Rate of net classified loans | The highest rate fixed for large loans against bank’s total loans & advances |
Up to 5% | 56% |
More than 5% but up to 10% | 52% |
More than 10% but up to 15% | 48% |
More than 15% but up to 20% | 44% |
More than 20% | 40% |
3. In order to determine the above maximum ceiling for large loans, all non-funded credit facilities e.g. letter of credit, guarantee etc. shall also be considered to arrive 50% credit equivalent. However the entire amount of non-funded credit facilities shall be included while determining the total credit facilities provided to an individual or an enterprise or an organization or a group.
4. A Public Limited Company, which has 50% or more public share holdings, shall not be considered as an enterprise / organization of any group.
5. In case of credit facilities provided against government guarantees, the aforementioned restrictions shall not apply
6. In the case of loans backed by cash and excusable securities (e.g. FDR), the actual lending facilities shall be determined by deducting the amount of such securities from the outstanding balance of the loans.
7. Banks shall collect the information to the borrowers from Credit Information Bureau (CIB) of Bangladesh Bank before sanctioning, renewing or rescheduling loans to ensure that credit facilities are not provided to defaulters.
8. Banks shall perform Lending Risk Analysis (LRA) before sanctioning or renewing large loans. If the rating of an LRA turns to be “marginal”, a bank shall not sanction large loan, but it can consider renewal of an existing large loan taking into account other favorable conditions and factors. However, if the result of an LRA is unsatisfactory, neither sanction nor renewal of large loans shall be considered.
9. While sanctioning or renewing large loan, a bank shall assess borrower’s overall debt repayment capacity taking into consideration the borrower’s liabilities with other banks and financial institutions.
10. A bank shall examine its borrower’s Cash flow Statement, Audited Balance Sheet, income Statement and other financial statement to make sure that the borrower has the ability to repay the loan.
Term Financing and Syndication
Like large volume of loan, long term financing is one of the riskiest areas of the bank because of long duration of repayment. Long duration casts uncertainties on repayment as variable with which financial and other projections are made very widely in a dynamic global economic scenario.
Thus utmost care is to be exercised while considering long term financing
Syndication
Syndication means joint financing by more than one bank to the same clients against a common security 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, who has to co-ordinate the activities at various stages of handling the proposal i.e. appraisal, sanction, documentation sharing of the security, disbursement, inspection, follow – up, recovery etc. it may also call meetings of syndication members, whenever necessary to finalize any decision
Discouraged business types
In the context of present economic situation vis-à-vis government policy as well as market scenario, the following industries and lending activities are considered as discouraged
Loan facility parameters
Size: Funded: maximum 15% of Bank’s total capital
: Funded + Non Funded:
1) Shall not exceed 35% of bank’s total capital
2) Maximum 50% of Bank’s total capital for export sector.(Funded facility shall also not exceed 15% of bank’s total capital).
Tenor: Short term: Maximum 12 months
Medium Term: Maximum 5 years
Long Term: Maximum 15 years
Margin: To be determined by Banker Customer relationship and nature of business.
Security: Return of Banks funding to any business is ensured primarily on the cash flow of the business. A smooth flow of cash in the business requires efficient management competence in conducting the business in a given market. However as the market never remains stable owing to various uncontrollable factors, the continuity of well-managed business cash flow is difficult to visualize in the long run. As such to ensure realization of Banks finance in case of any eventuality, other adequate security coverage deemed necessary with a view to protects interest of the bank.
General Covenants
Events of Default
Bank will have the right to call back the Loan/Advance in the event of default under the following circumstances:
Facility Wise Charge Documents
L/C | LTR | BG | TL | CC Hypo/CC Pledge (Key Stock to Bank) |
1. Promissory Note | 1. Promissory Note | 1. Promissory Note | 1. Promissory Note | 1. Promissory Note |
2. Letter of Undertaking | 2. Letter of Undertaking | 2. Letter of Undertaking | 2. Letter of Undertaking | 2. Letter of Undertaking |
3. A/C Balance confirmation Slip | 3. A/C Balance confirmation Slip | 3. A/C Balance confirmation Slip | 3. A/C Balance confirmation Slip | 3. A/C Balance confirmation Slip |
4. Letter of Continuity | 4. Letter of Continuity | 4. Letter of Continuity | 4. Letter of Continuity | 4. Letter of Continuity |
5. Letter of Revival | 5. Letter of Revival | 5. Letter of Revival | 5. Letter of Revival | 5. Letter of Revival |
6. Letter of Guarantee for Opening L/C | 6. Loan Disbursement Letter | 6. General Counter Guarantee | 6. Loan Disbursement Letter | 6. Loan Disbursement Letter |
7. Right of recall the loan | 7. Trust Receipt
| 7. Right of recall the loan | 7. Right of Recall the Loan | 7. General Letter of Hypothecation/ General Letter of Pledge |
| 8. Right of recall the loan |
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| 8. Right of recall the loan |
8. General & Collateral Agreement | 9. General & Collateral Agreement | 8. General & Collateral Agreement | 8. General & Collateral Agreement | 9. General & Collateral Agreement |
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Credit assessment:
A thorough credit and risk assessment is to be conducted prior to the granting of loans, and at least annually thereafter for all facilities. The results of this assessment shall be present in a Credit appraisal that originates from the Relationship Manager/Accounts Officer (RM) and approved by Credit Risk Management (CRM). The RMs should be the owner of the customer relationship, and will be held responsible to ensure the accuracy of the entire credit application submitted for approval. RMs shall follow the Banks lending guidelines and shall consult dur diligence on new borrowers, principals and guarantors.
It is essential that RMs know their customers and conduct dur diligence on new borrowers. Principals and guarantors to ensure such parties are in fact who they represent themselves to be. The RMs shall adhere to the Banks established Know Your Customer (KYC) and Money laundering guideline at all times.
Credit proposals shall contain summarizing of the results of the RMs risk assessment and include, as a minimum, the following details:
In addition the following risk areas to be addressed:
Risk grading
A credit risk grading system defines the risk profile of the borrowers to ensure that account management, structure and pricing commensurate with the risks involved. Risk grading is a key measurement of a Bank’s asset quality, and as such, it is essential that grading is a robust process.
The following risk grading matrix is provided as a guideline. The more conservative risk grade (higher) should be applied if there is a difference between the personal judgment and the risk grade scorecard results. It is recognized that the banks may have more or less Risks Grades; however, monitoring standards and account management must be appropriate given the assigned risk grade.
Risk Rating | Grade | Definition |
Superior – Low Risk | 1 | Facilities are fully secured by cash deposits, government bonds or a counter guarantee from a top tier international bank. All security documentation should be in place. Aggregate score of 99 – 100 based on the Risk Grade Scored. |
Good – Satisfactory Risk | 2 | The repayment capacity of the borrower is strong. The borrower should have excellent liquidity and low leverage. The company should demonstrate consistently strong earnings and cash flow and have an unblemished trade record. All security documentations should be in place. Aggregate score of 95 or greater or based on the Risk Grade scorecard. |
Acceptable – Fair Risk | 3 | Adequate financial condition through may not be able to sustain any major or continued setbacks. These borrowers are not as strong as grade 2 borrowers, but should still demonstrate consistent earnings, cash flow and have a good track record. A borrower should not be graded better than 3 if realistic audited financial statements are not received. These assets would normally be secured by acceptable collateral (1st charge over stocks/ debtors/ equipment/ property). Borrowers should have adequate liquidity, cash flow and earnings. An aggregate score of 75 – 94 based on the Risk Grade Scorecard. |
Marginal – Watch list | 4 | Grade 4 assets warrant 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. Facilities should be down graded to 4 if the borrower incurs a loss, loan payments routinely fall past due, account conduct is poor, or other untoward factors are present. An Aggregate Score of 65 – 74 based on the Risk Grade Scorecard. |
Special Mention | 5 | Grade 5 assets have 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. Facilities should be down graded to 5 if sustained deterioration in financial condition is noted (consecutive losses, negative net worth, excessive leverage), if loan payments remain past due to 90 days, or if a significant petition or claim is lodged against the borrower. Although full repayment of facilities is still expected, interest will be taken into Interest suspense A/C. An Aggregate Score of 55 – 64 based on the Risk Grade Scorecard |
Substandard | 6 | Financial condition is weak and capacity or inclination to repay is in doubt. These weaknesses jeopardize the full settlement of loans. Loan should be downgraded to 6 if loan payments remain past due for 12 months in case of Long Term Loans (more than 5 years) and 6 months for Other Loans, if the customer intends to create a lender group for debt restructuring purposes, the operation has ceased trading or any indication suggesting the winding up or closure of the borrower is discovered. Interest will be booked into Interest Suspense A/C. Loan loss provisions are to be provided for. Bank should pursue legal options to enforce security to obtain repayment or negotiate an appropriate loan rescheduling. An Aggregate Score of 45 – 54 based on the Risk Grade Scorecard |
Doubtful | 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 and Loss. Assets should be downgraded to 7 if loan payments remain past due in excess of 18 months in case of Long Term Loan (more than 5 years), 12 months in case of Short Term & Medium Term Loans (up to 5 years) and 9 months for Other Loans. Interest will be booked into Interest Suspense A/C. Loan loss provisions are to be raised. The adequacy of provisions must be reviewed at least quarterly on all non-performing loans. Bank should pursue legal options to enforce security to obtain repayment or negotiate an appropriate loan rescheduling. An Aggregate Score of 35 – 44 based on the Risk Grade Scorecard |
Bad and Loss | 8 | Assets graded 8 are long outstanding with no progress in obtaining repayment (remain past due in excess of 24 months incase of Long Term Loans, 18 months in case of Short Term & Medium Term Loans and 12 months in case of Other Loans) or in the late stages of wind up/ liquidation. Charging of interest should be stopped but interest is to be charged while initiating legal action booked into Interest Suspense A/C. The prospect of recovery is poor and legal options have been pursued. The 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 worthless asset even though partial recovery may be affected in the future. Bangladesh Bank guideline for timely write off of bad loans must be adhered to. An Aggregate Score of 35 or less based on the Risk Grade Scorecard |
(4) Risk Rating Schedule
Borrower/ Group
Industry Code:
Date of Grading:
Date of Financials:
Completed by: | Score 99-100 95-98 75 – 94 65 – 74 55 – 64 45 – 54 35 – 44 <35 | Risk Grade 1 2 3 4 5 6 7 8 |
Aggregate score ——–
Risk Grade ————– |
Criteria | Weight | Points | Weighted Scores |
Gearing
The ratio of a borrower’s Total Debt to Tangible Net worth | 20% |
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Liquidity
The ratio of a borrower’s Current Assets to Current Liabilities | 20% |
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Profitability
The ratio of a borrower’s Operating Profits to Sales | 20% |
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Account Conduct
| 10% |
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Business Outlook
A critical assessment of the medium term prospects of the borrower, taking into account the industry, market share and economic factors. | 10% |
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Management Management team has been in the industry | 5% |
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Personal Deposits
The extent to which the bank maintains a personal banking relationship with the key business sponsors/ principals | 5% |
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Age of Business
| 5% |
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Size of Business
The size of the borrower’s business measured by the most recent year’s total sales. | 5% |
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4.d.Approvals Authorities
The authority to sanction/ approve loans is delegated to Senior Executives by the Managing Director & Board based on the executive’s knowledge and experience. Approval authority is delegated to individual executives and not to committees to ensure accountability. The following guidelines in the approval/ sanctioning of loans:
Organizational Structure and Responsibilities
Quality level of credit Officers:
Executives charged with approving loans have relevant training and experience to carry out their responsibilities effectively.
Organizational Structure
CREDIT MANAGER
General Credit | CREDIT MANAGER
PLD/LF | CREDIT MANAGER
Garments | CREDIT MANAGER
SEF | CREDIT MANAGER
Consumer Finance |
Credit Analyst Team | Credit Analyst Team | Credit Analyst Team | Credit Analyst Team | Credit Analyst Team |
RELATIONSHIP MANAGER
General Credit | RELATIONSHIP MANAGER
PLD/LF | RELATIONSHIP MANAGER
Garments | RELATIONSHIP MANAGER
SEF | RELATIONSHIP MANAGER
Consumer Finance |
Relationship Manager Team | Relationship Manager Team | Relationship Manager Team | Relationship Manager Team | Relationship Manager Team |
Business/ Product Development | Business/ Product Development | Business/ Product Development | Business/ Product Development | Business/ Product Development |
Credit Risk Management (CRM)
Credit Administration
Relationship Management/Marketing (RM)
4.e. APPROVAL PROCESS
The responsibility for preparing the Credit proposal rest with the RM within the corporate/commercial-banking department. Credit proposal is recommended for approval by the RM team and forwarded to the approval team within CRM and approved by individual executives.
The recommending or approving executives are responsible and accountable for their recommendations or approval. DMD and MD approve all proposals where the facilities are up to 3% of the banks capital are approved at the CRM level, facilities up to 7% and 10% of capital respectively, and the Board approves proposals in excess of 10% of capital.
Approval Process
Risk Management:
A. Credit Risk:
The credit risk is managed by the CRM Division, which is completely segregated from business / sales. The following elements contribute to the management of credit risk.
The Credit risk associated with the products is managed by the following:
Contact Point Verification
Contact Point Verification should be done whenever possible for all applicants. The external CPV includes residence, office and telephone verifications.
B.Third Party Risk
In case of third party deposits/ security instruments, banks should verify third party’s signature against the specimen attached to the original instrument and bank will also send the instrument to the issuing office for their verification and written conformation on lien marking and encashment of the instrument.
C.Fraud Risk
There is an inherent fraud risk in any lending business. The most common fraud risks are:
Application Fraud
The applicant’s signature may not be verified for authenticity. However, the applicant’s identity should be confirmed by way of scrutiny of identification and other documentation.
There always remains the possibility of application fraud by way of producing forged documents. However, bank should be aware of this threat.
D.Liquidity and Funding Risk
This risk should be managed and the position monitored by the Asset Liability Committee headed by the Managing Director of the bank.
E.Political and Economic Risk
Political and economical environment of a country play a big role behind the success of business. The Banks should always keep a close watch in these areas so that it is able to position it self in the backdrop of any changes in country’s political and economical scenario.
F.Operational Risk
For SEF, the activities of front line sales and behind-the-scene maintenance and support are clearly segregated. Credit & Collections Unit (CCU) will be formed.
CCU will manage the following aspects of the product:
a) Inputs, approvals, customer file maintenance, monitoring & collections
b) The operation jobs like disbursal in the system including rising debit standing orders and the lodgment and maintenance of securities
Type ‘a’ jobs & type ‘b’ jobs will be handled by separate teams within CCU; therefore the risk of compromise with loan / security documentation will be minimal.
Maintenance of Documents & Securities
CCU or Operations Unit will hold the applications and other documents related to SE loans in safe custody. All this documents will go under single credit file per customer.
The physical securities and the security documents will be held elsewhere inside fireproof cabinets under CCU’s or Operation’s custody.
Internal Audit
Audits should be carried out on a regular or periodically to assess various risks and possible weaknesses and to ensure compliance with regulatory guidelines, internal procedures, and Credit Risk Management Policy Guidelines and Bangladesh Bank requirements.
Monitoring
Banks loan portfolio should be subject to a continuous process of monitoring. This will be achieved by regular generation of over limit and overdue reports, showing where facilities are being exceeded and where payments of interest and repayment of principle are late. There should be formal procedures and a system in place to identify potential credit losses and remedial actions has to be taken to prevent the losses.
Recovery
The collection process for SE loans start when the borrower has failed to meet one or more contractual payment (installment). It therefore, becomes the duty of the Collection Department to minimize the outstanding delinquent receivable and credit losses.
This procedure has been designed to enable the collection staff to systematically recover the dues and identify / prevent potential losses.
Collection objectives
The collector’s responsibility will commence from the time an account becomes delinquent until it is regularized by means of payment or closed with full payment amount collected.
The goal of the collection process is to obtain payments promptly while minimizing collection expense and write-off costs.
Identification and allocation of accounts
When a customer fails to pay the minimum amount due or installment by the payment due date, the account is considered in arrears or delinquent. When accounts are delinquent, collection procedures are instituted to regularize the accounts without losing the customer’s goodwill whilst ensuring that the bank’s interests are protected.
Appeal Process
Any declined credit may be re-presented to the next higher authority for reassessment /approval through HOCB. However, there should be no appeal process beyond the Managing Director.
Credit Administration
The Credit Administration function is critical in ensuring that prope4r 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 no being highlighted at the appropriate level.
Disbursement:
Custodial Duties:
Compliance Requirements:
To minimized credit losses, monitoring procedures and systems are in place that provides an early indication of the deteriorating financial heath of borrower. At a minimum, systems should be in place to report the following exceptions to relevant executives in CRM and RM team.
Past due principal or inters payments, past due trade bills, account 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 HO Credit for timely follow-up.
Timely corrective action is taken to address findings of any internal, external or regulator inspection/audit.
All borrower relationships/loan facilities are reviewed and approved through the submission of a Credit Application at least annually.
Early Alert Process
An Early alert Account is one that has risks or potential weaknesses of a material nature requiring monitoring, supervision, or close attention by management.
If these weaknesses are left uncorrected, it may result in deterioration of the repayment prospects with a likely prospect of being downgraded to CG 5 or worse, within the next twelve months.
Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit responsibilities of all Relationship Managers, An Early Alert report completed by the RM sent to the approving authority in CRM for any account that is showing signs of deterioration within seven days from the identification of weaknesses.
If there are other concerns, such as breach of loan covenants or adverse market rumors that warrant additional caution, an Early Alert report is sent to CRM.
Credit Recovery:
The Recovery Division at Head Office directly manages accounts with sustained deterioration (a Risk Rating of Sub Standard (6) or worse). Account graded 4-5 transferred to the Recovery Division for efficient exit based on recommendation of CRM and Corporate Banking.
The Recovery Division’s primary functions are:
Determine Account Action Plan/Recovery Strategy
Pursue all options to maximize recovery.
Ensure adequate and timely loan loss provisions are made base o-n actual and expected losses.
Regular review of grade 6 or worse accounts.
NPL Account Management:
All Non Performing loans are assigned to an Account Manager. Within the recovery Division, for coordinating and administrating the action plan/recovery of the accounts, and should serve as the primary customer contact after the account is downgraded to substandard.
Account Transfer Procedures:
Recovery Units should ensure that the following is carried out when an account is classified as Sub Standard or worse:
Non-Performing Loan (NPL) Monitoring:
On a quarterly basis, a Classified Loan Review (CLR) is prepared by Recovery Division Account Mangers to update the status of the action/ recovery plan, review and assess the adequacy of provisions, and modify the banks strategy as appropriate.
NPL Provisioning and Write Off:
The guidelines established by Bangladesh Bank for CIB reporting, provisioning and write off of bad and doubtful debts and suspension of interest are followed in all cases. Provisions are raised against the actual and expected losses at the time they are estimated. The approval to take provisions, write offs, or release of provisions/upgrade of an account are restricted to MD/ Board.
The Recovery Division Account Manager determines the Force Sale Value (FSV) for accounts grade 6 or worse. Force Sale Value is generally the amount that is expected to be realized through the liquidation of collateral held as security. Any shortfall of the Force Sale Value compared to total loan outstanding is fully provided when an account is downgraded to grade 7.
Security Compliance Certificate Chick List
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1A | Initial Requirements: |
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| Credit proposal has been properly approved and signature verified. |
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| Updated due date diary for 90 days expiry. |
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B | Post Approval and Prior Activation of the limits |
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| Rechecking of Clean CIB report |
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| Within large loan requirements? |
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| Caused L/c approval from BB |
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| Updated list of Directors of the company – Form xii duly certified by RJSC |
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C | Sanction Advice: |
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| All alterations if any has been counter signed by the signatory / Relationship Manager (RM) |
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| Un-conditional acceptance of Sanction Advice. |
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| Acceptance Signature verified. |
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D | Borrowing Power (Memorandum and Article of Association) |
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1 | Board Resolution(BR) covering as per object clause(MOA) |
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a | Resolution Date |
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| Quorum fulfilled |
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| Borrowing Amount |
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| Mortgage/Hypothecation authority |
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| Authorized signatory |
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| Signature verification |
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E | Documentation As per Ho Sanction Advice No. Date |
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| Promissory Note covering full amount and dated. |
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| Properly executed (as per BR), Company seal affixed. |
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| Signed across the Revenue Stamp |
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| Signature verified |
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| Letter of Arrangement covering full amount and dated –Signature verified. |
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| Letter of disbursement covering full amount and dated – Signature verified (for term loan and Loan General) |
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| Letter of installment dated- Signature verified |
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| Letter of Continuity for continuous loan covering full amount dated. |
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| Letter of Guarantee (Individual) |
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| Letter of Guarantee (Limited Company) |
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| Letter of Hypothecation over Stocks |
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| Collateral Security in the form of Letter Hypothecation over Book Debts |
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| Letter of Hypothecation over Machinery |
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| PARI-PASSU Security Sharing Agreement |
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| Modification (amount/banks etc.) Pari-Passu security sharing agreement |
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| Letter of Hypothecation over (Tea Crops |
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| Joint Registration /Mortgage of the vehicles. |
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| Letter of Hypothecation (Over Vehicles) with schedule |
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| Letter of Modification (a) Stocks (b) Book Debt(c) Machinery (Property) |
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| Lien on FDR |
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| Pledge of PSP/BSP/WEDB/ICB unit/Shares etc. |
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| Mortgage over property |
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| Lease property |
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| Procedures A) Collect Stamp duty/Registration charges from customer to obtain stamps from Treasury. B) For creating charge over company property in the office of RJSC. |
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| Insurance Policies |
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| Bank guarantee/Indemnity |
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| Pledge of Goods |
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| Letter of Authority |
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| Proprietorship/Partnership Borrowers-Hypothecation(s) |
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| Registered General Power of Attorney to sell the Assets without reference |
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| Inter Borrowing amongst Corporate Borrowers (3rd party) |
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| Loan against Trust Receipt |
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| Term Loan Agreement-For Term Loans |
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| Other Agreement |
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Bangladesh Bank – Prudential Regulations
Facilities to Related Persons
The consumer finance facilities extended by banks to their directors, major shareholders, employees and family members of these persons shall be based on normal terms and conditions applicable for other customers of the banks.
Regulaton-1
Regulaton-2
Limit on Banks exposure against total consumer financing
Banks shall ensure that the aggregate exposure under all consumers financing facilities at the end of first year and second year of the start of their consumer financing does not exceed 2 times and 4 times of their equity respectively. For subsequent years, following limits are placed n the total consumer financing facilities.
PERCENTAGE OF CLASSIFIED CONSUMER FINANCE TO TOTAL CONSUMER FINANCING | MAXIMUM LIMIT |
a) Bellow 5% b) 6% – 10% c) 11% – 15% d) 15% and above | 10 times of the equity 6 times of the equity 4 times of the equity Equal to equity |
Method of classification for the above purpose shall be in accordance with the classification requirement as prescribed under Prudential Regulation no.4 (Appendix-X)
Regulation-3
Total Financing Facilities to be commensurate with the income
While extending financing facilities to their customer, the banks would ensure that the total installment of the loans extended by the financial institutions is commensurate with the take home income/disposable income and repayment capacity of the borrower.
Regulation-4
Classification and provisioning for assets
1. Banks shall observe the prudential guidelines for classification of their Consumer Finance portfolio and provisioning there-against
2. In addition to the time-based criteria, subjective evaluation of performing and non-performing credit portfolio shall be made for risk assessment and, where considered necessary, any account including the performing account will be classified.
3. Apart from specific provisioning requirement banks shall maintain a general reserve at least equivalent to 5% of their unclassified consumer finance portfolio to protect them from the risks.
4. Bank shall submit the borrower –wise annual statements regarding classified loans/advances to the Banking inspection Department.
5.Banks shall review, at least on a quarterly basis, the collectibles of their loans/advances portfolio and shall property document the evaluations so made.
Regulation-5
Rescheduling of loan
Rescheduling of loan will be governed by rules & regulations as prescribed by Bangladesh Bank from time to time.
Regulation-6
Transfer Facilities from one category to another to avoid classification
The bank shall not transfer any loan or facility to be classified from one category of consumer finance to another to avoid classification.
Regulation-7
Credit information Bureau (CIB) Clearance
While considering proposals for any exposure, banks should give due weight age to the credit report relating to the borrower and his group obtained from Credit information Bureau (CIB) of Bangladesh Bank.
Regulation-8
The banks should take reasonable steps to satisfy themselves that cardholders have received the card, whether personally or by mail.
Regulation- 9
Banks shall provide the credit card holders with the statements of account at monthly intervals.
Regulation- 10
Banks shall be liable for all transactions not authorized by the credit card holders after they have been properly served with a notice that the card have been lost/ stolen.
Regulation- 11
Banks should take into account the partial payment before charging service fee/ mark-up amount on the outstanding/-billed amount.
Regulation- 12
Due date for payment must be specifically mentioned on the accounts statement.
Regulation- 13
Maximum unsecured limit under credit card to a borrower (supplementary cards shall be considered part of the principal borrower) shall not exceed Tk. 500,000/-, provided the excess amount is secured appropriately. However, in no case the limit will be allowed to exceed Tk. 2 million.
Regulation- 14
The vehicles to be utilized for personal use. Vehicle for commercial purpose shall not be covered under the Prudential Regulation for consumer finance
Regulation- 15
The maximum tenure of the auto loan finance shall not exceed six-year.
Regulation- 16
The banks shall not allow auto loan (including insurance) exceeding Tk. 2 million per individual under this head. While allowing auto loans, the banks shall ensure that the minimum down payment does not fall below 10% of the value of vehicle.
Regulation- 17
In addition to any other security arrangement, the vehicles financed by the banks shall be properly secured by way of hypothecation.
Regulation- 18
The banks shall ensure that the vehicle remains properly insured (comprehensive) at all times during the tenure of the loan.
Regulation- 19
The clause of repossessions in case of default should be clearly stated in the loan agreement. At least 15 days before enforcing repossessions, banks shall send a legal notice to the borrower.
Regulation- 20
A detailed repayment schedule should be provided to the borrower at the outset. Where alterations become imminent because of late payment or prepayment and the installment amount or period changes significantly, the revised schedule should be provided to the borrower at earliest convenience of the bank but not later than 15 days of the change.
Regulation- 21
The banks shall prepare uniform guidelines for determining value of the used vehicles. In no case the bank shall finance the cars older than 5 year.
Regulation- 22
Banks should ensure that a good number of authorized auto dealers are placed at their panel to eliminate unethical practices. However, if the clients choose to purchase car from seller not included in the list, they are free to do so provided that the price is considered reasonable by the bank.
REGULATIONS FOR HOUSE FINANCE
Regulation- 23
The maximum per party limit in respect of housing finance by the banks will be Tk. 7.5 million.
The housing finance facility shall be provided at a maximum debt equity ratio of 80:20.
Regulation- 24
Housing Finance for real estate business and commercial complex such as super market and shopping mall etc. shall be excluded from the consumer finance category. Loan exposure under housing finance category should not exceed 10% of the bank’s total loan portfolio.
Regulation- 25
Banks are free to extend mortgage loans for housing, for a period not exceeding twenty year.
Regulation- 26
The house financed by the banks shall be mortgaged in bank’s favor by way of registered mortgage with registered Power of Attorney.
Regulation- 27
Banks shall engage professional staff or arrange sufficient training for their concerned officials evaluate the property, assess the genuineness and integrity of the title documents, etc.
Regulation- 28
The bank’s management should put in place a mechanism to monitor conditions in the real estate market (or other product market) to ensure that its policies are aligned to current market conditions.
Regulation- 29
Banks must develop floating rate products for extending housing finance, thereby managing interest rate risk to avoid its adverse effects. Banks also must develop in-house system to stress test their housing portfolio against adverse movements in interest rates as also maturity mismatches.
REGULATIONS FOR PERSONAL LOANS INCLUDING LOANS FOR THE PURCHASE OF CONSUMER DURABLES
Regulation- 30
Limits per person for such loans will be Tk. 3 lac without any securities. However, banks may lend higher amounts provided the loans are secured appropriately. But, in no case, the loan amount will be allowed to exceed Tk. 10 lac. The loan secured against liquid securities shall be exempt from this limit.
Regulation- 31
Where the loan has been extended to purchase some durable goods, the same will be hypothecated with the bank besides other securities.
Regulation- 32
The maximum tenure of the loan shall not exceed 5 year.
Different Sectors and Outstanding in that Sectors in Different Years
Dhaka Bank Limited has diversified its credit facilities in different sectors. Again each sector has some categories. The Bank provides loans based on these sectors and categories. The major sectors and their categories are given below.
Agricultural Sector: These sectors contain fishery, poultry, firming loans and loans for the farmers to buy seeds and cultivate crops.
Large Loans: These sectors contain the large industrial loans and loans in the normal industrial sides. All of these loans are of long-term. So, it is basically long-term industrial loans.
Working Capital: Some cases Bank gives loans to the companies for their every day expenses for buying raw materials, and other things is called working capital loan. Cash credit (C.C) is also a part of working capital loans.
Export: Loans provide in this sector by opening L/C. This also includes loan against trust receipt.
Import: Loan facility for importing different goods from the foreign countries for business and other purposes.
Others: This includes the credit facilities like transport loans, secured overdraft, staff loans, house-building loans, short-term loans etc.
Among these the bank provides credit facility in the good and profitable sectors and from where the bank will get the highest return.
From the analysis below we can get a clear view about the distribution of loans in different sectors.
January – March (2007) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 33.37 | 3.93 |
Working Capital | 47.07 | 81.37 |
Export | 10.12 | 12.43 |
Import | 8.41 | 21.71 |
Small & Cottage | 0 | 0 |
Others | 27.41 | 52.72 |
Total | 126.38 | 172.16 |
April – June (2008) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 20.1 | 5.8 |
Working Capital | 28.62 | 22.85 |
Export | 82.32 | 67.7 |
Import | 36.32 | 32.78 |
Small & Cottage | 0 | 0 |
Others | 54.31 | 72 |
Total | 221.67 | 201.13 |
July – September (2007) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 17.52 | 6.22 |
Working Capital | 51.38 | 61.18 |
Export | 8.69 | 12.46 |
Import | 23.91 | 19.68 |
Small & Cottage | 0 | 0 |
Others | 32.11 | 12.05 |
Total | 133.61 | 111.59 |
October – December (2007) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 8.12 | 6.99 |
Working Capital | 54.9 | 20.06 |
Export | 7.56 | 5.67 |
Import | 87.17 | 85.6 |
Small & Cottage | 0 | 0 |
Others | 48.54 | 42.26 |
Total | 206.29 | 160.58 |
January – March (2008) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 0.11 | 5.78 |
Working Capital | 40.3 | 50.66 |
Export | 2 | 3.22 |
Import | 16.18 | 14.36 |
Small & Cottage | 0 | 0 |
Others | 14.2 | 48.55 |
Total | 72.79 | 122.57 |
April – June (2008) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 44.49 | 8.16 |
Working Capital | 51.21 | 62.32 |
Export | 0 | 2 |
Import | 15.12 | 11.22 |
Small & Cottage | 0 | 0 |
Others | 22.83 | 15.21 |
Total | 133.65 | 98.91 |
July – September (2008) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 25.97 | 6.25 |
Working Capital | 0 | 52.57 |
Export | 0 | 0 |
Import | 5.7 | 1.75 |
Small & Cottage | 0 | 0 |
Others | 20.65 | 2.98 |
Total | 52.32 | 63.55 |
October – December (2008) |
| |
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 29.54 | 13.41 |
Working Capital | 41.8 | 10.33 |
Export | 0 | 0 |
Import | 10.24 | 1.47 |
Small & Cottage | 0 | 0 |
Others | 44.14 | 8.34 |
Total | 125.72 | 33.55 |
Sector Wise Loan Disbursement & Recovery of the year 2007
As On 31st Dec. 2007 | ||
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 79.11 | 22.94 |
Working Capital | 181.97 | 185.46 |
Export | 108.69 | 98.26 |
Import | 155.81 | 159.77 |
Small & Cottage | 0 | 0 |
Others | 162.37 | 179.03 |
Total | 687.95 | 645.46 |
Sector Wise Loan Disbursement & Recovery of the year 2008
As On 31st Dec. 2008 | ||
Sector | Disbursement | Recovery |
Agriculture | 0 | 0 |
Term/Large | 100.11 | 33.6 |
Working Capital | 133.31 | 175.88 |
Export | 2 | 5.22 |
Import | 47.24 | 28.8 |
Small & Cottage | 0 | 0 |
Others | 101.82 | 75.08 |
Total | 384.48 | 318.58 |
Yearly Loans and Advances Outstanding As On 31st December, 2008 At Dhaka Bank Local Office
Year | Outstanding |
2002 | 453.49 |
2003 | 487.03 |
2004 | 470.2 |
2005 | 535.77 |
2006 | 635.93 |
2007 | 678.42 |
2008 | 744.32 |
Findings & Analysis:
From the above information it is visible that the Banks credit facility in different sector is increase very rapidly. They do not want to provide any loans in the agricultural sector. The reasons behind this kind of decision are that still the agriculture in Bangladesh depends on the weather and other natural conditions. So, it creates an uncertainty whether the production of crops will be good or not. One rain can damage the paddy when it is the time to cut. So, the Bank thinks that financing in this sector may be very risky and return from the loan may not be good. Another reason is Dhaka Bank is operating its activities in the urban society and they still didn’t spread their activities to the rural areas. Still, they provided credit facility in a fishery firm for developing fish cultivation. On the other hand, the Bank provided the highest credit facilities in short-term loans, transport loans house building loans, secured overdraft etc. Because these sectors proves to be very profitable and less risky. The Bank also gives loan long-term loans but in a very limited amount because this facility is sanctioned for a long period. The above analysis gives a clear idea about the credit sanctioned in different sectors, which were defined, by the bank. The overall outstanding of the loans increases gradually in the past few years. So, the overall outstanding or amount of loan provided is quite good.
From the recovery status it is clearly found that the overall recovery in different sectors increases in different years. But the highest recovery came in past few years from Working Capital, Import sector and Others, which includes transport loan, staff loan, secured overdraft, loan against trust receipt etc. Because most of these loans are of small amount and short-term. From the above information, one interesting finding is that sometimes the recovery amount became higher than the outstanding amount. Though it looks quite odd but it has some reasons. Suppose in a year a sector got some amount of loans (say 1 crore) and waiting for the recovery. Again the bank provide loan facility to a company in the same sector (say 5 crore), but this time the full amount is recovered in a very short period and the first one is still not recovered. For this, here the calculation showed the outstanding remains 1 crore but the recovery amount became 5crore. So, in this case the recovery amount exceeds the outstanding amount.
Prior and Neglected Sectors: From the above findings of the credit facilities in different sectors, it seems that the bank provided most of the credit facilities in the large loans basically for long terms and also gave some personal loans too. Their main focus on these sectors because of high profitability and security. But if one of the clients fails to repay the loan then the bank will be in serious trouble. On the other hand, the bank just avoided the agricultural sectors showing reason that the sector is very risky because still our agriculture depends much on weather and also the technology is not of high quality. According to the bank, Recovery from this sector is also not very good.
Recovery Status: Above findings shows that the bank’s overall recoveries in different sectors are very encourage able. But recovery from the working capital & import sector and from transport loans, staff loans, and secured overdrafts etc. sector is much higher than the large loan and other sectors. Because most of them are short-term loans.
Problems
Conclusion
Credit policy is a very convenient banking tool for the business world. The value of this service is immense. It has gathered such a position in the banking sectors that people at developed and also developing counties are very much depended on this service. In Bangladesh credit facilities or loans started to become very attractive in recent periods. But still lots improvements in services and facilities have to be made in this department.
The study of the report refers to the fact that people are aware of loan facilities in our country but they are not fully aware of the services or features of the loan process and its rules and regulations especially in case of individual or consumer loans. From the study it seems that Dhaka Bank focuses on the corporate sectors for the credit facility. But in case of consumer loans there are lots of restrictions created by the bank.
Credit Division of Dhaka Bank, Local Office has a very qualified and dedicated group of officers and staffs who are always trying to provide the best service to the clients. They always monitor the credit in different sectors and their position. Before providing the loan they analyze whether the loan will be profitable and whether the client is good enough to repay the loan within the given period of time.
Credit department diversified their loans in different sectors classified by them. Among the sectors they don’t provide any loans in the agricultural side. The reason they showed is that this sector is very risky and depends on natural climate and they still didn’t expand their service in the rural side. They also didn’t provide any loan in the small & cottage industry. The reason is that the return from this sector is not very good and also the sector is very uncertain. They provide most of the credit facility in term loan mainly in long-term loans. Return from short-term loan is very good and also proves to be very safe to finance.
So, from the report and also from my short experience it seems that the credit management and performance of Dhaka Bank is quit good and acceptable though it is a second-generation bank and established in 1995. There credit approval and monitoring process and its performance increased very rapidly and still trying their best to improve more and more. So, within a very short period they earned the respect and acceptance from the customers and now it is one of the leading private commercial bank of the country.