National Credit and Commerce Bank Limited
CHAPTER - ONE General Introduction 1.1
ORIGIN OF THE REPORT
This report is prepared as partial requirement of the three-month internship program for the BBA Program. National Credit and Commerce Bank Limited (NCCBL) has given me the opportunity to complete internship program. In the report I have mainly given concentrate on “Loan Disbursement and Recovery System of National Credit and Commerce Bank Limited�, which is to be submitted on June 15, 2010. Basically this report highlights about evaluation and assessment of NCCBL banking products. Information has taken from bank’s website, Annual report and different banking oriented books. 1.2
BACKGROUND OF THE REPORT
Economy of Bangladesh is the of world's most underdevelopment economics. One of the reasons may be its underdeveloped banking system. Modern Banking system plays a vital role for a nation's economic development. Over the last few years the Banking world has been undergoing a lot of change due to deregulation, technological innovations, globalization etc. These changes also made revolutionary changes of a country's economy. Present world is changing rapidly to face challenge of competitive free market economy. It is well recognized that there is an urgent need for better-qualified management and better-trained staff in the dynamic global financial market. Bangladesh is no expecting of this trend. Banking sector in Bangladesh is facing challenges from different angles though its prospect is bright in the future. Money and Banking is the center around which all-economic science clusters. So this report is carried on to find out the problem faced by NCC Bank and recommend some measures to overcome these problems for economic development of Bangladesh. National Credit and Commerce Bank Limited is a scheduled commercial bank. Though financial intermediation the bank seeds avenues for employment of its funds where ' (a) there is profit (b) risk minimal' and the cost of administrating loan is low. While "profit motivation" remains the prime consideration for viable operation and growth of the bank, the bank would also respond adequately to the socio-economic objectives formulated by the government from time to time for accelerating pace of economic development of the country.
The goal of the bank is to build up a balanced portfolio mix. The focus is on an effective and responsive financial intermediation will thus vest on one hand on channeling funds to a set of clientele having proven track record and on the other hand on socially and economically desirable activities for which finance is sought. The investment options shall be chosen through skillful and prudent evaluation by the bank officials of feasibility of the proposed ventures including measures to minimize risk factors. The entrepreneurs themselves would provide or hire managerial skill, technology for production, marketing and servicing thereby diminishing the risk of investment. The bank will put reliance on market forces via increased inducement to savers to mobilize saving and via profitability potential to allocate funds to the users of such sectors of trade, commerce, and industries as are consistent with the socio-economic objectives of the nation. The free market economy policy of the government of Bangladesh will indeed facilitate healthier and efficient lending activities of the bank. 1.3 OBJECTIVES OF THE REPORT The internship experience is meant to serve as a bridge between the theoretical learning of students and the practical application of the same. The core objectives of the study are as follows: •
To apply theoretical knowledge in the practical field.
•
To have exposure to the functions of credit section.
•
To know investment and credit management of NCC Bank Limited.
•
To observe the working environment in commercial bank.
•
To study existing banker-customer relationship.
•
To examine the overall performance of NCC Bank Limited in terms of loans disbursement and recovery.
•
To point out the positive aspects and problems encountered by the Loan department and recovery Unit of NCC Bank Limited and the ways to overcome the problems.
•
To examine the recent strategies and initiatives taken by NCC Bank Limited for further development of its recovery systems.
•
To get a brief idea about recovery policies and practices followed by some other major banking and non-banking financial institutions and thus getting a comparative overview with NCC Bank Ltd.
•
To identify financial constraints associated with the growth of Loan sector in Bangladesh.
•
1.4
To compare the financial performance among several years of the Bank and with other banks.
RATIONALE OF THE REPORT
Theoretical knowledge is not enough for a student. Because there lies a far difference between theoretical knowledge and practical knowledge. Theoretical knowledge applied in practical field. So, these two may be synchronized. Our internship program is launched mainly for this purpose. Other purpose that may be is to know about the rules, regulations, management, and environment of an organization before getting a job. To gather some experience that will help a student to get a good job or may also be another purpose of the study. 1.5 & 1.6 METHODOLOGY OF THE REPORT & SOURCES OF INFORMATION In order to make the report more meaningful and presentable, two kinds of sources of data and information have been used: 1) Primary sources: Among the primary sources, the main sources are: i)
Face to face conversation of the employees of the NCC Bank Ltd.
ii)
Official record of related section of the NCC Bank Ltd.
iii)
Direct interaction with the customers.
iv)
Practical work exposures on different desks of the branch covered.
2) Secondary sources: i)
Annual Report of the NCC Bank Ltd.
ii)
Relevant Books of the NCC Bank Ltd.
iii)
Different publications regarding Banking functions, foreign exchange operation and credit policies. and
iv)
NCC Bank Ltd. website.
1.7 SCOPE OF THE REPORT The NCC Bank Ltd. is a private Ltd Bank where all types of financial transaction took place. It contains separate functioning division that furnished all types of activities. I have the opportunity to do everything practically, which is helpful to gather experience. I have got the opportunity to work at all the important desk of the NCC Bank Moghbazar Branch. It also helped me to acquire a fast hand perspective of a leading private bank in Bangladesh. The report gives a general overview of Loan and Recovery sector of Bangladesh as well as that of the neighboring countries. The general overview includes how loan disbursed and how the
recovery system is occurred through a comparative analysis. The report develops a function & process Involved in Loan Disbursement and Recovery System of NCC Bank Limited of Bangladesh. This part provides an extensive idea about how the bank defines Loan, what are the different Loan products offered how and why they are different from other products, what are the constraints to obtain required finance, and what is the overall performance of the bank in terms of loans disbursement and recovery. The report also provides a brief idea about Loan policies and practices followed by some other major banking and non-banking financial institutions of the country. Thus, it tries to identify the problems faced by the financial institutions in disbursement of loan and recovery of the loan. 1.8 LIMITATION OF THE REPORT Like other study, my study has some limitations also. The organization on which I have studied is a Branch of NCC Bank Ltd. at Moghbazar. It is a private Bank in Bangladesh. The main limitations are: o
The main limitation that I faced during conducting the study was lack of access to information considered confidential by employees of Head Office due to strategies.
o
Shortage of time: I could not get into the depth of the Study due to time limitation.
•
Field practice varies with the standard practice that also created problem.
•
Large-scale research was not possible due to constraints.
•
The information regarding the competitors is difficult to get.
•
And it is my first work, and inexperience was a problem. Framework of the overall structure of the total work:
Appointing as an intern
Dividing the study work
Doing work in different department of NCCBL
Collecting information from NCCBL Preparation of the Final Report
CHAPTER – TWO Organizational Overview 2.1 INTRODUCTION
Selecting the topic of the study
Analysis of collected data n information
Preparing outline
Collecting secondary information
National Credit and Commerce Bank Ltd bears a unique history of its own. The organization started its journey in the financial sector of the country as an investment company back in 1985. The aim of the company is to mobilize resources from within and invest them in such way so as to develop country's Industrial and Trade Sector and playing a catalyst role in the formation of capital market as well. Its membership with the browse helped the company to a great extent in this regard. The company operated unto 1992 with 16 branches and thereafter with the permission of the Central Bank converted in to a full fledged private commercial bank as National Credit and Commerce Bank Limited in the country on 17th May 1993 out of a great turbulent situation. The company raised its authorized capital to Tk. 750 million as per guidelines set out by the Bangladesh Bank. The paid up capital was fixed at Tk.390 million of which 50% i.e. Tk.195 million has been paid up in cash by the sponsor and the balance 50% for public.
2.2 HISTORICAL BACKGROUND OF NCC BANK The banking system plays a critical role in underpinning economic development. Against the background of Financial Sector Reform Policies in Bangladesh, National Credit and Commerce Bank Ltd. has resulted in great success in all areas of operation with a view to improve the socioeconomic development of the country. Subsequently NCL converted into a full fledge commercial Bank on 17.05.1993 after obtaining license from Bangladesh Bank under the name & style “National Credit & Commerce Bank Ltd.” However, the institution survived the ordeals and came out as full-fledged commercial bank. The company raised its authorized capitals to tk.750 millions as per guidelines set out by the Bangladesh Bank. The paid up capital was fixed at tk.390 million of which 50% the sponsor and the balance 50% of public have paid up i.e. tk.195 million in cash. The sponsors of the new bank consisted of 26 (Twenty six) Members, who comprised the first Board of Directors. 2.3 VISION To become the Bank of Choice in serving the Nation as a progressive and Socially Responsible financial institution by bringing credit & commerce together for profit and sustainable growth. And also to be in the forefront of national development by providing all the customers inspirational strength, dependable support and the most comprehensive range of business solutions, through our team of professionals who work passionately to be outstanding in everything we do. 2.4 MISSION “To mobilize financial resources from within and abroad to contribute to Agricultures, Industry & socio-economic development of the country and to play a catalytic role in the formation of capital market.” 2.5 CORPORATE CULTURE
NCC Bank is one of the most disciplined Bank with a distinctive corporate culture. In this bank, it believes in shared meaning, shared understanding and shared sense making. The people of bank can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to them. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth. The corporate culture they belong has not been imposed. It has rather been achieved through their corporate culture. 2.6 MANAGEMENT HIERARCHY :
Chairman Vice Chairman
Director Managing Director Senior Executive Vice President Executive Vice President
Senior Vice President Vice President Senior Assistant Vice President Assistant Vice President
Senior Principal Officer
Principal Officer Senior Officer Officer Gr -1 Officer Junior Officer
Assistant Officer 2.7 BRANCHES OF NCC BANK LTD
2.8 OBJECTIVES AND NATURE OF THE NCC BANK LTD. NCC Bank Ltd is a progressive commercial bank in private sector in Bangladesh. With 17 years of experience adaptation of modern technology both in terms of equipment and banking practice ensures efficient service to clients. 68 branches at home and 500 affiliates worldwide create efficient networking and reach capability. NCC is a Bank that serves both clients nationally and internationally. 2.9 FUNCTIONAL ASPECT
NCC Bank Limited is a commercial bank, which has to abide by the rules and regulations, prescribed by Bangladesh Bank for scheduled commercial banks. The functions of the bank cover a wide rang of banking and financial activities to individuals firms, corporate bodies and other multinational genies. Present operation areas are as follows: 2.9.1 DEPOSIT All kinds of deposits like savings, current, short-term, fixed, Certificate of deposits are accepted from resident and non-resident customer. Non-resident customers can deposit their money in foreign currency account both in convertible and non-convertible account. 2.9.2 CREDIT Banks loan greatly emphasized that we can call this as the "Heart" of the banking, because they are a major source of bank income. Loans are very important for country's economy as a whole because the expansion and contraction of bank loan affect the level of business activity through their effect of the nation money supply. The extended credit facilities to different sector to diversify its credit portfolio in compliance with credit policies of Bangladesh Bank as given below: Industrial, Housing, Transport, and Contract work, Working Capital for traders, manufacturing processing plants and export oriented industries, and other business. 2.9.3 IMPORT FINANCE NCC Bank finance Import by way of opening irrevocable documentary letter of credit granting post import finance such as BLC, LIM, and Advance against T/R etc. 2.9.4 EXPORT FINANCE Pre-shipment and post-shipment/export Finance by way of negotiate/purchase discount of export bills, packing credit, back-to -back L/C etc. 2.9.5 NON-FUNDED (GUARANTEE) BUSINESS Issuing of letter of guarantee (L/G), shipping guaranties, indemnities, performance guaranties, Bid Bond, Stand by L/C etc. 2.9.6 REMITTANCE NCC Bank remits money of the clients both within the country and out side the country by telex transfer, telephone transfer, mail transfer, pay order, demand drafts etc. It also receives remittance from Middle Eastern and Western countries. 2.9.7 PLATFORM SERVICES NCC Bank provides safe deposit, locker services and other miscellaneous services for safety of valuables of the customers. It also provides agency services and acts as trustee for the customers. 2.9.8 ONLINE BANKING
To render better services to its customers, NCC Bank limited, introduce online computer systems within the year of its inspection and all the branches of NCC bank are equipped with telex services. NCC bank has also introduced ATM services for 24 hours a day in collaboration with. 2.9.9 PERFORMANCE OF THE BANK Bank’s performance during the year 2009 was modestly satisfactory, despite two years of uncertainty and gloomy global economy. During the year, Bank could mobilize Deposit of Tk.53900.15 Million and earned Operational Profit to the tune of Tk.3, 137.70 Million, Advance figure as on date stood at Tk.50, 387.68 Million. The Authorized Capital of the Bank stood at Tk.5, 000.00 Million as on dates whereas Paid-Up Capital rose to Tk.2, 284.90 Million as against Tk.1, 757.62 Million of 2008. The Reserved Fund increased to Tk.4, 371.62 million which increase over last year’s Tk.2, 863.63 Million. 2.10 FUNCTIONS OF MOGHBAZAR BRANCH For the purpose of observing branch level function, Moghbazar branch of NCC bank limited was depicted. In this part the functional area of the branch is described. The different departments/divisions of the branch are: •
General Banking Division
•
Cash
•
Remittance
•
Loans and advance Department
•
Foreign Exchange Department
2.11 Financial Report of NCC Bank for the Year 2009 2.12
GRAPHICAL PRESENTATION OF INVESTMENT-2009
Figure: Distribution of Investment Portfolio-2009 In this chart, we can see that, in 2009, the highest sector of investment is in Government Treasury Bonds which is 92%.and the lowest investment in prize bonds and debentures which is 0.1% and 0.06%.
Figure: Investment (2005-2009) In this chart, we can see that, the ratio of investment is increasing year by year. In 2005, the investment was 3010.45 million, in 2006, 3552.45 million, in 2007, 6526.82 million, in 2008, 6526.82 million, and in 2009, it was 9671.53 million. CHAPTER - THREE General Banking 3.1 INTRODUCTION General banking department is the “Heart� of the all-banking activities. It performs the core functions of bank, operates the day to day transactions. It is the storage point for all kinds of transaction of foreign exchange department, loans and advances department &itself. 3.2 CUSTOMER SERVICES
Customer services are one of the most talked about subject now a day. In banking, it is a major rule to earn a comparative edge. Customer service means to meet customer needs in a prompt and efficient way. In service-oriented organization like, quality means customer satisfaction. And customer satisfaction depends on the services provided by the organization. So, customer service section is the most important section in NCC Bank Ltd. First of all customer want to collect information before taking services if he/ she satisfied with the information given by the customerservice section, then he/she come to take services. In the sense, it is very sensitive section in NCCBL. To satisfy the customer by giving better services all staff and officers of this section have to take responsibility, be cordial, frank and smiling appearance.
unctions of Customer Service Section:
F • • • • • •
Account opening Remittance Clearing Collection Cash Others
3.3 CONCEPT OF DEPOSIT Deposits are the foundation on which banks thrive and grow. They are a unique item in a bank’s balance sheet that distinguishes it from other types of business firms. Deposits provide most of the raw material for bank loans and, thus, represent the ultimate source of bank profits and growth. Deposits generate legal reserves, and it is out of the excess legal reserves a bank holds that new loans are created. Important indicators of management effectiveness in any bank are whether or not deposited funds have been raised at the lowest possible cost and whether enough deposits are available to fund those loans the bank wishes to make.
Figure: Deposit (2005-2009) In this Chart, we see that, the ratio of deposit is increasing year by year. In 2005, the deposit was 21478.22 million, in 2006, 28147.34 million, in 2007, 34901.77 million, in 2008, 46904.66 million, and in 2009 it was 53900.15 million.
Figure: Sectoral Distribution of Deposit-2009 In this chat, we see that, in 2009, the highest sector of deposit was fixed deposit and the lowest sector is in Bearer Certificate of Deposit which is 0.02% and Instant Earning Term Deposit which is 0.07%. 3.4 CLASSIFICATION OF BANK ACCOUNT Bank has two type of deposit account, this are
Demand deposit
Time deposit
A. Demand deposit There are mainly two types of demand deposit accounts, this are1. Savings account 2. Current account Both these accounts can be opened jointly or individually. Again current account can be for personal, partnership and proprietorship. Savings Account To encourage savings habit amongst the general public, bank allows depositors to open savings account. As the name indicates, these accounts are opened for the purpose of savings. Interest is awarded on the balance of the account. □
The minimum balance requires to be maintained at all times is Tk. 1,000.00. And the
bank reserves the right to change the minimum balance requirement and/or to close such accounts without prior notice if the balance falls below this amount. □
The maximum interest bearing amount allowed on any Saving Bank account
Tk.50,00,000.00 interest is payable on collected funds. □
The Bank reserves to itself the right not to pay any Cheque presented that contravenes the
rules. In the event of a Cheque being returned for want of funds a penalty change of Tk.50.00 for each presentation will be made. Special Savings Scheme
:
Two types of Account can ope
1)
5 years
2)
10 years
n under this scheme.
Monthly installments start from 100 to 2500 tk during the period of scheme. This is fixed at the time of opening Account. There are remaining 5000 & 10,000 schemes only for 10 years. The depositors to be paid on the basis of their installments amount and time period as follows: Monthly Installments (Tk.)
100 200 300 400 500 1000 1500 Term 2000 2500 Saving Deposit 5000 10000
AMT. after 5 Years (Tk.) 8000
AMT. after 10 Years (Tk.) 22500
16000
45000
24000
67500
32000
90000
40000
112500
80000
224500
120000
337500
160000 Revised Rate of Interest
450000
200000 562500 5.00% (No restriction on withdrawal) …… 1125000
……
2250000
A person is allowed to open more than one account for different installments in the same branch or in the same Bank. No withdrawal shall usually allow before five years. If any one withdraws before five years s/he will get interest at prevailing rate on Savings account along with the principle. No interest will be paid on the deposited amount if the Account is closed before Six months. Installment must be deposited by 10th day of each month. In case of holidays, Deposit can be paid on next working day.
If any one fails to
pay installment in time, s/he will have to
pay Tk. 10 for each installment with subsequent deposit. Current Account
:
Current account is an account where the account holder within the funds can make numerous transactions available in its credits. No interest is paid on those deposits. Requirements to open an account are almost same to that of savings account except the initial deposit and the introducer must be the current account holder. Requirement for different types of current account holder are given below: Limited company A separate account opening form is used for Limited company. The bank should be cautious about opening account for this type of customer. Requirements to open an account are as follows: •
Articles of association
•
Two copies of attested photograph
•
Letter of commencement
•
Letter of incorporation
•
List of directors, their number of shares and status
•
Memorandum of Association
•
Registration-which the company is registered and certificate relating to this issue, is
obtained from the registration office of Joint Stock Company. Partnership firm Same account opening form for partnership firm is used. Instruction of account is given in this form. Documents required to open this type of account are as follows: •
Two copies attested photograph of those who will operate the account.
•
Partnership deed.
•
Resolution of the firm regarding account opening should be given.
•
Trade license.
Personal Current Account Same account opening form for partnership firm is used. Instruction of account is given in this form. Document required to open personal current account are given below: •
Two copies photograph of who will operate the account.
•
The guarantor who is already maintaining an account introduces personal.
•
Photocopy of National ID Card.
Current Proprietorship Account Requirements for opening this type of account are as follows: •
The guarantor attests two copies photograph of who will operate the account.
•
Photocopy of trade license.
•
Photocopy of National ID Card.
Banks are maintained a signature card and different types of register to open every types of accounts. An account number is given for each account and the description of the account entered in the computer. According to rules of the bank a letter of thank should be given to the account holder and to the introducer but in practice it is not done. B. Time deposit There are mainly two types of time deposit: 1.
Short Term Deposit (STD)
2.
Fixed Deposit receipt (FDR
Short Term Deposit (STD) In short term deposit, the deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of savings deposit. In NCCBL, various big companies, Sl. No. 1
TERM
Revised Rate of Interest
Short Term 4.00% (No restriction on minimum balance) Deposit organization, Government Departments keep money in STD account. Frequent withdrawal is discouraged and requires prior notice. Fixed Deposit Receipt (FDR
)
This type of deposit should be kept for a fixed term or period. NCC Bank Limited deals with the following terms deposit.
Term
Revised Rate of Interest
3 months 6 months 12 months
8.00% 8.25% 8.50%
3.5 REMITTANCE Demand Draft (DD): This is an instrument through which customers money is remitted to another person /firm /organization in outstation from a branch of one bank to another outstation branch of the same
bank or to a branch of another bank (with prior arrangement between that bank with the issuing bank). Issuing procedure of D.D •
Obtain demand draft application form duly filled in and signed by the purchaser /applicant.
•
Receive the amount in case/ transfer with prescribed commission and postage amount.
•
Insert test number.
•
Enter in the D.D. register.
•
Issue advice to the payee branch.
Payment procedure of DD •
Examine generally of the D.D. viz. Amount, verify signature, test, series, etc.
•
Enter in the DD payable register.
•
Verify with the ICBA /test etc.
•
Pass necessary vouchers.
Telephonic Transfer (TT) This is a mode of transfer / remittance of customer money from a branch of one bank to another branch of the same bank or to a branch of another bank with prior arrangement between the banks with the TT issuing branch through telephonic message. Characteristics of TT are: Issued by one branch to other branch and message is tele- communicated. Remittance / transfer of money are done through tested tele-messages. Remittance is affected on the basis of tested message. Test key apparatus required.
TT issuing procedure •
Obtain TT application form duly filled in and signed by the purchaser/ applicant with
full account particulars of the beneficiary. •
Receive the amount in cash/ transfer with prescribed commission, postage,
telephone/telex etc. •
Prepare TT message inserting code number.
•
Enter in TT issue register.
•
Issue advice to the payee branch.
TT payments procedure: •
Note the TT message and verify the test number and confirm if TT serial no. Etc. is OK.
•
If ok, enter into TT payable register.
•
Pass necessary voucher for payment.
The procedures are as follows:
Receive TT paper
Entry register book Responding Debit Paper Credit Advice Debit Paper (Principal + Rest Amount) Debit Voucher (Rest Amount)
Credit Paper (principal Amount) Payment order (PO) This is an instrument issued by the branch of a bank for enabling the customer/ purchaser to pay certain amount of money to the order of a certain person/ firm/ organization/ department/office with in the same clearinghouse area of the pay order-issuing branch. Pay order has different characteristics: •
The issuing branch and the paying branch are same.
•
Application for payment with in the clearing house area of the issuing branch.
• This may be open or can be crossed. Procedure of P.O. issue •
Obtain PO application form duly filled in and signed by the applicant.
•
Receive the amount in cash/transfer with commission amount.
•
Issues pay order.
•
Enter in pay order register.
Procedures of pay order payments •
Examine genuinely of the pay order.
•
Enter in to pay order register and give contra entry.
•
Debit if fund ok for payment.
Processing of Pay Order:
Pay order Cheque
Entry register book
Responding (Call deposit slip)
Money Gram
Credit slips (charge on pay order)
Money Gram is one of the innovative products of the bank. This has been functioning satisfactory and rendering prompt and efficient services to the wage earners. Money Gram is represented in over 115 countries and is available at more than 25,000 locations worldwide. In the USA alone Money Gram is available at more than 15,000 locations. All one has to visit a conveniently situated Money Gram agent anywhere in the world and handover the money where they want to send their relatives or friends along with the one-off transaction fee.
Figure: Remittance (2005-2009) In this Chart, we see that, the ratio of Remittance is increasing year by year. In 2005, the Remittance was 2492 million, in 2006, 3856 million, in 2007, 7444 million, in 2008, 12098 million, and in 2009 it was 13392 million. 3.6 CLEARING Generally speaking, clearing means settlement but from Banker’s point of view it refers to the procedure of receipts & payments of proceeds of cheques and other instruments through banks.
Clearing House is a place where the representatives of all member banks meet together and settle mutual obligations of banks arising out of cheques & other instruments drawn on one bank and deposited with another bank for collection, under a special arrangement. The characteristic of the clearing house is that at the time of coming to this place the representative of very bank brings with him all cheques etc drawn on other banks along with schedules and delivers the cheques to the clearing house and receives cheques etc drawn on his bank and on the basis of cheques etc. delivered & received the mutual obligations between banks is ascertained and settled through their respective bank accounts maintained with the Central Bank or any other bank which conducts the clearing house. Types of Clearing There are two types of Clearing, such as (a) Internal or Inter-branch Clearing and (b) Inter-Bank Clearing. Under the 1st type all branches of the same bank situated in a particular city settle their mutual obligations through the main branch of the bank. In some banks the term “Transfer Delivery” is used to mean internal clearing. In the other case, in one city the obligations between all banks are settled. In this case Bangladesh Bank or Sonali Bank performs the function of the Clearing House in Bangladesh. Kinds of Clearing
:
The Clearing House activities may be grouped into two types, (1) Outward clearing and (2) Inward Clearing. 1) Outward Clearing Procedure Receipt of instrument with paying in slip. Checking of instrument & paying in slip. Affixing of seal
Special Crossing seal.
Clearing Seal (Instrument & Paying in slip)
Endorsement Seal with signature.
•
Singing of counterfoil and returning it with seal to the depositor.
•
Separation of instrument from paying in slip.
•
Sorting of instrument bank wise and branch wise.
•
Preparation of schedule- branch wise.
•
Preparation Bank wise schedule.
•
Preparation of clearing House sheet.
•
Tallying of totals of paying in slips with the totals of Clearing House sheet.
•
Making of entries in Clearing Register (Outward).
•
Preparation of vouchers.
•
Sending of instruments to main branch with schedule.
•
Collection of credit advice from Main Branch.
2) Inward Clearing Procedure •
Receipt of instruments with schedule
•
Checking of instruments.
•
Sending of instruments to different Departments/Sections for posting
•
Preparation of Vouchers and sending of credit advice to main branch.
Clearing Return Procedures •
•
Outward clearing Return
Preparation of return memo.
Making of entry in clearing return Register.
Preparation of schedule.
Sending of instruments to main branch before second clearing.
Inward Clearing Return
Receipt of instrument with return memo.
Preparation of Party debit Voucher.
Making of entry in cheque return Register.
Sending of instrument with return memo and party debit advice to party by post or through peon.
3.7 COLLECTION The collecting banker is who on his customer’s behalf, presents to the paying banker, either directly or through the clearing channels, the cheques paid into credit by his customers, or obtained payment from the paying banker of the cheques so presented. However, the law has not imposed any duty on the bank to collect the cheque, dividend warrants and other allied instruments. When a banker collects his customer’s cheques, he acts either; A. As an agent of the customer B. As a holder of value 3.8 CASH AND OTHERS Procedure of cash Receipts •
While receiving cash the receiving cashier should see that the paying in slip has peen properly filled in
•
The paying in slip does not bear the name of another branch or the customer has not mentioned the name of another branch.
•
The title and number of account have been mentioned on the paying in slip and the counterfoil.
•
The amount in words and figures are the same.
•
The particulars and amount on the pay-in slip and the counterfoil are same.
•
The Cashier should receive money, count it and mention the denomination of notes on the back of the paying in slip and see that the total tallies with the amount of the paying in slip.
•
He should count the notes again and verify the amount from that mentioned on the paying in slip.
•
He should enter the particulars as to the name of the party, account number and amount in the Receipt Register.
•
He should sign on both the parts of the paying in slip i.e. voucher and the counterfoil.
•
He should then hand over the paying in slip and the Receipt Register to the authorized person, Officer in Charge/Head Cashier.
•
For the amount received on account of commission, Telegram and postal charges where no separate voucher is passed he should maintain record in a separate book or enter the same in Receipt Register immediately. He should prepare relevant vouchers and hand over the same to the authorized person for affixing the “CASH RECEIVED” stamp and obtain counter signature from the officer.
•
After the close of business hours, he should balance the cash receipts from the register, and should keep the cash ready for checking by the authorized person.
Procedure of Cash Payments For Payment of Cheques •
Payment Cashier should see that the cheque is in order i.e. the amount in words and figures is same. The cheque is neither post dated nor state.
•
He should then request the presenter of the cheque to sign on the back of the cheque.
•
The paying cashier sees that the signature of the ledger keeper and in case of big amount cheques, the signature of the officer and the Manager are there on the cheque as a token of having posted and supervised the cheque.
•
If the cheque is payable to the order of payee, the payee or the endorsee (if endorsed) has been properly identified.
•
Then he should take out cash and call out the name of the party and ask him about the amount of the cheque and his token number. If the amount stated by the party differs from the amount of the cheque, he should tally the token number, if the token number
is the same and the amount differs, he should report the matter to the Officer in charge/ Manager. •
He should obtain another signature of the party on the back of the cheque. He should now see that the second signature tallies with the first one already on it.
•
In case the signatures do not tally, he should not make the payment and report to the Officer in charge.
•
Before making the payment he should obtain the token from the party and see that the amount and token number are the same.
•
He should, once again, ask the party about the amount of his cheque and count the cash for the second time before making payment. When satisfied in all respects he should make payment.
•
He should affix the “CASH PAID” stamp bearing the date of payment.
•
He should put his full signature under the cash paid stamp.
•
He should enter the particulars of the cash payment in his payment Register.
•
He should keep the cheques so paid in his safe custody till the Officer in charge/Manager checks his payment register.
For Cash Payment of other instruments •
In case of cash payment of Drafts, Pay Orders and Pay Slips, he should see that the payee has been properly identified, and in case of Pay Slips, the beneficiary has signed on proper revenue stamp.
•
The Officer/ Officers has/ have signed under the stamp “PAY CASH”
•
In other respects, so far as applicable, the same procedure is to be followed as in payment of cheques.
For Payment on Cash Debit Vouchers For payment on cash debit voucher he should see that two persons holding “Power of Attorney” have signed the voucher. •
The Manager has singed on the cash debit voucher giving his assent.
•
The proper Account has been charged.
•
The recipient has signed on the back of the voucher
•
If the amount is TK. 20/= (twenty) and above the recipient has signed on proper revenue stamp.
•
If the payment is being made to a person other than a staff member, the “payee” must have been properly identified.
Procedure of Cash Handling
The Cashier should know to differentiate defective, Mutilated, Burnt, Torn etc. notes from good notes. As a matter of rule such notes should not be accepted over the counter as deposits or in exchange of good notes. These notes, under special circumstances, may be accepted only on “collection basis”. These notes should immediately be sent to Bangladesh Bank/ Sonali Bank for receiving payment of exchange value. 3.9 FLORA BANKING Flora Banking is specialized online banking software which is helpful to maintaining customer’s accounts. The operation of Flora banking starts from Moghbazar branch. CHAPTER – FOUR Foreign Exchange Operation 4.1 INTRODUCTION Banks play a very vital role in affecting foreign exchange transaction of a country. Mainly transactions with overseas countries are respect of –import; export and foreign remittance come under the purview of foreign exchange transaction. Central bank records all sort of foreign exchange transactions and therefore, transaction affected by the banks other authorized quarters are to be reported regularly to the Bangladesh Bank. 4.2 FOREIGN EXCHANGE It is a process of system of conversion of one nation currency to another and of transforming money from one country to another. Foreign Exchange Business means-1) Import Business 2) Export Business 3) Foreign Remittance. 4.3 IMPORTANCE OF FOREIGN EXCHANGE BUSINESS IN OUR ECONOMY
International trade gives exchange opportunity of goods.
Consumers get privilege through international trade.
International trade helps to produce domestic production as well as Global Production.
Natural assets of a country are to be utilized property.
Authorized Dealership: The bank, which is authorized by Bangladesh bank for dealing foreign exchange business on transaction under the FER Act, 1947 is called Authorized Dealership. NCCBL, Kawran Bazar Branch is one of the Authorized Dealership Branch of NCCBL. 4.4 FUNDAMENTALS OF FOREIGN EXCHANGE There are three fundamentals of foreign exchange: -
i. Every country has it own currency legal tender. ii. Banks effect the conversion of one currency to another by booking keeping entry carried out in the two centers concerned. iii. These exchanges are affected by means of credit instruments viz. Draft, mail transfer, telegraphic transfer etc. 4.5 FOREIGN EXCHANGE DEPT. OF NCC BANK NCC bank foreign exchange dept. plays a vital role to earn the bank’s maximum profit. The dept. is classified according to their activities. The foreign exchange dept. consists of three sections: •
Import section,
•
Export section,
•
Foreign remittance section
4.6 IMPORT PROCEDURE Import: Import means goods and services purchased from foreign sources. These imports may be used for consumption, investment or government. Whatever their use, imports represents purchase of goods and services that not even produced or purchased but insufficient in a country. Procedure for obtaining IRC: As per Import & Export control Act, 1950 no person can indent, import or export any goods in to Bangladesh except incase of exemption issued by the government of the Peoples Republic of Bangladesh. So for doing import business at first every importer should obtain Import Registration Certificate. Through public notice or import policy the chief controller of import and exports invites application usually for registration of importers. The following papers / documents are required for submission to CCI & E for Import Registration Certificate. •
Application form.
•
Nationality Certificate.
•
Income tax registration certificate with GM.
•
Trade license.
•
Membership Certificate.
•
Partnership Deed (For partnership firm)
•
Certificate of Registration with the Register of Joint Co. & Articles and memorandum of Association in case of Limited Company.
•
Bank Certificate.
The nominated of the applicant will examine the papers/documents and verify the signature of the applicant and forward the same to the concerned office of the CCI & E with a ford wing schedule in duplicate though bank representative. The duplicate copy of the same bearing the
acknowledgement of CCI & E office of the receipt of the document is received by the bank and is preserved. Import: Basis of •
Performa invoice
•
Indent.
•
Special trade agreement,
•
Sales Contract,
•
Barter system.
Figure: Import (2005-2007) In this Chart, we see that, the ratio of Import is increasing year by year. But in 2009, it was fall down compare to 2008. In 2005, the import was 16296.30 million, in 2006, 17646.80 million, in 2007, 28779.21 million, in 2008, 38796.88 million, and in 2009 it was 33078.44 million. Import Procedure:
4.7 DEFINITION OF L/C Letter of credit is an undertaking giving by the issuing Bank on behalf of its customers to pay a certain some of money to a certain person (beneficiary) on the fulfillment of certain terms of conditions as laid down in the letter. 4.8 CLASSIFICATIPN OF L/C Revocable L/C,
Red clause L/C Irrevocable L/C,
Confirmed L/C,
Transferable L/C,
Devisable L/C,
Revolving L/C
Restricted L/C, Green clause L/C,
Back-to-Back L/C,
Stand by L/C,
Circular L/C,
Straight L/C. 4.9 THE CLAUSES CONTAINED IN A L/C •
A clause authorizes the beneficiary to draw bills of exchange up to certain on the opener.
•
List of shipping document, which are to accompany the bills.
•
Description of the goods to be shipped
•
An undertaking by the issuing bank that bills drawn in accordance with the conditions
will be duly honored. •
Instructions to the negotiating bank for obtaining reimbursement of payments under the
credit. 4.10 PARTIES INVOLVED IN A LETTER OF CREDIT Importer/Buyer Opening Bank Exporter/Beneficiary Negotiating Bank Advising bank Confirming/Reimbursing Bank Importer/Buyer Importer/Buyer is the party who opens L/C on behalf of exporter by issuing bank. Opening/Issuing Bank The opening/issuing bank is the bank which opens/issues a L/C on behalf of the importer. It is also called the importer's /buyer's bank.
Exporter/Beneficiary Exporter/Beneficiary is the party in whose favor the L/C is established. Advising /Notifying Bank The advising/Notifying bank is the bank through which the L/C is advised to the exporting country & it may be a branch of the opening bank or a correspondent bank. It may also assume the role of confirming and /or negotiating bank depending upon the conditions of the credit. Negotiating Bank Negotiating bank is the bank that negotiates the bill & pays the amount to the beneficiary. It has to carefully scrutinize the documentary credit before negotiation in order to see whether the documents apparently are in order or not. The advising bank & the negotiating bank may or may not be one & the same. Reimbursing Bank reimbursing bank is the bank, which would reimburse the negotiating bank. It is to be nominated by the issuing bank. 4.11 L/C APPLICATION NCCBL provides a painted form for opening of L/C to the importer. A special stamp is attached on the form. While opening, the stamp is cancelled. The importer gives the following information is that form: •
Full name & address of importer.
•
Date & place of expiry of the credit.
•
The mode of transmission of document (courier/mail/telex)
•
Whether the confirmation of the credit is requested by the beneficiary or not.
•
Whether the partial shipment is allowed or not.
•
The type of loading (loading on boarding).
•
Brief description of the goods to be imported.
•
Availability of the credit by sight payment acceptance/deferred payment.
•
The time bar within which the document should be presented.
•
Sales terms (FOB/CIF/C & F).
•
Account number.
•
L/C amount.
•
Shipping mark.
•
H.S. code number of the goods to be imported.
•
IRC number.
• • •
LCA number Insurance cover note. Country of origin.
The above information is given along with the following documents. •
Proforma Invoice, which gives description of the goods including quantity, Unit price etc.
•
Four set of IMP form.
•
The insurance cover note, Issuing Company &the insurance number.
4.12 TRANSMISSION OF L/C The ways of transmission of L/C are as follows i) Through SWIFT ii) Through Telex iii) Through DHL or FEDEX iv) Through Emergency Mail Service (EMS) 4.13 AMENDMENT OF LETTER OF CREDIT Parties involved in a L/C cannot always satisfy the terms & conditions in full as expected due to some unexpected reason. In such a situation, the credit should be amended. NCCBL transmits the amendment by tested telex to the advising bank. In case of revocable credit, it can be amended or cancelled by the issuing bank at any moment & without prior notice to the beneficiary. But in case of irrevocable L/C, it can neither be amended nor cancelled without the agreement of the issuing bank, the advising bank & the beneficiary. If the L/C is amended, service & telex charge is debited from the party account. 4.14 PRESENTATION OF THE DOCUMENTS After the exporter /seller is being satisfied with the terms & conditions of the credit, he/she then proceeds to dispatch the required goods to the importer. Then he/she has to present the documents evidencing dispatching of goods to the negotiating bank within the stipulated expiry date of the credit. After receiving the documents, the negotiating bank checks them against the credit. If the documents are found in order, the bank will negotiate to the issuing bank, in our case with NCCBL. NCCBL also checks the documents. The usual documents in a Letter of Credit are the following: • Bill of exchange. • Commercial Invoice. • Packing List. • Bill of Lading. • Certificate of Origin. • Pre-shipment Inspection report. • Insurance Cover Note. • Shipment Certificate.
4.15 COMMON DISCREPANCIES OF THE IMPORT DOCUMENTS Most common discrepancies that are found 'in import documents are giving below: •
Wrong tenor shown in the bill of exchange.
•
Partial shipment is beyond L/C limited /terms.
•
Insufficient number of Commercial Invoice.
•
Unsigned document.
•
Description of the goods is not consistent with that of L/C.
•
Submission of documents after expiry of Letter of Credit.
•
Some important documents are not presented.
If any major discrepancy found in the document it is immediately informed the Importer for his opinion. After repairing the necessary vouchers, endorsement is made on the bank of the B/F- as Received Payment & the B/L is endorsed as Please delivery to the order of M/S--------" under two authorized signatures of NCCBL's officers (P.A. holders). Then the documents are given to the Importer. 4.16 BACK-TO-BACK LETTER OF CREDIT A back-to-back letter of credit is a new credit. It is different from die original credit based on which the bank undertakes the risk under the back-to-back credit. In this case, the bank's main security is the original credit (selling credit) and the back to back credit (buying credit) is separate instruments independent of each other, although both are part of the same business operation. The supplier (beneficiary of the back to back credit) ships goods to the importer or supplies goods to the exporter and presents documents to the bank as if specified in the credit. It is intended that the exporter would substitute his own documents and ships the goods to the importer, if necessary, and present documents for negotiation under the original credit, his liability under the back-toback credit would be adjusted out of these proceeds. Export L/C is marked lien and no margin is taken. Documents that are required to submit for opening a back-to-back L/C are given below: •
Master L/C.
•
Valid Import Registration Certificate (IRC) & Export Registration Certificate (ERC).
•
L/C application & LCA form duly filled up & signed.
•
Proforma Invoice or Indent.
•
Insurance cover note with money receipt.
•
Duly singed IMP form.
4.17 VARIOUS STEPS INVOLVED IN THE OPERATION OF LETTER OF CREDIT
1. The importer and exporter have made a contract before a L/C is issued. 2. Importer applies for a letter of credit from his banker known as the issuing batik. He may have to use his credit lines. If lie is a new customer, margin deposit may be required: e.g. 20% deposit on credit amount. 3. Issuing bank opens the L/C, which is channeled through its overseas corresponding bank, known as advising bank. 4. Advising bank informs the exporter (the beneficiary) of the arrival of the L/C. 5. Exporter ships the goods to the importer or other designated place as stipulated in the L/C. 6. Meanwhile, he prepares his own documents and collects transport documents or other documents (e.g. insurance policy) from relevant parties. All these documents will be sent to his banker, which is acting as the negotiating bank. 7. Negotiation of export bills happens when the banker agrees to provide him with finance. In such case, he obtains payment immediately upon presentation of documents. If not, the documents will be sent to the issuing bank for payment or on an approval basis as in the next step. 8. Documents are sent to issuing bank (or reimbursement bank which is a bank nominated by the issuing bank to honor reimbursement from negotiation bank) for reimbursement or payment. 9. Issuing bank honors it's undertaking to pay the negotiating bank condition that the documents comply with L/C terms and conditions. 10. Issuing bank releases documents to importer when the letter makes payment to the former or against the latter's trust receipt facility. 4.18 EXPORT PROCEDURE OF NCCBL Export is one of the most important activities that can increase economic and social well being through transaction of goods and services from domestic economic agent to foreign economic agent for which domestic economic agents receive payments, preferably in valuable foreign currency. The import and export trade in our country is regulated by the Imports & Exports (Control) Act, 1950. There are some formalities, which an exporter has to fulfill before & after shipment of goods The export procedure follows the following steps: Registration of Exporters Under the export policy of Bangladesh, the exporters have to get valid export registration certificate (ERC). For obtaining Export Registration Certificate Bangladeshi exporters are required to apply to die controller of Import & Export in the prescribed from along with the following documents:
•
Nationality and assets Certificates,
•
Memorandum and Articles of Associates and Certificate of incorporation in case of Limited company;
•
Bank Certificate;
•
Income Tax Clearance Certificate;
•
Trade License issued by the Municipal Authority.
•
Payment of Registration fees and renewal fees in a Treasury Chalan.
Obtaining EXP After getting ERC the export applies to NCCBL (or any other commercial Bank) with trade license & if the bank is satisfied, an EXP issued to the exporter. Securing of Order After getting the ERC the exporter may proceed to secure the export order. He can do this by contacting the buyers directly through correspondence. In this purpose exporter can get help from: •
Liaison Offices;
•
Buyer's Local Agent;
•
Export Promoting Organization'
•
Bangladesh Mission Abroad;
•
Chamber of Commerce (Local & Foreign);
•
Trade Fair etc.
Signing the Contract While making a contract, the following points are to be motioned: •
Price of the goods
•
Describe of the goods
•
Quantity of the goods
Export Letter of Credit After getting the contract for sale, exporter should ask the buyer for letter of credit (L/C) clearly stating terms and conditions of export and payment. The following are die main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit: •
The L/C is an irrevocable one, preferably confirmed by the bank,
•
The L/C allows sufficient time for shipment and negotiation,
Procuring the materials
After making the deal and on having the L/C opened in his favor, the next s for the exporters is to set about the task of procuring or manufacturing contracted merchandise. Shipment of goods The following are the documents normally involved at the stage of shipment. •
EXP Form
•
ERC (valid)
•
L/C copy
•
Customs duty certificate
•
Shipping instruction
•
Shipping instruction
•
Transport Documents
•
Insurance Documents
•
Invoice
•
Bill of Exchange (if required)
•
Certificate of origin
•
Inspection Certificate
•
Quality Control Certificate
Now exporter submits all these documents along with a Letter of Indemnity NCCBL for negotiation. An officer scrutinizes all the documents. If documents are clean, NCCBL purchase the documents on the basis of bad customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP). Forwarding Foreign Bills for Collection •
If the documents have discrepancies.
•
If the banker is in doubt.
•
If the exporter is a new customer.
•
Foreign Documentary Bills of collection signifies that the exporter will receive payment only when the issuing bank gives payment
Export Procedures:
Figure: Export (2005-2009) In this Chart, we see that, the ratio of Export is increasing year by year. But in 2009, it was fall down compare to 2008. In 2005, the export was 7776.30 million, in 2006, 8557.00 million, in 2007, 9577.92 million, in 2008, 12522.04 million, and in 2009 it was 11903.72 million. 4.19 COMMON DISCREPANCIES NCCBL officials usually find the following discrepancies while checking the above-mentioned documents: •
On board nation of in Bill of lading undated/ unauthenticated.
•
Shipment effected from port other than that stipulated in the credit.
•
Full set of bill of lading not presented.
•
Certificate of country of origin not provided.
•
Wightman certificate not presented,
•
Cuttings/alternations in documents not authenticated.
•
Documents inconsistent with each other.
•
Description of goods on invoice differs from that in the credit.
•
Credit (L/C) amount exceeded.
•
Credit (L/C) expired.
•
Documents not presented 'in timed / stale bill if lading.
•
Late shipment.
•
Absence of signature, where required, on documents presented.
•
Bill of Lading does not evidence whether freight is paid or not.
•
Packing list not submitted.
•
Notify party differs /not as per L/C stipulation.
•
Inspection certificates not submitted.
•
Unit price not mentioned in invoice.
•
Health certificate (fit for human consumption) not submitted.
CHAPTER – FIVE
Loan and Advance 5.1 INTRODUCTION Banks are principal source of credit for borrowers. Banks provide loan able funds for millions of households (individuals and families), for most local units of government and for agricultural, commercial and industrial activities of a nation. Worldwide, banks grant more installments loans to consumers than any other financial institution. Bank credit is a catalyst for bringing about economic development. Without adequate finance there can be no growth or maintenance of a stable output. Bank lending is important to the economy, for its makes possible the financing of different sectors. At the same time, a bank will, therefore, distribute its funds among various businesses in a manner as to derive sufficient income. But as liquidity and profitability are conflicting considerations. NCC Bank Limited as a bank, while employing the funds pays due regard to both profitability and liquidity. 5.2 CREDIT “Credit is a promise of future payment in kind or in money given in exchange for present money, goods or services� In general credit means the granting of a period of time by a creditor to a debtor at the expiration of which the latter must pay the debt due. One of the primary functions of commercial banks is sanctioning of credit to the potential borrowers. Bank credit is an important catalyst for bringing about economic development in a country. Without adequate finance, there is no growth or maintenance of a stable economy. Bank lending is important for the economy, because it makes possible the financing of agriculture, commercial and industrial activities of a nation. At the same time, a bank, therefore, distribute its funds among various sectors in a manner as to derive sufficient incomes. National Credit and Commerce Bank, being one of the largest private commercial bank of the country, has some prejudice to finance directly on priority basis to agriculture, industry and commerce sector for strengthening the economic base of the country. Hence, it is very clear that, NCCBL plays an important role to move the economic wheel of the country.
Importance of Advance towards the Nation Loan & advance is an important part of a bank. Deposit extraction & credit extension is the basic function of a Bank. Proper credit management is the crying need for a Bank. So every Bank
follows some policy of direction, monitor, smooth approval & review of lending operation for the proper credit management. NCCBL extent it credits facilities to trade & commerce, small & medium enterprises within the policy guidelines of the Bank & Bangladesh Bank. 5.3 CREDIT INVESTIGATION Credit Investigation refers to the assessment of the loan proposal/venture/project/ enterprise from different angles with a view to justifying soundness of the same. Who shall get credit? It is easier to find out a depositor than finding out a good borrower. Public money, in the hands of bad borrower, is never saved and secured. Then, whom to lend? In short, the answer is to lend to an entrepreneur. Who is an entrepreneur? An entrepreneur may be defined as a person who, for attaining his own pecuniary interest as well as mental satisfaction together with offering additional services and well being to the society at large, under takes efforts to collect together various types of necessary goods, labor materials, other wealth etc. and by means of application of his wisdom, foresight, creativity, devotion and self confidence, takes initiative
to add
additional utility and value to the collected materials and wealth by bringing change and or modification in their form. He manages affairs and loan sanctioning authorities must be acquainted with technique to take correct lending decision so far borrowers attribute is concerned. Sources of Credit Information: Broadly, a banker collects the required information about a prospective borrower from the following sources: Loan Application When a loan proposal has to be processed a banker first studies the loan application made by the borrower. A loan application usually contains information pertaining to the name of the concern, constitution, nature and place of business, year of establishment, borrower’s experience in the line, particulars of assets and liabilities, purpose of advance, amount required, the period of advance applied for, nature of security offered, sources of repayment etc. Market Reports After receiving the loan application form, NCCBL sends a letter to Bangladesh Bank of obtaining a CIB (Credit Information Bureau) report. The purpose of this report is to being informed that borrower has taken loan from any other bank, if ‘yes’ then whether these loans are classified or not. After receiving CIB report if the bank thinks that the prospective borrower will be a good
borrower, then the bank will scrutinize the documents. If all the documents are properly filled up and signed then comes processing stage. In this stage, the bank will prepare a credit proposal. Study of Account If the borrower is the customer of the bank, a study of the borrower’s account and his /her past dealings will throw light on the aspect of keeping up commitments, borrowing else-where etc. which will assist a banker in judging about creditworthiness of the borrower. If the account shows a good turnover, and the cheques were never returned for want of funds, which will give an impression about the volume of business of the borrower as well as his/her honest dealings. If some of the parties to whom cheques are issued are known to the bank, further independent enquiry would be possible. If he/she is having account with other bank, he/she may be requested to show the relative passbook and/or statement accounts so that all accounts can be studied side by side. A confidential opinion about the customer from his/her pray bankers should be obtained. Financial Statements etc The borrower should be requested to supply the statement in regard to his/her assets and liabilities. It is always preferable to have audited statements for the last three years. In addition, the lending banker must arrange to obtained a copy of the latest income tax statement of the borrower from which it will be possible to estimate his/her income. Similarly his/her sales tax return will give an idea about the sales. In case of limited companies, the audited balance sheet and profit and loss account for the last three years must be obtained to assess the financial position of the company and various financial aspects of the borrower’s business. Other Sources Other sources of information about the borrower include press reports regarding purchase and sales of property, Auctions and decrees, registration, revenue and municipal records can also be referred to with advantage to verify the properties owned by the borrower and charges thereon, if any. If the borrower happens to be a limited company, a search of the records of the registrar of the joint stock companies should be made for finding out if there are any prior charges or mortgage on the company’s assets. Personal Interview After having collected all the information from outside sources, it is advisable to arrange for a personal interview with the borrower. The questions must be suggestive and helpful to put him/her at ease so that he/she gives all information required by the bank. The banker should be able to know from the interview the customer’s specific requirements, the prospects of his/her
employing the funds prudently, his/her capacity to repay and the suitability of the security offered, if any. Enquires may be made to verify the information given by the customer. 5.4 MODERN CONCEPT OF GOOD LENDING Modern concept of lending presupposes a well-developed loan proposal/loan case/project. It will cover as many as six pertinent aspects like: Managerial aspect- Character, Capacity, Capability of management. Organizational aspect- whether proprietorship or partnership. Technical aspect- Location of project, power, construction. Marketing aspect- Marketability of the product. Financial aspect- cost of project, sources & uses of funds profit. Economic aspect- Socio economic benefit and cost analysis.
How much to lend: Over financing and under financing are vary common phenomenon in credit portfolio; neither of which is desirable as a sound principle of advance. For a going concern, widely accepted principle of calculating working capital need is already and established factor of sound credit policy deviation from which may lead to catastrophic result and so, it is better to reject proposal instead of under financing. At the same time, over financing will create opportunity to divert fund. The highest priority of consideration is that bank credit must not be extended for speculative purpose and sound credit policies always find out actual credit need depending on nature, volume, and turnover of business as well as capability of the prospective borrower. The most important aspect for consideration is how much a bank can lend taking in consideration its liquidity position, loan able fund and commitment already made. Moreover contingent liability must be taken in to consideration very wisely in sanctioning new loan and enhancing old limits as contingent liability. Purpose of Lending: The recommending as well as sanctioning authority must ascertained and satisfy himself that all advances are for productive purpose, genuine business and tread-need based and neither for speculative nor for unproductive purpose. Here production is to be construed as creation of additional utility for the society. Thus, if advance is canalized for productive purpose, it will broaden economic activity, augment trade and commerce, production will rise, open the door off new economic activity, create employment opportunity, encores young energetic millions to engage themselves in innovative
remunerative activity, and increased movement of goods and flow of cash i.e., velocity of circulation of money will automatically be increased which, in banking concept, is known as cash generation. Bank cannot afford a loan turning bad to the detriment of institution and the society and for this purpose, the recommending and sanctioning officer must be acquainted with sound principles of advance, and the ways and means to analyze the risks involved with the proposal processes and the limit sanctioned.
5.5 TYPES OF LOANS AND ADVANCES Loans and Advance in banking deals with different types of loan. The NCC Bank performs various functions, lending of money to different kinds of borrowers based on the nature of their activities, the location of business, financial stability, earning and repayment capacity, purpose of advance, securities all differ and their degree of risk also. 5.5.1 FUNDED CREDIT AND NON –FUNDED CREDIT: Funded Credit: Any type of credit facility which involves direct outflow of Bank’s fund on account of borrower is termed as funded credit. Over draft and most of the loan comes under this section. By taking collateral from the borrower bank allow to take over draft facility is a continuous process. Borrow has to pay interest on the withdrawn money. Non- Funded Credit: There is no cash amount involved in this kind of loan. BLC (bill for L/C) and bank guarantee falls in this kind of loan. In case of BLC foreign exchange department mainly deals with it. 5.5.2
TERM LOANS AND WORKING CAPITAL FINANCE:
Term Loans Finance: NCC Bank Ltd. considers the loans, which are sanctioned for more than one year as term loan. Under this facility, an enterprise is financed from the starting to its finishing, i.e. from installation to its production. NCCBL offers this facility only to big industries. Under term loan there are three categories: Short term loan- loans having maturity less than one year fails under this category. Midterm Loan –this loan facility is extended for loans having maturity more than one year but less than three years. Long term loan- loans having maturity more than three years.
Working Capital finance: Loans allowed to the manufacturing units to meet their working capital requirement, irrespective of their size and nature of business. 5.5.3 SECURED OVERDRAFT (SOD), CASH CREDIT, OVERDRAFT
AND BILLS
PURCHASED: The overdraft is a kind of advance always allowed on a current account operated upon by cheques. It is a continuous advance facility. By this agreement, the banker allows his customer to overdraft his current account up to his credit limits sanctioned by the bank. The interest is charged on the amount, which he withdraws, not on the sanctioned amount. Type of secured over draft are:
Secured Over Draft (SOD) SOD (General)
SOD (FO)
SOD export
SOD (General): Advances allowed to the individuals/firms against financial obligations i.e. lien of FDR or defense savings certificate, ICB unit certificate etc and against work order of government departments, corporations, autonomous bodies and reputed multinational organization. SOD (FO): Advance is granted to a client against financial obligations. The security of advance is granted to the person to whom the instrument belongs. The discharged instrument is surrendered to the bank along with a letter signed by holder authorizing the bank to appropriate the proceeds of the instrument on due date towards the repayment of the advance. The bank’s lien is prominently noted on the face of the instrument under the signature of an authorized bank official. Another branch of NCCBL or any branch of some other bank issues the instrument, than the concerned branch is intimated to lien mark the instrument. SOD (Export):
Advance allowed to purchasing foreign currency for payment against L/Cs (BTB) here the exporter can not materialize before the date of import payment. This is also an advance for a temporary period. Cash credit: Cash credit is an arrangement by which a banker allows his customer to borrow money up to a certain limit. CC is a favorite mode of borrowing by traders, industrialists etc. for meeting their working capital requirements. It is operated like overdraft account. Depending on the needs of the business, the borrower can draw on his cash credit account at different time and when he gets money can adjust the liability. NCCBL charges interest on the daily balance in the account. Depending on charging security there are two forms of cash credit. Cash credit(Hypothecation): It is a short term arrangement by which a customer is allowed to borrow money up to a certain limit sanctioned by the bank for a certain time. Under this condition, the borrower has to submit the stock fortnightly in the bank. It is granted to parties of undoubted means with the highest integrity. Cash credit(Pledge): It is also a continuous loan allowed against pledge of goods as primary securities fall under this head of advance. In case of pledge, the goods are placed in custody of the bank with its name on the godown where they are stored. The borrower has no right to deal with them without the concern of bank. Overdraft: A customer having current accounts is accommodated by overdraft facility against security. Permission is given to overdue current account up to sanctioned limit. The borrower may operate any number of times within sanctioned limit up to validity period of limit. The interest is charged on his debit balance. Bills Purchased: Local Documentary bills purchased (LDBP): Payment made against documents representing sell of goods to local export oriented industries which are deemed as exports and which are denominated in local currency/foreign currency falls under this head. The bill of exchange is held as the primary security.
Foreign Documentary bills purchased(FDBP):
Payment made to a party through purchase of foreign documentary bills fall under this head. This temporary advance is adjustable from the proceeds of negotiable shipping/export documents. It falls category Export credit.
5.5.4 IMPORT FINANCING: Loan against imported merchandise (LIM): The temporary loan, which is allowed to the importer against their imported goods, is called Loan against Imported Merchandise (LIM). Validity of the LIM will be allowed as per sanction letter. LIM is generally disbursed once. Interest rate of this loan is higher and it is charged on monthly basis. Control over the imported goods to be absolutely maintain by the bank. Loan against trust receipt (LTR): The temporary loan, which is allowed to the customer against their application on the basis of trust. It is call loan against trust receive. Validity of LTR will be allowed for 30/60/90/120 days etc. Adjustment of LTR may be made partially or fully. Interest rate of this loan is higher. Interest rate on LTR is charged on monthly basis. It is allowed against security. Payment Against Documents (PAD): When Issuing bank gets the original shipping discontents from Negotiating bank against a letter of credit (L/C), then issuing bank goes through that shipping discernment for scrutiny. After scrutiny of the shipping documents, if the issuing bank finds the shipping documents in order, i.e. as per L/C terms, then issuing bank open a loan account on account of importer. This total process may be defined as PAD.
5.5.5 EXPORT FINANCING: Continuous loan are involved in export financing. It can be two ways: Pre-shipment credit financing: Pre-shipment credit is given to finance the activities of an exporter prior to the actual shipment of goods. It is essentially a short term credit and liquidated by negotiation or purchase of export bills covering the merchandise. It may be followings:
1. Packing Credit (P.C.): In this case, credit facilities are extended against security of master L/C. the amount of loan is ten to fifteen percent of FOB value of master L/C. interest rate of PC is seven percent as per Bangladesh bank which is followed by NCC bank Ltd. 2. Export cash credit against trust Receipt: In this case, credit limit is sanctioned against trust receipt. Here, exporter is required to execute a stamped trust receipt in favor of the bank, wherein a declaration is made that receiving bill from buyer bank adjust the liability. 3. Back to Back Letter of Credit: Under this arrangement, the bank finances export by opening a letter of credit on behalf of the exporter who has received a letter of credit from the overseas buyer. As the exporter is required to purchase raw material for producing exportable, this new letter of credit is opened in favor of the supplier of raw materials within or outside the country. Since the second letter of credit is opened on the strength of master letter of credit, it is called back-to- back letter of credit. Post- Shipment Export Credit: Post shipment credit refers to the credit facilities extended to the exporter by the bank after shipment of the goods against export documents. Necessity for such credit arises, as the exporter can not afford to wait for a long time without paying manufactures/suppliers. 1. Negotiation of Export Bills: Under this arrangement, after the goods are shipped, the exporter submits the concerned document to the negotiating bank for negotiation. The documents should be negotiated strictly in accordance with the terms and conditions and within the period mentioned in the letter of credit. Purchase of Export Bills: In such case the bank purchased the export bills under the payment method of documents separately and clear instructions have to be obtained from the drawer of the bills in regarded to all important issues related to the negotiation of the bills. Payment Against Document Sent for Collection: Bank generally accepts export bills for collection of proceeds when they are not drawn under against an L/C contain some discrepancies. Without any discrepancy in the documents the bank
generally negotiates bills drawn under L/C and the exporter gets the money from the bank immediately. 5.5.6 CONSUMER CREDIT SCHEME: Consumer credit scheme in various head to extend credit facility to the people of fixed income bracket to improve their standard of living. Under this scheme the bank extends its credit facilities to its honorable customer in the following forms: Small Business Loan Personal Loan House Renovation Loan Small Business Loan (SBLS): It has been observed that small business enterprises generally cannot provide collateral securities to avail loan facilities. Genuine business having enterprises quality and honest will come under the preview if this scheme.
Conditions of Small Business Loan:
Qualification
: 1. Honest and vigorous entrepreneur who Has five years experience in business. 2. The customer of the NCCBL who has his current account in the branch of the bank from where he would like to get loan.
Quantity of loan amount
: Tk. 5.00 lac (maximum)
Interest Rate
: 17% (Three months installment basis)
Application Fee
: Tk. 500/-- (Non refundable)
Personal Loan (PLS): NCCBL also offers personal loan facility to its customers for buying household appliances. No securities are kept for such type of credit facility but a guarantee from third party is required who ought to be a prominent person or government service holder. Anyone with continuous employment for a reasonable length of time in an organization is entitled to enjoy this facility. A quotation needs to be submitted on the office pad from where the goods will be purchased. Limit
of personal credit ranges from tk.3 Lac to tk. 5 Lac and interest rate is 16%, which is subject to change The objective of this loan is to provide essential Household durables to the fixed income group (Service holder) and other eligible under the scheme. Conditions of Personal Loan
Age Limit
: 20-50 yr.
Qualification
: Permanent employee of Semi Government, autonomous,
corporation, bank, insurance, Educational Institution, multinational company and renowned institutions, which is recognized to the bank
Quantity of Loan
: Tk. 1 Lac.
Term of Loan
: 6 months but not more than three years.
Interest Rate
: 17%
Application Fee
: Tk. 500/-- (Non Refundable)
Housing Loan: House Renovation Loan Scheme (HRLS) National Credit and Commerce Bank Limited also offers HRLS to its customers for repairing of dilapidated houses. The target groups for this scheme or owners who are unable to meet up repairing / renovation expenses at a time from their own sources. Its limit is maximum tk. 5 Lac and interest rate is 17% with quarterly rest. Conditions of House Renovation Loan
Age Limit
: 30-50 yr
Qualification
: 1. Real Owner of dwelling property. 2. The person who is able to repayment the Loan and interest. 3. Not over 20 year old property which is going to be renovated and repaired.
Quantity of loan amount
: Tk. 5.00 lac (maximum)
Interest Rate
: 17% (Three months installment) (changeable)
Application Fee
: Tk. 500/-- (Non refundable)
HBL National Credit and Commerce Bank Limited also offers HBL to its customers for Buying residential apartments or houses. The target groups for this scheme are customers who want to
buy a flat for residential purpose. Its limit is maximum tk. 50 Lac and interest rate is 13% with quarterly rest. The loan is given for maximum 15 years of validity. HLS National Credit and Commerce Bank Limited offers this housing loan for Commercial purpose. Its maximum limit is 200.00 Lac. And the validity of the loan is for 5 years. The interest rate of this loan is 13% with quarterly rest.
5.5.7 Lending Interest rate of NCC Bank Ltd.: Category/ Advance:
Head
of Existing Rate(Mid):
Revised Rate:
Agriculture (Subject to Bangladesh bank norms) Loan (G)/Term Loan Large and medium scale Industry Working Capital to industry (Large and Medium scale)
12.50%
13.00%
14.50%
13.00%
14.50%
13.00%
Small Scale Industry: a)Loan(G)/Term Loan b) Working Capital Exports: Packing Credit ECC Commercial Loan Pledge Hypothecation PAD LIM LTR IBP FBP LDBP FDBP & Bills Discounted Housing Loan: Commercial Consumer Finance: Small Business Loan FSBLS HRLS Personal Loan Consumer Finance Scheme Credit Cards
14.50%
16.00%
7.00%
7.00%
14.50% 14.50%
13.00% 13.00%
14.50%
13.00%
14.50% (For Over due Period) 15.00%
13.00% (For Over due Period) 13.00% 17.00%
17.00%
2.00% Per Month
2.00% Per Month
NBFI
14.00%
14.00%
Others Against FDR/FO OF NCCBL Against FDR/FO of NCCBL, ICB Units, WEDB Shares etc Housing Loan-Residential (HBLS) Against Work/Supply order
3% above relative FDR rate.
3% above relative FDR rate.
14.00%
14.00%
15.00% (Fixed)
15.00%
16.00%
16.00%
Transport
16.00%
16.00%
Lease Finance
16.00%
16.00%
5.6
GRAPHICAL PRESENTATION OF LOANS &ADVANCE OF NCCBL
Figure: Loans and Advance (2005-2009)
In this Chart, we see that, the ratio of Loans and Advance is increasing year by year. In 2005, the loans and advance was 20533.13 million, in 2006, 24678.36 million, in 2007, 32687.75 million, in 2008, 46332.69 million, and in 2009 it was 50387.68 million.
Figure: Sectoral Distribution of Advances-2009
In this chart, we see that, in 2009, the highest sector of distribution of advances is in industry sector which is 42% and the lowest sector of advances was Agriculture, storage and transport and Communication which is 1%.
CHAPTER - SIX
Loan Disbursement, Monitoring & Recovery 6.1 INTRODUCTION Lending is the main profit generating activity of National Credit and Commerce Bank Limited. Every bank should posses a lending procedure that provides correct borrower selection, quick processing, assurance of repayment and effective monitoring and supervision. NCCB is yet to develop its operational lending procedure. The lending procedure followed by NCCBL of a set of sequential activities. In this sequential activity, both bank officials and potential borrowers play significant role.
6.2 LENDING PRINCIPLES FOLLOWED BY NCCBL The principle lending is a collection of certain accepted time tested standards, which ensure the proper use of loan fund in a profitable way and its timely recovery. NCCBL follows the following principles in its lending activity. a) Safety: Safety should get the prior importance in the time of sanctioning the loan. At the time of maturity the borrower may not or may unable to pay the loan amount. Therefore, in the time of sanctioning the loan adequate securities should be taken from the borrowers to recover the loan. Banker should not sacrifice safety profitability. NCC Bank limited specially Moghbazar branch exercises the lending function only when it is safe and that risk factor is adequately mitigated and covered. Safety depends upon: •
The quantum of own equity in business and capability to run business efficiently
•
The repaying capacity willingness of the debtor to repay the loan with interest and
•
The security offered by the borrower
b) Liquidity: Banker should consider the liquidity of the loan in the time of sanctioning it. Liquidity is necessary to meet the consumer need.
c) Security: Banker should be careful in the selection of security to maintain the safety of the loan. They should properly evaluate the proper value of the security. If the estimated value is bigger than or equal to loan amount, the loan may be given. The more the cash near item the good the security. In the time of valuing the security, the Banker should be more conservative. d) Adequate Yield: As a commercial origination, Bankers should consider the profitability. So they should consider the interest rate when go for lending. Always Bankers should fix such an interest rate for its lending which should be higher than its savings deposits interest rate. e) Diversity:
Bankers should minimize the portfolio risk by putting its fund in the different fields. If Bank put its entire loanable fund in one sector it will increase the risk. Bankers should distribute its loanable fund in different sectors. So if it faces any problem in any sector it can be covered by the profit of another sector. f) A Productive Purpose: NCCBL exercises its lending function only on productive purpose. g) National or Social Interest: NCCBL also considers national aspect of any project while financing. They take utmost care so that the project can not be determined to the society s well as to the nation. h) Profitability: Commercial banks obtain funds from Shareholders and if dividend is to be paid on such Shares it can only be paid by earnings profits. This is not possible unless funds are employed profitably. So the banker should not enter into a transaction unless affair return from it is assured.
6.3 SELECTION OF THE BORROWER Selection of the borrower is vitally important step for the sanction loan. Due to the symmetric information and moral hazard, banks have to suffer a lot due to the classified loans and advances, which weakens the financial soundness of the bank. If the selection of borrower is correct, that is, the borrower is of good character, capital and capacity or of reliability, resourceful and responsible, the bank can easily get the return from lending. Consequently, monitoring is made much easier for the banker. From this point of view, NCCBL followers the following procedurea) Studying past track record: After getting an application for a loan, NCCBL Official studies the past track record of the applicant. Generally the study includes: a) Account balances and the past transaction b) Credit report from the banks c) Information of the industry by studying market feasibility d) Financial statements e) Report from Credit Information Bureau of Bangladesh Bank if the amount is more than tk.10 Lac. b) Report from the Bangladesh Bank:
Report from Credit Information Bureau (CIB) of Bangladesh Bank if the amount is more than tk.10 Lac. 6.4 BORROWER ANALYSIS Borrower analysis is done from the angle of 3-C (character, capital, capacity) or 3-R (reliability, resourcefulness, responsibility). It follows that the bank forms a rationale judgment about the integrity of the borrower, which should be undoubted. The human skill, conceptual skill, operational skill is qualitatively analyzed. And the business skill is done from two angles-terms, conditions, and collateral securities. 6.5 CREDIT APPROVAL PROCEDURE After receiving the application from the client, NCCBL official prepares a Credit Line Proposal (CLP) (Annexure- 1, 2, and 3) and forwards the same to the Head Office Credit Committee (HOCC) for approval. It includesa) Request for credit limit for customer b)
Project profile / profile of business
c) Copy of trade license duly attested d) Copy of TIN certificate e) Certificate copy of Memorandum & Articles of Association, certificate of incorporation, certificate of commencement of business, Resolution of Board, Partnership Deed(where applicable) f) 3 years Balance sheet and profit and loss account g) Personal net worth statement of the owner/directors/partners etc. h)
Valuation certificate of the collateral security in Bank’s from with photograph of the security.
i)
CIB Inquiry form duly filled in (for proposal of above 10 Lac)
j)
Credit report from another banks
k) Stock report dully verified (where applicable) l)
Indent/Proforma/Quotation
m) Price verification report n) Statement of accounts o) Declaration of the name of the sister concern and their liability p) In case of L/C detailed performance of L/C during the last year Therefore, the steps in lending can be sum up as follows: a) Entertainment of application for loan proposal b) Preliminary screening of credit proposal
c) Feasibility study & Appraisal of loan personal for Credit Investigation d) Sanction of loan or advances e) Documentation f) Supervision and follow up of loans and advances 6.6 CREDIT RISK GRANTING (CRG) Bank internally grade the organization that it issue loan and justify that it has the capability to repay the loan of not. CRG is a quantitative judgment instructed by Bangladesh Bank that before issuing loan. Every bank has to done the grading internally and after that, a credit rating agency will rate the company or organization in favor of Bangladesh Bank for the cross-verification with the internal rating of the bank with 5-10% margin. 6.7 SECURITIES To make the loan secured, charging sufficient security on the credit facilities is very important. The banker can not afford to take the risk of non-recovery of the money lend. NCCBL charges the following two types of securities: a)
Primary Securities: These are the security taken by the ownership of the items for which bank provides the facility.
b) Collateral Security: Collateral Securities refer to the securities deposited by the third party to secure the advance for borrower in narrow sense. In wider sense it denotes any type of security on which the bank has a personal right of action on the debtor in respect of the advance. 6.8 MODES OF CHARGING SECURITY There are different modes of charging securities are exercised by the bank: a) Pledge: Pledge is the bailment of the goods as security for payment of a debt or performance of a promise. Here, title and ownership are not transferred. Pledge goods may be sold out and proceeds thereof may be appropriated towards adjustment of Liability in case of failure of the borrower to repay or fulfill the terms and conditions. In case of pledge the pledge delivers the goods the pledge (Bank) in the godown under lock and key. The delivery may be actual or constructive. The goods remain under the bank control until the client repays the loan amount. Goods can be sold out without the intervention of the court if the pledge fails to repay. b) Hypothecation:
In case of hypothecation, the possession and the ownership of the goods both rest the borrower. The borrower to the banker creates an equitable charge on the security. The borrower does this by executing a document known as Agreement of Hypothecation in favor of the lending bank. c) Lien: Lien is the right of the banker to retail the goods of the loan is repaid. The banker’s lien is general lien. A banker can retain all securities in his possession till all claims against the concern person are satisfied. d) Mortgage: According to section (58) of the Transfer of Property Act, 1882 mortgage is the “transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, existing or future debt or the performance of an engagement which may give rise to a pecuniary liability”. In this case the mortgagor does not transfer the ownership of the specific immovable property to the mortgagee only transfers some of the as an owner. The banker exercises the equitable mortgage. e) Assignment: An assignment means a transfer by one person of a right, property, or debt (existing or future) to another person. In banking, the usual subject of assignment is “actionable claims”. Actionable claim means a claim to any debt other than a debt secured by mortgage of immovable or by hypothecation of pledge of movable property not in possession of the claimant, which the civil court recognize as affording grounds for belief. f) Set Off: Set off means the total or partial margin of a claim of one person against in a counterclaim by the letter against the former. It is in effect the combining of accounts between a debtor and a creditor so as to arrive at the rest balance payable to one or the other. Ingredients of set off: 1. Manual debt must be sums certain 2. Two accounts of same person 3. Debts to be due immediately 4. Debts in same right 5. No agreement to the contrary
g) Guarantee: A contract of guarantee has been defined under section 126 of the contract Act as “a contract to perform a promise or discharge the liability of a third party in case of his default. The person giving the guarantee is called “Surety” or “Guarantor” and the person on whose account the guarantee is given is called the “Principal Debtor” and the beneficiary of the guarantee is called the “Creditor”. h) Insurance: Insurance is a written and definite contract between two parties (who are capable to enter into a valid contract) under which one party (the insured) pays the other party. The insurer, a definite sum of money called premium in consideration of which the insurer agrees to indemnify the losses, under agreed terms and conditions that the insured may suffer due to specified causes and mutually agreed upon and stated in the cover note / Insurance policy. 6.9 CREDIT INFORMATION BUREAU (CIB) Bangladesh Bank has established within itself a Credit Information Bureau, which collects credit information from the banks. Banks are required to furnish such information in respect of credit limit of tk.500000/- and over. They mention the Name of facility, security and charge along with outstanding balance. After considering such information in respect of each customer, the central bank supplies to the total limit sanctioned to the number of banks dealing with a party. Thus the banks can find out if any if any of their customers is having excessive borrowings from the banking system at any particular time.
CIB inquiry for borrower (charge required) of NCCBL:
j.
Letter of lien and transfer authority(in case of advance against PSP, BSP)
k. Legal documents for mortgage of property(as draft by the legal adviser) l.
Copy of sanction letter mentioning details of terms and conditions duly acknowledge by the borrower.
m. Trust receipt b) Overdraft: a. D P Note b. Letter of partnership c. Letter of arrangement d.
Letter of continuity
e. Letter of lien f.
Letter of lien and ownership/share transfer form(in case of advance against share)
g. Letter of lien and transfer authority h. Legal documents for mortgage of property c) Cash Credit: a. D P Note b. Letter of partnership(partnership firm) or Board of resolution(in case of limited company) c. Letter of arrangement d. Letter of continuity e. Letter of hypothecation [in case of cash credit (hypothecation)] f.
Legal documents for mortgage of property
g. Letter of pledge or Agreement of pledge[in case of cash credit (pledge)] d) Bill Purchased: a. D P Note b. Letter of partnership(partnership firm) or Board of resolution(in case of limited company) c. Letter of arrangement d. Letter of acceptance, where it calls for acceptance by the drawer e. Letter of hypothecation of bill 6.11
CREDIT DISBURSEMENT
Having completely and accurately prepare the necessary loan documents, the loan officer ready to disburse the loan to the borrower’s loan account. After disbursement, the loan needs to be
monitored to ensure whether the terms and conditions of the loan fulfilled by both bank and client or not. 6.12
CREDIT MONITORING, FOLLOW-UP AND SUPERVISION
Credit monitoring implies that the checking of the pattern of use of the disbursed fund to ensure whether it is used for the right purpose or not. It includes system and communication arrangement between the borrower and lending institution and within department, appraisal, disbursement, recoveries, follow-up etc. NCCBL Officer checks on the following points: a) The borrower’s behavior of turnover b) The information regarding the profitability, liquidity, cash flow situation and trend in sales in maintaining various ratios. The review and classification of credit facilities starts at Credit department of the Branch with Branch Manager and finally with Head office credit division. 6.13
LOAN CLASSIFICATION
Loan classification is the process by which the risk or loss potential associated with the loan accounts of a bank on a particular date is identified and qualified to measure accurately the level of reserves to be maintained by the bank to provide for the probable loss on account those risky loan. All types of loans of a bank are fall into following four scales: a) Unclassified: Repayment is regular b) SMA: It’s a Special Mentioned Account. When the repayment is due for 3 months. c) Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement d) Doubtful: Unlikely to be repaid but special collection efforts may result is partial recovery e) Bad/Loss: Very little chance of recovery. Loan Classification Rule of NCCBL
SMA 3 3 3 3
SS (Sub Standard) 6 6 6 12
DF(Doubtful) 9 9 12 18
BL (Bad & Loss) 12 12 18 24
Types Continuous Demand Term 5 Term 5+
3 Source: CIB.
12
24
60
Agriculture
Provision Requirements Classification
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Status Unclassified SMA Substandard Doubtful Bad/Loss Source: CIB
1% 5% 20% 50% 100%
1% 5% 20% 50% 100%
1% 5% 20% 50% 100%
1% 5% 20% 50% 100 %
6.14
CLASSIFICATION PROCEDURE
The classification procedure is done as peer the Central Bank’s instruction in B C D circular No.34 of 1989, B C D circular No. of 1994. The loans are classified based on following criteria. Overdue Criteria (OD): Terms loans become overdue whenever an installment is not received within 3 months of the normal date of repayment for private sector loans and 6 months in case of public sector loans. Continuous type of loans, if not renewed, becomes overdue on the date of expiration of the loan. Classification status of a loan account is determined based on the length of overdue period. Qualitative Criteria: Qualitative criteria loans can also be classified on the basis of qualitative judgment taking into consideration the factors such as borrowers performance, available securities etc. Special Condition: There certain special conditions set out in this circular which require classification even though a loan may not be overdue. Inspecting Department Instruction: Regardless of the above Bangladesh Bank’s inspecting department may change the bank’s classification of any loan 6.15 LOAN RECOVERY PROCEDURE After being classified, if the borrower is disabling to adjust the loan then the bank starting recovery procedure to get back the repayment. In NCC Bank, there are some procedures of
recovery. The bank has a task force team of recoveries which consist of 7 members. This team is created by the head office. All branches are classifying among them. Their main task is Off-site supervision of all branches. Each branch has its own recovery cell with its own officers including these one or two task force team members. If the borrower is failed to repayment the loan, the recovery cell of the branch takes some action as follows:
1.
Telephonic Contact: When the installment of any loan account is getting due for 1 st month, the branch firstly contacts with the borrower over phone and inform him/her to repayment the due installment.
2.
Issuing reminder: After contact, if the borrower is failed to repayment installments and the loan account is classified, the branch will issuing 1st reminder letter to the borrower.
3.
Spot Contact: With issuing reminder letter, the recovery cell of the branch also doing spot contact to the borrower. They are doing this by contacting physically in his/her residence, office or in his/her shop.
4.
Legal Action: After spot contacting, issuing 1st to 4th reminder letter, if the number of overdue installment exceed 4th quarter, then the account will be marked as Bad & Loss (BL). After this, branch will issued a Final notice with 15 days of limit to regular the account and send it to the borrower. If the borrower is failed to regular his/her loan account within this 15 days, the branch will take legal action against the borrower.
Legal Framework for Loan Recovery After being classified, if the borrower is disabling to adjust the loan then the bank can take the following legal actions filling suit: a)
Filing certificate cases under Public Demand Recovery Act-1913.
b)
Filing money suit cases under Artha Rin Adalat-1990
c)
Filing Bankruptcy cases under Bankruptcy Act-1997
d)
Filing cases under Negotiation Instrument Act-1881 section 138 to 141 for insufficient fund (in case of term loan).
Reschedule Criteria: Reschedule Criteria Continuous Loan
On Overdue Amount 15% 10% (not less than 15 Lac) 5%( not less than 50 Lac)
Up to 1 Crore Over 1 Crore to 5 Crore Over 5 Crore
Term Loan
15% OD Installments 30% OD Installments 50% OD Installments
10% on total outstanding 20% on total outstanding 30% on total outstanding
Converted Loan (from 30% OD Installments continuous or demand loan 50% OD Installments to term loan)
20% on total outstanding 30% on total outstanding
Impact of Recovery: There are some impacts of recovery in which the bank can be benefited. They are as follows:
1.
Profit Maximization: By doing recovery, bank earn profit. The over due amount can be back. So the bank will be benefited from this.
2.
Marketing: When bank doing recovery, people can know about the bank. So bank marketing is happening here.
3.
Networking: By doing recovery, banks network will be increased day by day.
4.
Highlighting of Bank Reputation: When bank doing recovery in the market, the reputation of the bank is auto flashed. As a result, bank’s reputation will be increased.
Problems of Recovery: There are also some problems in conducting recovery. They are as follows:
1.
Time Constraint: Recovery is a long term process. So, it takes so much time for conducting recovery for an account.
2.
Man to Man follow up: In a big branch, there are more than 200 loan accounts. It’s quite tough to follow up the entire loan account in which bank have to contact every borrower. It is very time consuming.
3.
Expenditure: Expenditure is also a problem of conducting recovery. Banks have to spend money for contacting with the borrower.
Graphical presentation of Recovery:
Figure: Classified a/c of Moghbazar Branch of NCCBL (2005-2009) Here, we present the amount of 5 years classified accounts. In 2005, it was 295.35 million, in 2006, 323.45 million, in 2007, 501.49 million, in 2008, 438.53 million and in 2009 it was 141.94 million. From this chart, we see that in 2005 and in 2009 the amount of classified account was low compare to other years.
Figure: Settled/write-off A/c of Moghbazar Branch (2005-2009) Here, we present the amount of 5 years write-off/settled accounts. In 2005, it was 109.12 million, in 2006, 135.42 million, in 2007, 109.56 million, in 2008, 413.06 million and in 2009 it was 224.61 million. From this chart, we see that in 2008 and in 2009 the amount of classified account was high compare to other years.
Figure: Recovery Growth of Moghbazar Branch (2005-2009)
Here, we present 5 years recovery growth. In 2006, the amount of recovery was 0.134 million, in 2007, 0.331 million, in 2008, 0.394 million and in 2009 it was -0.56 million.
Figure: % of Recovery against Stuck-up Loan (2005-2009) Here, we present the amount of 5 years recovery of moghbazar branch against stuck-up loan accounts. In 2005, it was 2073.95 million, in 2006, 2212.05 million, in 2007, 1612.68 million, in 2008, 1310.52 million and in 2009 it was 985.35 million.
6.16 GUARANTEE According to the Section 126 of Contract Act, 1872, guarantee can be defined as a contract to perform the promises or discharge of liability of a third person in cases of his default. The person who gives the guarantee is called the “surely”, the person in respect of whose default the guarantee is given is called is called ‘the principal debtor’ and the person to whom the guarantee
is given is called the ‘creditor’. It is an irrevocable undertaking to pay in case of a certain eventuality. There different types of guarantee that NCCBL offers are as follows: a) Tender or bid bond guarantee: The tender guarantee assures the tenderee that tenders shall uphold the conditions of his tender during the period of the as binding and that he/she will also sign the contract in the event of the order being granted. b) Performance Guarantee: A performance guarantee expires on completion of the delivery or performance. Beneficiary finds that as a guarantee, the contract will be fulfilled in every respect and can retain the guarantee as per provision for long time. This can be counteracted by including a clause stating that the supplier can claim under the guarantee, by presenting an acceptance certificate signed by the buyer. c) Advanced payment guarantee: This type of guarantee is given against work order d) Security guarantee: This type of guarantee is given when security is required. Issuance procedure of guarantee: Bank guarantee is a contractual relationship between the account (client) and the beneficiary. The account party requests to the bank to issue the guarantee with the terms and conditions specified by him. Normally the bank prepares format of the guarantee. At the request of the account party the bank issues the guarantee in favor of the beneficiary. a. Beneficiary (name and address) b. Amount c. Expiry d. Delivery object e. Information relating to a guarantee issued under a credit (in case of a foreign guarantee) f. Special conditions
documentary
g. Handing over to principal/beneficiary/representative/third party. After that, the bank official scrutinizes the application and takes the guarantee margin, commission, postage charge from the customer. Precaution Before issuance, the specimen of the guarantee should be thoroughly examined to ascertain that is has no ambiguity. The points like (1) the extent of liability (guarantee amount/ interest/charges of extension etc.) should stand clearly defined. It should also be ascertained before issuance of the guarantee whether the client would need further credit facility to enable him to discharge his obligation under the proposed guarantee particularly for bid bond, performance bond or advance payment guarantee for execution/ completion of any work order project should it be allotted to him. Possibilities of such eventuality should be explored and examined very carefully before issuing guarantee. Essentials of a valid Guarantee: It must satisfy all essentials of a valid contract. Must be three parties (a) Creditor (b) Principal (c0 Surety all must join in the
contract. Primary liability is of principal debtor – surety’s liability is secondary i.e. in case of
default of the primary debtor. Principal debtor may be a minor—contract enforceable between creditor and
guarantor—minor may not pay nor enforceable against him.
Determination of Security As the bank has to remain prepared for eventuality of issuing a guarantee, payment of guarantee and creation of forced loan, it is essential that the aspect of security is considered in its truest perspective. Application As and when approached for a bank guarantee by a customer, Manager should ask for submission of the following papers/information:
A written request specifying the purpose, amount, period and the security offered with supporting papers.
The details of security other than cash margin.
Specimen of the guarantee. In case a prescribed specimen does not exist, a specimen may be drafted to suit the requirement incorporating the amount, tenor and purpose with bank’s obligation clearly spelled out.
Formalities While deciding to issue a guarantee, the following should be obtained prior to issuance:
Cash margin as may be determined.
Counter guarantee/ Indemnity signed by the client, duly drafted by the bank’s lawyer.
Specimen of the guarantee duly approved by the customer.
Incase the Guarantee is covered by any other security other than cash margin which generally be of following types jointly or severally:
Fixed Deposit Receipt.
Any other financial obligation.
Mortgage of immovable properties.
Bangladesh Bank Rule As per directive of central bank, in force, besides margin fixed on the basis of banker-customer relation, the uncovered portion of the guarantee is to be got covered by readily realizable security. 6.17 SWOT ANALYSIS By doing the SWOT analysis it is possible to find out the strengths, Weaknesses, opportunities, and threats of the NCCBL. From the SWOT analysis we can figure out on going scenario of the Bank. In the competitive area of marketing are SWOT analysis is based on product, price, place and promotion of a financial institution like private Bank.
SWOT Analysis
Internal Factors
Strength
External Factors
Weakness
Opportunity
Threats
In SWOT analysis two factors act as prime movers: Internal factors which are prevailing inside the concern which include Strength and Weakness. On the other hand another factor is external factors which act as opportunity and threat. Strengths:
Competitive Salary: NCCBL provides satisfactory salary to their employees. This is the reason why the switching rate is very low among the employees of NCCBL.
Wide network coverage: NCCBL has more than 50 branches throughout the country. At present NCCBL has 53 branches operating the banking services around the country efficiently.
Proactive in nature: NCCBL experienced huge ups and downs in the banking arena so that they are confident enough to be proactive rather than reactive.
Training institute: NCCBL has its own training institute through which their employees get trained and gather knowledge. This is to train their employees throughout the year.
Strong Financial Position:
NCCBL is a sound company backed by the enormous resource base of the mother concern Rangs group. As a result customers feel comfortable in dealing with the company.
Good banker-customer relationship: NCCBL has good relation with their customers. They give service to their regular customers after 3 PM, though the bank is closed after 3 PM.
Efficient management: All the levels of the management of NCCBL are solely directed to maintain a culture of the betterment of the quality of the service and development of a corporate brand image in the market through organization wide term approach and open communication system.
State of the art technology: NCCBL utilizes state of the art technology to ensure consistent quality and operation. The corporate office is equipped with SWIFT (SWIFT is a banking software used by NCCBL). All other branches are also equipped with SWIFT system.
Weakness:
Limited workforce: NCCBL human resources compared to its financial activities. There are not many people to perform most of the tasks.
Reluctance to advertisement campaign: NCCBL is avoiding the marketing campaign for their new services. This is why the customers do not know about them fully what they are offering.
Lack of modern technology: NCCBL is in the backward position because they are not adapting modern technology. They do not yet adapt online services towards their customers while most of the local banks are giving services through online. Since they have lacking of pc based services, officers have to make manual vouchers which take hours after hours. So many areas in the country are still out of their network like whole Barishal Division as well as Greater mymensingh.
Opportunities:
Huge business area:
NCCBL has large scope of banking operation throughout the country and it is widening day by day. NCCBL is still to cover huge business area including SME sector.
Evaluation of E-Banking: Emergence of E-banking will open more scope for NCCBL to reach the clients not only in Bangladesh in Bangladesh but also in global banking arena. Introducing any branch banking through online is great opportunity to them.
Launching Credit Card Division: Since NCCBL deals mostly with credit commerce related business, Credit card division would allow them to make a huge profit in near future.
Threats:
Political unrest: The country faces lot of unrests and turmoil in the recent times, so the banking operation is in the trouble position.
Emergence of competitors: Due to high customer demand, more and more financial institutions are being introduced in the country. There are already 52 banks of various types are operating in the country. Many banks are entering the market with new and lucrative products. The market for banking industries is now a buyer dominated market. Unless NCCBL can come up with attractive financial products in the market .it will have to face steep competition in the days to come.
Poor telecommunication infrastructure: As previously mentioned world is advancing e-technology very rapidly. Through NCCBL has taken effort to join the stream of information technology, it is not possible to complete the mission due to poor technology and infrastructure of our country.
Merger and acquisition: The worldwide trend of merging & acquisition in financial institution is causing concentration. The industry and competitors are increasing in power their respective areas.
Future Prospect of NCCBL:
The world economy is trying to recover from the trauma of the 9/11 Twin tower attack in 2001. In such situation economic condition of the country does not seem very bright and will take some time for recovery. Moreover with the opening of the branch of newly opened private bank and foreign banks, the competition will be intensified. The bank will go for immediate automation of all branches through computer network and a tight control of cost so as to minimize the overall operational cost. The bank will hope to achieve a satisfactory level of progress in all areas of its operation. 6.18 SPECIAL SERVICES ATM service: The bank has joined the shared ATM network Bangladesh with a pool of 7 banks. The client of any member bank will have access to any ATM situated at different location of Dhaka city. This banks client will get 24 hours cash withdrawal and utility bills payment facility. 16 ATMs will be installed gradually in Dhaka city and the network will be extended to other cities if the country in the near future. Credit Card: To provide best possible customer services to its clients, the bank is going to launch Master Credit card shortly. Swift: The bank has become a member of SWIFT and is providing a fast and accurate communication network for financial transactions to their valued clients through uninterrupted connectivity with thousands of user’s institutions in 150 countries around the world. Money Gram is one of the innovative products of the bank. This has been functioning satisfactory and rendering prompt and efficient services to the wage earners.
CHAPTER - SEVEN
Credit Risk Management
7.1 INTRODUCTION National Credit and Commerce Bank Limited implemented Credit Risk Management Techniques for remove from loss of bank’s interest. Credit Risk is the risk that a customer or counterparty of the group will be unable or unwilling to meet a commitment that it has entered into. It arises from
lending, trade finance, treasury, and leasing activities. The primary and most important risk associated with loan is default risk or the failure of borrower to repay the loan with interest. To protect loan assets from being non performing assets effective supervision and monitoring is done by NCCBL both in the pre-sanction and in the post-sanction stage or for ongoing credit. In simple words, supervision and monitoring of a loan denotes continuous checking and assessing the borrower, his business and his willingness to repay the loan based on some predetermined manners. Supervision generally starts immediately after the selection of the borrower and monitoring starts when the project/activity enters implementation although these terms are also interchangeably used. 7.2 PURPOSE OF CREDIT RISK MONITORING IN NCCBL The purposes of credit risk monitoring are pointed out bellow: •
Top relevant loan classification
•
To return flow of fund
•
To ensure compliance of terms and conditions
•
To obtain feedback from the borrowers
•
To take timely corrective action regarding a particular loan
7.3 CREDIT RISK MANAGEMENT AND ITS IMPLICATION IN RISK ANALYSIS Credit Risk Management (CRM) is one of the new management and operational tools for improving the operational efficiency of all banks. It focuses on internal changes to the lending process to improve the loan portfolio banks. According to FSRP international consultant, in a successful country (in terms of lending), all applications for credit are thoroughly analyzed to assess the risk that the bank will not fully recover the loan. Though the CRM, the banking system will channel the scare financial resources into those opportunities that will have maximum return. That is profitable enterprises will get fund and grow but loss making enterprises will be refused funding and will go out of business. Though the better practice of CRM all the banks will be benefited as well as the economy will grow and the people will be benefited. CRM is simply non-processing manual. By going through the manual the lending bankers can assess the credit worthiness of their prospective borrowers. Therefore, CRM is such an instrument, which is definitely and directly related with lending information to analyze the borrower’s financial, marketing, and organizational aspects subjectively and objectively. It also facilitates the analyst to know the security risk of the credit. Credit Risk Management involves assessing the likelihood of repayment of loans to the bank as per agreement on the basis of analysis of certain risk. CRM, first of all, has divided the various
risk into five groups mainly, financial risk, business/industry risk management risk, security risk, and relationship risk. 7.4 ANALYSIS OF RISK FACTORS OF THE CREDIT RISK
MANAGEMENT
There are some risks factors of the credit risk management which are discussed in the following way: a) Financial Risk: Financial risk concerns with the financial condition of the organization. It measures the financial strength, capability to repay the loan of the debt holders, liquidity, profitability and the mode of interest payment of the organization. Total point of financial risk is 50 out of 100. So, it has the most important risk factor of the credit risk management. b) Business/Industry Risk: Business/Industry risk concerns with the structural condition of the business. It shows the physical position of the business. This risk consists of the size of business, age of business, business outlook, industry growth, market competition and entry exit barriers. This factor has total of 18 out of 100. c) Management Risk: It the management of a company fails to exploit the company’s position effectively, the company can fail to and this risk of failure is called management risk. The factors of the management are experience, second line/succession, team work. Total score of the management risk is 12 out of 100. d) Security Risk: Security risk is the risk that the realized value if the security does not cover the exposure of loan. Exposure means principal plus outstanding interest. Security risk can be divided into three: security coverage (primary), collateral coverage (property location) and support (guarantee). The total score of the security risk is 10 out of 100. e) Relationship Risk: Relationship risk concerns with the relationship between company and the financial institution which are the financial partners of the business. An organization cannot go along without the help of the financial institution or banks. These factors show the conditions of the relationship with the financial institutions with the company. The factors of the relationship risk are account conduct, utilization of limit (actual/projection), compliance of covenants/conditions, personal deposits. The total score of this risk is 10 out of 100.
All the risks are measured by the auditors and the financial analyst of the bank and if any company wants to get the credit, it has to gain minimum 75 out of 100. This stage is called Acceptable. And if the score is between 65 and 74, the bank will monitor the situation and give advice to recover the problems to get the credit from them. This stage is called Margin/Watch list. And if any company gets below 65 out of 100, it has no change to get the loan from bank. 7.5 RISK ACCOMPANIED WITH SHORT-TERM VS LONG-TERM
LOANS
The loans disbursed to the various sectors in Bangladesh are of mainly two types. These are-a. Short term or working capital loans, for meeting the day to day operational expenditure of a firm and b. medium and long term or fixed asset loans, for the purpose of purchasing of the fixed assets while setting up of a new firm or BMRE (balancing, modernizing, reconstruction, and expansion) which is for extension purpose of an existing firm. The typical short-term loans are provide for 1 to 3 years while the mid term and long term loans are provided for the term ranges from 3 to 15 years. There are many factors specially the environment factors of a bank can caused industrial credit risk levels to increase over the years, which can be classified into 3 sets as undera) Structural change in lending b) Increasing fund cost c) Volatility in collateral values a) Structural change in lending: As the share of medium and shall business in bank lending increases, quality of a loan portfolio tends to decline. The increase in the share of less quality lending requires closer credit analysis to determine the credit rating a wide variety of industries under disparate financial and real growth conditions. A necessary concomitant of raising share of medium and small business borrowing is a similar trend in the term lending for banks to minimize problem loans. In term lending, bank’s exposure to credit risk will increase due to increase in the scope for changes in business conditions and the consequent for the creditworthiness of borrowers during their term of credit. In all, credit risk grows more diverse and complex against the background of a structural change over the years. b) Increasing fund cost: Though loan portfolio risk gets diversified and return from lending improves, nevertheless the financial climate will be prone to increasing credit risk due to increased funding costs. Interest rate deregulation portends more market rate of funding by banks. As the share of purchases fund trends upward, banks face narrower profit margins. In response, if banks enter high-risk highreturn business to maintain their profit margins, loan quality deteriorates and credit risk levels rise especially if banks mismanage such ventures.
c) Volatility in collateral values: Deregulation breeds change and turbulence in the financial environment. This change and turbulence bring about visible volatility in bank collateral values especially of stocks and real estate. As a result, price risk of credit collateral increases requiring more attention to be paid to credit analysis and risk management of lending.
7.6 LIMITATIONS IN IMPLEMENTING CRM TECHIQUES Traditionally, it has been observed that banks in Bangladesh used to operate funds business i.e., lending activities under security-oriented principle. Before 1989, Banks used to give more emphasis to the security without considering the business risk of the borrowers at the time of sanctioning loan. But CRM, does not give more emphasis on the security rather it gives more emphasis on the business risk of the borrowers CRM’s unique system of scoring and various analysis give the bankers an opportunity to scrutinize the capable borrowers with due consideration regarding their competence, integrity, repayment capacity and cash flow projection of the project. While the bankers of Bangladesh are going to does lending risk analysis through ‘CRM Form’. They are facing various problems in implementing the same. The criteria specified in the CRM manual are very much appropriate and pragmatic to minimize the risks of lending. But in some causes it becomes very difficult to the bankers of the following reasonsa) Inadequate Data: To apply CRM financial data relating to performance of a firm is very important to assess its existing or projected strength. In many cases up-to-date and data like production, trade, business raw-materials, industry growth, sales turnover, performance data of different competitors are inadequate, which are necessary for assessing sales risk. Beside this, the collection of company’s positional data in a given industry is also cumbersome. So company’s rank in industry (in terms of turnover), and competitor’s financial position is difficult to ascertain in analyzing performance risk. b) Inaccurate Data: CRM calls for submission of financial statements by the borrowers. Most of the prospective borrowers are observed not to prepare financial statements. But the lending officer has to depend largely in the Balance Sheet and Income Statement figures. As the business concern of Bangladesh, so they fail to provide accurate data. Experience shows that even the financial
statements submitted by the applications can not be relied upon. Inconsistencies are observed in the information provided by applicants. Collection and compilation of these data are very laborious and in many cases problematic. So analysis of performance risk and resilience risk are becoming cumbersome. c) Lack of auditor’s performance: To minimize chance of unfair presentation of financial statement, lending officers have to rely much on too sometimes help the business concerns in providing false and fictitious statements. With few exceptions, audited balance sheets and profit & loss statements follow client instructions. d) Unwillingness to disclose information: Generally, competitors do not have the habit of disclosing their business information. They always lend to maintain secrecy for their business interest. But CRM calls for submission of competitor’s performance. e) Non-cooperation between assessors: CRM techniques require information regarding exposure to other banks. Though credit bureau report has an important role in this regard, the non-cooperation between different banks is a real difficulty. f) Lack of experienced assessor: In most cases, the value of security actually realized is less than what a bank estimate. Sometimes, security also loses value before it is realized. Due to lack of experienced, qualified and reliable surveyor institutions to assess value of security along with its quality and market demand are very scarce in Bangladesh. g) Lack of skill and knowledge of the personnel: Human resources are the most valuable resources of an organization. The trained and skilled manpower is an important factor for effective and efficient handling of CRM. Preparing CRM requires special skill and knowledge in risk management and knowledge in national and international economy is also required for successful analysis of CRM. But most of the banks are facing the actual problem regarding the skilled and knowledgeable personnel who know the modern tools and techniques of analyzing the financial statements, trend and dynamism of market.
h) Insufficient independence: Banks and financial institutions are not apart from any type of political influence or pressure group in respect of loans and advances. Besides, independence of credit analysis/risk management section at branch level is not fully ensured. i) Economic factors: The various components at the macro and micro level of our national economy are not yet enough. As a result, the analysis of demand, supply, sales forecast etc. do not contribute enough to the credit risk grading. j) Legal environment: Analysis of security risk often does not become accurate because of lengthy and complicated legal proceedings. However, the law of the country does not make auditing compulsory for all the enterprises accept the joint stock company. In such a situation analysis of lending risk on the basis of un-audited financial statements may become useless. k) Biasness and Irregularities: In the credit risk grading manual the degree of risk of the borrowers are measured subjectively and as such the question of biasness and irregularities of the concerned personnel can not be avoided. If they do not apply their judgment ethically, the result of credit risk grating may be misleading.
CHAPTER - EIGHT
Findings, Recommendation, And Conclusion 8.1 FINDINGS While working at NCC Bank Ltd., Moghbazar Branch, I have attained to a newer of experience. After the collection and analysis of data, I have got some findings. These findings are completely from my personal point of view. Those are given below:
•
NCC Bank Limited has already achieved a high growth rate accompanied by an impressive profit growth in 2009. The number of deposit and investment are also increasing rapidly.
•
NCC Bank has an interactive corporate culture. The working environment is very friendly, interactive and informal. And there are no hidden barriers or boundaries while communication between the superior and the subordinate. This corporate culture provides as a great motivation factor to the employees.
•
NCC Bank Limited has already established a favorable reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in profits and deposits sector.
•
From the client view introducer is one of the problems to open an account. It is general problem to all commercial bank.
•
They face troubles with those clients who have not any knowledge in banking transactions and banking rules.
8.2 LIMITATION OF NCC BANK 1. NCC Bank has insufficiencies of Authorized Dealer Branch in respect of total foreign exchange business. As a result it total foreign exchange business is very small in respect of total market. 2. NCC Bank’s numbers of customers are also very small in compared to other banks in the market. This is because of small number of branches. 3. The number of branches is not sufficient to cover the country most.
8.3 RECOMMENDATION For the probable solutions of the identified problems ensure better progress to NCC Bank in future, some necessary steps are recommended bellow on the basis of collected data, observation, expert staffs opinion and my knowledge and judgment. If the entire banking system is fully online on computerized system then they satisfy the customer by providing fast service with minimum service charge. NCC Bank should ensure networking system with its branches then it could easily transfer data within short time.
•
NCC Bank should ensure give more attention to advertisement for creating more attraction among its customers, which is helpful to collect more deposits and increase investment scope. That’s why bank should give emphasis on advertisement in various media like TV, News Paper, Internet and Billboard.
The entire department should be well informed regarding their goals and objectives. It is essential to execute company objective into individual target. A philosophy of working for the customer instead of working for boss must be introduced. And job description should be clarified and proper training facilities should ensure to improve the performance of bottom line management. It was observed that officers of NCC Bank have to spend more time in preparing vouchers; this can be avoided by automation. •
NCC Bank should develop online banking system to compare with other commercial banks.
The bank has the provision of internship but there is no organized program for internship. Credit Card and Automated Teller Machine (ATM) should be introduced in every branches of NCC Bank as soon as possible because of present market demand of the customer and the educated customer now wants technology based banking. Attractive incentive packages for the exporters will help to increase the export and accordingly it will diminish the balance of payment gap of NCC Bank. •
NCC Bank is to be concentrating in always monitoring the performances of its competitors in the field of foreign trade.
Bank can provide foreign market reports that will enable the exporter to evaluate the demand for their products in foreign countries. Due to lack of proper knowledge about the operation procedure and services provide to the customers by SWIFT certain customers are facing problem as they have to wait for certain time to get service. And sometimes personnel are not being able to operate SWIFT without any confutation. They are not fully independent handling SWIFT. Official training is the solution of this problem. Bangladesh Bank should take initiative to form a high-powered committee consisting scholars and experts from different disciplines and professions such as academicians, economists’ bankers, and
lawyers etc. to design an appropriate and useful legal framework for Islami Shariah based Banking. This type of committee may be helpful for the necessary correction of government policies in Islami Banking. NCC Bank will have to encourage entrepreneurs, businessmen, rich people and government to come forward to established ancillary organizations. Branches of NCC Bank are not sufficient as per demand of the people. So NCC Bank should set up new branches.
8.4 CONCLUSION There are a number of Private Commercial Banks, Nationalized Commercial Banks and Foreign Banks operating their activities in Bangladesh. The NCC Bank Limited is one of them. For the future planning and the successful operation for achieving its prime goal in this current competitive environment this report can be a helpful guideline. From the practical point of view I can declare boldly that I really have enjoyed my internship at NCC Bank from the first day. Moreover, internship program that is mandatory for my BBA program, although it is obviously helpful for my further thinking about my career. The working environment of Moghbazar Branch of NCCBL is so friendly. Here, each and every officer is so much co-operative and helpful which help me to complete my report successfully. As my topic is “Loan Disbursement And Recovery System of NCC Bank�, I have to work more days in Loan department compare to other departments. Here I face such a good environment that I can give my best here and the officer of loan department help me their best.
Banks always contribute towards the economic development of a country. Compared with other Banks NCC Bank is contributing more by investing most of its funds in fruitful projects leading to increase in production of the country. It is obvious that right channel of Banking establish a successful network over the country and increases resources; will be able to play a considerable role in the portfolio of development in developing country like ours. NCC Bank is playing its leading role in socio-economic development of the country. Since inception NCC Bank has been rendering its Banking services with the needs of the nation to cope with the demands of people in the county. By doing many other works for state & society, NCC Bank emerged as the pioneer of playing key role in the country.
CHAPTER - NINE
ACRONYMS A/C
Account
AD
Authorized Dealer
BB
Bangladesh Bank
BIC
Branch Investment Committee
CIB
Credit Information Bureau
CC H
Cash Credit Hypothecation
CRM
Credit Risk Management
DP
Drawing Power
EOL
Excess over Limit
FDR
Fixed Deposit Receipt
FO
Financial Obligation
HRLS
House Renovation Loan Scheme
IBC
Inter Bank Clearance
IBCA
Inter Bank Credit Advice
L/C
Letter of Credit
L/G
Letter of Guarantee
LIM
Loan against imported merchandise
LRA
Lending Risk Analysis
LTR
Loan against Trust Receipt
OD
Over Draft
PAD
Payment against Documents
PC
Packing Credit
PSI
Pre Shipment Inspection
SOD
Secured Over Draft
SWIFT
Society for Worldwide Inter bank Financial
TIN BIBLIOGRAPHY
Tax Identification Number
1. Bedi, H.L. “Practical Banking Advances” UBS Publishers Distribution Ltd. New Delhi. 2. Edward W. Reed and Edward K Gill “Commercial Banking” Practice Hall, New Jercy, 1989. 3. Frederic S. Miskhin, “The Economics of Money Banking & Financial Market” Sixth Edition, 2003, Boston. 4. Chowdhury, L.R., “A Text Book on Foreign Exchange” Fair Corporation, Dhaka. 5. C.R. Kotheri, “Research Methodology” Second Edition, 2003-2004, Wishwa Prakashan, Calcutta, India. 6. NCC Bank Report 2009. 7. “Investment Policy and Control Guidelines, Lecture Materials, Official Record.”
8. NCC Bank Web Site: www.nccbank-bd.com