangements with different well connected remittance partners across the world. At present, the bank’s global partners in remittance system are 23 in number. Meanwhile, the bank has established correspondent relationship with large local banks and NGOs to ensure delivery of funds to the recipients anywhere in the country at the shortest possible time.

Mercantile bank has entered into Remittance Arrangement with a good number of Overseas Exchange Companies in different parts of the world to facilitate wage earners to remit their money to Bangladesh. The Bank is also trying to establish its own exchange house aboard to provide better customer services to the expatriates. Very soon, MBL will inaugurate an Exchange House in Birmingham of UK, namely, “Mercantile Bank Exchange House (UK) limited”.

Retail Banking

Retail Banking provides individual and self-employed customers with a wide range of banking and related financial services such as Current Account, Savings Account, Short Term Deposit, Fixed Deposits, Deposit Pension Scheme, Any Branch Banking etc. Apart from traditional savings and private accounts, Mercantile Bank has launched a loan scheme. This is targeted at salaried and/or self-employed individuals, and specially tailored to meet their needs. Under the Coverage scheme there are ten categories of loan facilities encompassing Car Loan, Home Loan, Consumers Credit Scheme, Doctors’ Credit Scheme, Education Loan, Rural Development Scheme, Lease Financing, Cottage Loan, House Furnishing Loan, and Any Purpose Loan Scheme. There are also some other Credit schemes such as Overseas Employment Loan, E T P / Bio-Gas / Solar Energy Loan, Krishi / Polli Loan called “Nabanna”, SME Loan (CHAKA; ANANYA; CHALTI MULDHAN; SINGLE PAYMENT LOAN)

SMS-Banking

Short Message Service (SMS) is one of the most modern banking services. MBL provides endless efforts to serve the Clients adhering modern technology. Using SMS from the Mobile Phones, Clients can easily avail the Banking services, which is convenient, safe low-cost, fast and available round the clock. After withdrawal of cash from the ATM Booths, Customer receives an Instant SMS from the Card Division. In addition to that, MBL SMS Banking offers the following services to the customer:

• Access to account balance
• Last 3 transaction inquiries
• Cheque leaf status inquiry

MBL Cards

Presently the bank is offering a variety of card products to meet the modern and varying needs of the customers such as VISA dual prepaid card, VISA Dual Hajj Card, Credit Card, Debit Card Master Card, VISA credit etc. International/Dual card is accepted all over the world at millions of outlets and ATMs and also get advance against Credit card up to 50% of the card limit

ATM

MBL has now more ATMs and ATMs are proving a wider range of services to a wider range of Users. ATMs enable card holders from other banks can get their account balance and withdraw cash even if the card is issued by a foreign bank. The Bank carries its banking activities through 65 branches in the country. Mercantile Bank customers have access to 31 ATM Booths.

On-line Banking

On-line banking is a means to performing transactions, making payments etc. over the internet. It saves the time and efforts of the customers. Customers can easily deposit and withdraw money transfer money from one place to another place by using online banking facility.

Legal and recovery Activities

One of the most important departments is our legal and recovery department which monitors, manages and provides in-house legal opinion to all accounts and different matters of the bank. The department also directly manages all the classified accounts to maximize recovery of bank’s dues from the defaulted borrowers.

Human Resource Management

Mercantile Bank believes that the employees are the most important and valuable component of doing business. Knowledge and skill development is a continuous process and to keep our employees abreast of all the latest developments in the banking sector, the bank continuous to organize various training programs and workshops. Mercantile Bank is maintaining its own training institute namely, “Mercantile Bank Training Institute (MBTI)” which is equipped with all modern study aid and material. Mercantile Bank has an “Internship Program” in order to get fresh graduates acquainted with the real world corporate affairs. HR department arrange both Off-the-job and on-the job training program.

Definition of Small Enterprise:

Small enterprises are those institutions which are not categorized as public limited company and accomplish the following norms:

Table: Criterion of Small Enterprise

Definition of Medium Enterprise:

Medium enterprises are those institutions which are not categorized as public limited company and accomplish the following norms:

Table: Criterion of Medium Enterprise

SME Finance in Bangladesh:

Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a satisfactory level by eliminating various prejudices against labor intensive and creating jobs for the skilled manpower in the SME sector.

The Bangladesh Bank report said, the key reasons behind the SMEs are not entering into manufacturing are financial constrains, dismal state of utilities, technology and policy discriminations. On the others hand, Bank and others financial institutions generally prefer large enterprise clients because of lower transition costs, and greater availability of collateral.

The SMEs also fall outside the reach of micro finance schemes, and thus compelled to depend on formal sources of funds at much higher interest rates, the Bangladesh Bank report said.

The BB report, however, said that other interrelated problems like shortage of short and long term finance, lack of modern technology and lack of promotional support services are major obstacles in the way of development of the SMEs sector.

Considering these obstacles, Bangladesh Bank has adopted a preferential lending policy to promote the SME sector in line with the government development policies.

With a view to resolve the problems of business starting SME Foundation launched “SME Business Manual” to provide proper information and guidelines to manage the business efficiently.

SME Products Policy Guideline

Term Loan

Product Name: Chaka (Trade; Manufacturing; Service)

Loan Selling Limit: 2 lacs to 50 lacs.

Purpose: Working capital requirement, fixed asset financing or both.

Age of the entrepreneur: Minimum 21, Maximum 60.

Experience of the entrepreneur: is skilled in managing his/ her business preferably 2(two) years.

Loan Tenor: Maximum 36 months,

Security (As applicable):

• All usual/related charge documents
• Two Personal Guarantees of spouse/parents/brother(s)/sister(s)/other family members and land owners (as applicable).
• Third personal guarantee, other than immediate family members.
• Post dated cheques for each installment and one undated cheque for loan value including full interest payable thereon.

Key Factors to Consider:

• The entrepreneur must have an acceptable social standing in the community.
• The entrepreneur must have ability to run and demonstrate to his business.
• Background of the entrepreneur with regard to willingness to repay.
• Clear-cut indication of sources of income.

Other Factors:

Loan limit and security depends on the basis of nature and prospects of the business.

Loan Repayment System: Equal monthly installment.

Rate of Interest: 15% (10% for Women entrepreneur)

Women Entrepreneur Loan

Product Name: ANANYA (Trade; Manufacturing; Service)

Loan Selling Limit: 1 lac to 50 lacs.

Purpose: Working capital requirement, fixed asset financing or both.

Age of the entrepreneur: Minimum 21, Maximum 60.

Experience of the entrepreneur: is skilled in managing his/ her business preferably 2(two) years.

Loan Tenure: Maximum 36 months.

Security (As applicable):

• One Personal Guarantee of spouse/parents/brother(s)/sister(s)/other family members and land owners (as applicable)
• Post dated cheques for each installment and one undated cheque for loan value including full interest payable thereon.
• Registered mortgage of land property (minimum force sales value 125% of the loan amount) or registered mortgage of land property plus FDR (Face value of FDR and force sales value of registered mortgage of land property = 100% of the loan amount)
• All usual/related charge documents

Key Factors to Consider:

1. The entrepreneur must have an acceptable social standing in the community.
2. The entrepreneur must have ability to run and demonstrate to his business.
3. Background of the entrepreneur with regard to willingness to repay.
4. Clear-cut indication of sources of income.

Other Factors:

Loan limit and security depends on the basis of nature and prospects of the business.

Loan Repayment System: Equal monthly installment.

Rate of Interest: 10%

Continuous Loan

Product Name: CHALTI MULDHAN (Manufacturing/Service/Trading)

Loan Selling Limit:

0.50 lac to 50.00 lacs for Small Entrepreneur

0.05 lac to 500.00 lacs for Medium Entrepreneur.

Purpose: To meet up any justifiable and acceptable working capital requirements.

Nationality: Bangladeshi

Age of the entrepreneur: Minimum 21, Maximum 60.

Experience of the entrepreneur: is skilled in managing his/her business preferably 2(two) years.

Security/Collateral:

• Registered mortgage with Irrevocable General Power of Attorney of the property/ownership of the space/possession right purchased.
• Hypothecation of machinery, equipments, vehicles, inventories, advance payments.
• Lien of cash collateral (FDR, Scheme Deposit) and competent authority approved other en-cashable financial instruments.
• In case of proprietorship concern, personal guarantee of the proprietor and spouse.
• In case of Private Ltd Co. or partnership firm, personal guarantee of all directors/partners and their spouses to be obtained.
• In case of third party personal guarantee, guarantors must be subject to the same credit assessment as made for the principal borrower and acceptable to bank.
• Usual charges documents.
• Others as applicable in compliance with the policy of the Bank.

Insurance: Fire & Other insurance coverage as applicable

Interest rate: 13% p.a. However, the interest rate is subject to change based on the market conditions and policy of the Bank.

Penal interest rate: 2 % higher over the prescribed rate on overdue amount or as per policy of the Bank.

Other fees & Charges: As per policy and scheduled charges of our Bank.

Interest applied: Quarterly/Monthly rest basis.

Tenure of the loan: 1(One) Year on revolving basis.

Repayment method:

• By depositing daily sales proceeds in the loan account.
• Full and final adjustment by depositing sales proceed or from own sources of the customer on or before the expiry.
• Every drawing to be adjusted by 90 days

Seasonal Loan

Product Name: SINGLE PAYMENT LOAN

Purpose: To meet up legitimate short-term working capital requirements of business entity.

Loan limit: Tk 0.50 lac to Tk 50.00 lacs.

Nationality: Bangladeshi

Age limit: From 21 years to 60 Years (last installment of the loan has to be deposited before the borrower reaches the age of 60).

Note: Age bar may be relaxed /waved by the Managing Director & CEO of the Bank on acceptable grounds.

Minimum income: Minimum income must be commensurate with the amount of loan requested.

Borrower’s eligibility: The entrepreneur:

• Must be literate.
• Is skilled in managing his/ her business preferably 2(two) years.
• Has good reputation.

Security/Collateral:

• Registered mortgage with Irrevocable General Power of Attorney of the property/ownership of the space/possession right purchased.
• Hypothecation of machinery, equipments, vehicles, inventories, advance payments.
• Lien of cash collateral (FDR, Scheme Deposit) and competent authority approved other en-cashable financial instruments.
• In case of proprietorship concern, personal guarantee of the proprietor and spouse.
• In case of Private Ltd Co. or partnership firm, personal guarantee of all directors including Chairman & Managing Director/partners and their spouses to be obtained.
• In the Private Ltd Co./ partnership/ proprietorship firm, if the customer is unable to provide adequate collateral security, 02(two) personal guarantee including 01 (One) third party (guarantors must be subject to the same credit assessment as made for the principal borrower and acceptable to bank).
• Usual charges documents.
• Others as applicable in compliance with the policy of the Bank.

Insurance: Fire & Other insurance coverage as applicable.

Interest rate: 15% p.a. but in case of Woman Entrepreneur’s Refinance Scheme, 10% p.a. However, the interest rate is subject to change based on the market conditions and policy of the Bank.

Penal interest rate: 1 % higher over the prescribed rate on overdue amount or as per policy of the Bank.

Other fees & Charges: As per policy and scheduled charges of our Bank.

Interest applied: Monthly rest basis

Tenure of the loan: Maximum 09 (Nine) months.

Repayment method:

• Service interest on monthly basis.
• Entire outstanding loan amount will be repaid on or before the expiry date of the loan.

Loan Processing Procedures for a SME Loan Application

Preliminary Steps for Loan Processing

Relation building or Customer acceptance policy/KYC & relationship

First of all we have to know the customer. If the applicant is new to us then we let the client open bank account and continue transaction for a certain time and upon good reflection of transaction we will proceed with the loan proposal. Having an account or opening an account is must to proceed for any loan request from any customer. Whatever we want to facilitate the customer depends on our knowledge on the client. And an account helps up to enrich our knowledge on our client. And if the transaction in the customer account reflects healthy and sound views then we proceed with the loan application to the next step as follows:

Identification of Customer Needs

For Working Capital (W/C) Finance: The loan amount should also be small or within comfortable range of the customer with sufficient cushion to cover unforeseen troubles in business.

For Fixed Asset (F/A) Finance: The age & nature of the business & investment in fixed asset is very important in case of fixed asset finance.

Collection of Data & Required Papers

Applicant’s Required Papers:

1. Trade License of business (Up to Date).
2. I.N Certificate.
3. Voter ID / National ID.
4. Photograph four (4) copies.
5. Original rental deed copy of Shop / Business institute.
6. Bank Statement 12 months.
7. Recent Electricity bill of shop/Business institute.
8. Recent electricity bill of residence. (If applicable)
9. Recent rents recite copy of Shop / Business institute.
10. Photograph of Shop / Business institute (6-8).
11. Name, Relation, Profession, Address & Mobile No. of four (4) close relatives.
12. Pad of Shop/Business institute (10).
13. Sanction Letter & Loan Statement Others Bank. (If applicable)
14. Copy of land valuation report in case of property mortgage.
15. Papers on land and building or any other property.

Required Financial Information:         

1. Stock to be purchased from proposed loan amount and their value & quantity.
2. Yearly operating expenses of the client’s business
3. Current receivable and buyer list.
4. Current payable and supplier list.
5. Fixed assets list

Information regarding Sister concerns/affiliates

Following information regarding sister concerns/affiliates will be furnished:

Name of the enterprise(s), Location of the business, type of business, name of other owners, if any

Annual sales, rate of net profit, receivables

Payables, inventory, Borrowings

The following papers will be submitted:

1. Sanction advice of loan a/c, if any
2. Loan account statement for the last 1 year

Other documents

In case the land on which the factory/ sales center/office is situated is owned by the entrepreneur(s)/ owner(s): title of deed/ up to date rent receipt of the landed property will be obtained.

In case the possession is purchased or hired: the possession deed or rental deed in non-judicial stamp of Tk. 150.00 denomination will be obtained.

Guarantor’s Required Papers:

Spouse Guarantor

1. Voter ID / National ID.
2. Photograph two (2) copies.

Relative Guarantor

1. Voter ID / National ID.
2. Photograph two (2) copies.
3. Visiting Card. (If applicable).
4. Trade License of business Up to Date. (If applicable)

Business Guarantor

1. Voter ID / National ID.
2. Photograph two (2) copies.
3. Visiting Card.
4. Trade License of business (Up to Date).
5. TIN certificate. (If applicable)
6. Recent electricity bill of residence. (If applicable)

Guarantor- Permanent Residence in Dhaka

1. Voter ID / National ID.
2. Photograph two (2) copies.
3. Visiting Card. (If applicable)
4. Trade License of business (Up to Date). (If applicable)
5. TIN certificate. (If applicable)
6. Recent electricity bill of residence.

Onsite Inspection & Data Verification

The Relationship officer of SME department should visit the business at least twice, once in the morning and once in the afternoon (depending on business sales frequency)

The Relationship officer should spend at least 3 hours each time in the business and take note of the following:

• Customer dealing
• Sales/day
• Inventory/stock
• Selling price
• Credit Sales
• Payment behavior

The Relationship officer should also assess:

• How many times the customer needs to buy stock/month
• How much money he spends for stock purchase and
• How/from where he pays for the stock

Financial Spread Sheet (FSS)

This is an intensive analysis of projected financial figures of the project to assess the financial strength of the project or proposal. Here we prepare the following financial statements:

1. Balance sheet.
2. Profit and Loss Statement.
3. Projected cash flow statement.

Financial Ratio Analysis:

Here also we analyze the following rations to assess financial strength:

1. Gross profit margin.
2. Net profit margin.

Gross profit ratio (%) (Gross profit / Total sales)

1. Net profit ratio (%) (Net profit / Total sales)
2. ROI (Average EAT or Net profit / Total Investment)
3. PBP (Total investment / Net cash benefit or net profit)
4. Debt service ratio (Operating cash / Installment paid)
5. Gross rate of sales ( Current year sales / Last year sales)
6. Leverage ratio (Total Liabilities / Net worth) Debt-equity ratio may be up to maximum 1:1

Collection of CIB Report

Mercantile Bank collects CIB report from the department of “Credit Information Bureau” of Bangladesh Bank regarding the proposed loan applicants. Approval will be accorded subject to receipt of clean CIB report from Bangladesh Bank. In case of existing liability satisfactory (unclassified loan status) CIB report will serve the purpose.

Credit Assessment

A thorough credit and risk assessment is conducted prior to the granting of loans. The result of this assessment is presented in a Credit Application that originates from the Relationship Manager (RM) or Account Officer are familiar with the Lending Guidelines and conduct due diligence on new borrowers, principals or guarantors. Mercantile Bank Limited has established Know Your Customer (KYC) and Money Laundering Guidelines which has been adhered to at all times.

Documentation

Upon receipt of the approval from head office we will send the approval to the customer and request this to inform us in written his due acceptance of the approval and then we will proceed to the documentation. It is a very important part of credit activities. Failure of proper documentation may lead to a loss of bank in case of client’s failure to repay it. If all the charge documents are not maintained properly then bank may fail to take any legal action against the defaulter.

Legal Documents

• Sanction Letter Accepted by Entrepreneur
• Demand Promissory Note
• General Loan & Collateral Agreement
• Hypothecation of Debts and Assets
• Letter of Hypothecation
• Continuing Guarantee/Personal Guarantee
• Letter of Installment
• Letter of Disbursement
• Letter of Disclaimer
• Memorandum of Deposit of Cheque
• Hypothecation of Fixed Assets (for the manufacturing and fixed asset financing)
• Letter of charge/ Lien and set off (for FDR)
• Legal opinion for Registered Mortgage (if required)
• Registered Mortgage Deed Vetted by Lower
• Registered Mortgage Receipt
• Irrevocable General Power of Attorney (IGPA)
• Insurance of Covering Risk
• Other usual charge documents

Disbursement

Proper documentation and approval are necessary prior to the disbursement of loan facilities. Security documents are prepared in accordance with approval terms are legally enforceable. Standard loan facility documentation that has been reviewed by legal counsel is used in all cases. Disbursements under loan facilities are only made when all security documentation is in place. CIB report reflects or includes the name of all lenders with facility, limit and outstanding. All formalities regarding SME loans are guided by Bangladesh Bank circulars and related section of Banking Companies Act.

After disbursement tasks

End use of funds to be certified by branch/unit recommending the facilities:

1. In case of fixed assets purchase financing, the respective branch/unit/center will
2. Obtain minimum 3 price guarantee/indents/pro-forma invoices and upon verification of same and
3. Issue a certificate confirming the purchase of the fixed assets as per prescribed format

The respective branch/unit/center will obtain stock reports as per BA’s prescribed format of the borrowers on 1^st time after 2 months and next quarterly basis and upon review of same for drawing power send to SME Loan administration department at corporate office.

Credit Monitoring

To minimize credit losses monitoring procedure and systems are in place that provides an early indication of the deteriorating financial health of a borrower. At a minimum, systems are in place to report the following exceptions to relevant executives to relevant in CRM and RM team.

• Past due principal or interest payment, past due trade bills, account excesses and breach of loan covenants.
• Loan terms and conditions are monitored financial statement are received on a regular basis, and any covenants 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 regular inspection or audit.
• All borrower relationship or loan facilities are reviewed and approved through the submission of a credit Application at least annually.
• Early alert account is one that has risk or potential weakness of material nature requiring monitoring, supervision, or close attention by management.

After disbursement the most vital task of back is to ensure timely collection of the loan repayment. And for this proper monitoring is required.

Classification/Credit Risk Grading

The loan administration division/credit division will have full authority to assign Credit Risk Grading and to classify any loan as default i.e., SUP, GD, ACCPT, MG/WL, SMA, SS, DF, BL on qualitative judgment criteria. And we also prepare report on classified loan each month and send it to Bangladesh Bank through Corporate office. The classified listing and provision are as follows:

Table: SME Loan Classification/Credit Risk Grading

Classified loans are non-performing assets of bank and are a matter of great concern. Monetary authority also is cautious about these loans.

Credit Recovery

Table: SME Loan Recovery Steps