CHAPTER – 1 ORGANIZATIONAL PART AN OVERVIEW ON PRIME BANK LIMITED
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1.1 Corporate Credit Division of Bank in Bangladesh 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 changes due to deregulation, technological innovations, globalization etc. These changes in the banking system also brought revolutionary changes in a country’s economy. Present world is changing rapidly to face the 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 exceptions of this trend. Banking Sector in Bangladesh is facing challenges from different angles though its prospect is bright in the future. The Bangladesh banking sector is made up of Bangladesh Bank (The Central Bank), Scheduled Banks, Non-Bank financial institutions, Microfinance institutions (MFIs), Insurance companies, Co-operative banks, Credit rating agencies and Stock exchange. Among scheduled banks there are 4 nationalized commercial banks (NCBs), 5 state-owned specialized banks (SBs), 30 domestic private commercial banks (PCBs), 9 foreign commercial banks (FCBs) and 29 non-bank financial institutions (NBFIs) as of December 2009. Over and the institutions cited above, three development financial institutions namely House Building Finance Corporation (HBFC), Ansar-VDP Unnayan Bank and Karma Shangsthan Bank are operating in Bangladesh, all of which are state owned. The percentage of non-performing loans in the banking system is extremely high. The U.S. Government and donor institutions are assisting with financial sector reforms. Part of the reform effort is to upgrade regulations and accounting standards to international standards as far as possible. Bangladesh Bank regulates all banking institutions and, as in many countries, the Ministry of Finance rather than being independent controls the central bank. Bangladesh Bank supervises the activities of all banks. Every bank has different divisions and every division has units or departments and every department has their own functions to serve the customers according to customer’s requirement.
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The departments are: General Banking Export & Import Loans & Advances The Bangladesh Bank is now carrying out a reform program to ensure quality services by the banks. Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. Bangladesh Bank is also responsible for planning the government’s monetary policy and implementing it thereby.
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1.2 Overview of Prime Bank Limited Prime Bank started its Journey in the Year 1995 with the firm commitment of providing superior customer service with a difference. Its vision remained to be the best private Commercial bank in Bangladesh in terms of efficiency, Capital adequacy, asset quality, sound management and profitability. Having recorded progress in all areas PBL has now established itself as the leading and strongest among private Commercial banks in Bangladesh. PBL was formally launched in April 1995 with one branch at Motijheel Commercial Area, Dhaka. It started its Islamic Banking operation in December of the same year. It was listed with both the bourses of Bangladesh VIZ. Chittagong Stock Exchange and Dhaka Stock Exchange in 1999 and 2000 respectively through initial public offering. It was registered as Merchant Banker with the Securities and Exchange Commission, Bangladesh in 2000 for starting its investment Banking and Advisory services. In 2003 PBL become primary dealer for buying and selling securities under the license issued by Bangladesh Bank. The Bank has also expanded its services cross border with a view to providing banking service globally. It has opened its first fully owned subsidiary- Prime Exchange Co. Pte Ltd. In Singapore, this started its operation from 8th July 2006 to offer remittance service to Bangladeshi nationals living in Singapore. This is the first Bank of Bangladesh established in Singapore with the approval of Bangladesh Bank and the Monetary Authority of Singapore. Opening of a fully owned subsidiary in Singapore has added a new dimension to the Bank’s remittance operation widening its global reach for remittance activities. With the aim to offer innovative banking service to the Non-resident Customers, PBL opened its first Offshore Banking Unit in 2007 at DEPZ, Saver, a new dimension in its customer friendly business activities. The bank has already received license from Bangladesh bank for opening of three more OBUs at CEPZ, Chittagong and Adamjee EPZ, Narayangonj and Comilla EPZ, which will be opened very soon.
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At present, the Bank has 86 branches spread over the Country. It renders all types of commercial banking services to the Customer of all strata in the Society within the stipulations laid down in the Banking Companies ACT 1991 and rules regulations framed by Bangladesh bank from time to time. Diversifications of Product and Services and innovation of Products Suited to the needs of the customers in keeping with relevant rules and laws have made it different from other local commercial banks of the Country.
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1.2.1 Vision, Mission and Strategic Priority of PBL
Vision
Mission
Strategic Priority
To be the best Private Commercial Bank in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity
To build Prime Bank Limited into an efficient, market driven, customer focused institution with good corporate governance structure and continuous improvement in our business policies, procedure and efficiency through integration of technology at all level.
To have sustained growth, broaden and improve range of products and services in all areas of banking activities with the aim to add increased value to shareholders investment and offer highest possible benefits to their customers.
FIG 1: Vision, Mission & Strategic Priority
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1.2.2 Core Values •
For Our Customers To become most caring Bank-by the most courteous and efficient service in every area of our business.
•
For Our Employees By promoting well-being of the members of the staff
•
For Our Shareholders By ensuring fair return on their investment through generating stable profit.
•
For Our Community By assuming our role as socially responsible corporate entity in a tangible manner through close adherence to national policies and objectives.
1.2.3 Objectives of the Prime Bank Limited The objectives and goals of PBL are very specific and in accordance with its vision. The objectives are as follows: To mobilize the savings and deposits and channeling it out as loans or advances with management approval; To establish, maintain, carry on, transact and undertake all kinds of investment and financial businesses including underwriting, managing and distributing the issue of stocks, debentures, and other securities; To finance international trade both in Import and Export; To carry on foreign exchange business, including buying and selling of foreign currency, the issuance of traveler’s cheque and international credit card etc. To develop the standard of living of the limited income group by providing Consumer Credit; To finance the industry, trade and commerce in conventional way and also by offering customer friendly credit service; and
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To participate in the industrial development of the country through encouraging the new and educated young entrepreneurs to under take productive ventures.
1.2.4 Prime Bank’s Organizational Structure Prime Bank is listed with promoter shareholders’ collectively holding a 46% stake in the bank. One of the main reasons for the bank’s good financial condition is that the bank’s promoters, who have other business interests as well, have refrained from using the bank for insider lending. This is a huge issue for Bangladeshi private banks and together with somewhat lax supervision, is the single biggest factor for the poor financial condition of most private banks.
While Prime Bank has so far benefited from its promoter shareholders’ approach of maintaining an arms-length relationship between the bank and their other businesses, whether this would continue to be the case in future, particularly when the second-generation promoters become directors of the Bank remains to be seen. The bank had a rather large board (20 members in all) with representatives from all the major shareholders. Previously central bank norms prevented any one shareholder individually holding an equity stake of greater than 5% in the bank; this was the reason for the 20 directors sitting in the board. The central bank rules in this regard have undergone a slight change. Now the rules are that the individual holding has been enhanced to 10% and the size of the Board will now be restricted to 13 members, which should include at least two independent directors.
The bank’s board has a policy of rotating the Chairman’s position amongst various members; consequently the bank has a new Chairman every year. The executive management also appears a bit top-heavy (relative to the size of the bank) with one additional managing director besides the managing director, a Senior Executive Vice President, four Executive Vice Presidents and many Senior Vice Presidents. Prima-facie the rotating Chairman and the presence of effectively two managing directors may lead to some overlapping responsibilities
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and possible conflict; however this does not seem to have happened so far in the bank’s history and the bank continues to perform satisfactorily. Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.
Designation Managing Director Deputy Managing Director Senior Executive Vice President
Executive Vice President Senior Vice President Vice President Senior Assistant Vice President Assistant Vice President First Assistant Vice President Senior Executive Officer Executive Officer Principal Officer Senior Officer Management Trainee Officer Junior Officer Assistant Officer Trainee Assistant
FIG 2: Organizational Structure
1.2.5 Managerial Hierarchy of Prime Bank Ltd
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Chairman Top Management
Board of Directors Executive Committee Managing Director Additional Managing Director
Executive Level Management
Deputy Managing Director Senior Executive Vice President Executive Vice President Senior Vice President Vice President Senior Assistant Vice President Assistant Vice President
Mid Level Management
First Assistant Vice President Senior Executive Officer Executive Officer Principal Officer
Junior Level Management
Management Trainee Officer Senior officer Junior Officer FIG 3: Managerial Hierarchy
1.3 Role of Prime Bank in Bangladesh Economy
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Present world is changing rapidly to face the challenge of competitive free market economy. Bangladesh is no exception of this trend. Banking sector in Bangladesh is facing challenges from different angles though its prospect is bright in the future. Bangladesh economy is expected to grow by 6.8-7.00 percent during the fiscal year 2008-2009 due to good harvest, recovery of agricultural output, stable manufacturing growth supported by strong export demand of knit garments, robust service sector growth and steady flows of remittances. 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. Import Business of Prime Bank has spread its invisible wings throughout every sector of the economic development of our country. Some of the major development areas are as follows•
Through facilitating the import of various accessories, raw materials, fabrics, and yarn, Prime Bank is playing a key role in the backward integration of our garments industry, which is holding the base of our economic developments.
•
Import of different garment machinery, textile machinery as well as printing, medical and pharmaceuticals equipments is working as a fuel to ensure our economic mobility.
•
Import of electronics like TV, Freeze, mobile and other equipments has enormously improved the meaning of our life and our living standards.
•
Import of various food and food grains like Oil, Rice, Wheat, Sugar, Master Seeds, and Soybean Seeds is one of the key factors to satisfy the need of our high level of population growth.
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•
The bank is also spreading its invisible hand of development toward the improvement of our agricultural industry through the import of fertilizer and insecticides.
•
To consider the role of Prime Bank in Import business there is no way those we undue the importance of other imported items like paper, coal, motorcar, energy saving lights and others.
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CHAPTER – 2 INTRODUCTION TO THE STUDY
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2.1Introduction to the Report: The financial organizations of a country (like–banks) play an important role in accelerating the process of economic growth. Modern banks play an important role in promoting economic development of a country. Banks provide necessary funds for executing various programs underway in the process of economic development. They collect savings from large masses of people scattered through out the country, which in the absence of banks would have remained idle and unproductive. Banks collected these scattered amounts, pooled together and made available to commerce and industry for meeting the capital requirements. But there are different kinds of risk associated with these types of transaction. So for a bank it is significant issue that the credit approval process and risk assessment criteria for different types of loan should be in proper way. Because the performance and the success of the bank are depend on it. As a result, it is a matter of great importance to the bank’s management for sound lending and selection of the borrowers in credit operations, after calculating the risks associated with it.
2.2 Rationale of the Study: For better understanding of the corporate world basically the financial institutions like banks, doing their credit operations in Bangladesh; this study is very essential. It is significance for me as a student of business administration because this study will help in the future career. If I am aware of credit endorsement process and risk criterion for different types of loans in banks, particularly in prime bank. I can find out some new and safe, less risky way to approve the loans to the borrowers and that will help to do sound banking operations. May be that can help my future career life. May be in future I can work in the credit department of a bank. Then this study can help me to understand the credit approval process and risk assessment criteria for different types of loans. This study also helps the
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faculty of Business Administration or to the university as a whole or to the business sector. Because this study will be cover the credit approval process and risk assessment criteria, for different types of loans in bank.
2.3 Statement of the Problems: For this research program, goal is to identify the different factors which are associated credit approval process and risk assessment criteria for different types of loans. And to find out that these factors helping level to avoid selecting the risky borrowers. Nobody is perfect in this world. As human being & making mistakes is quite usual. Despite making this report with extreme care, there may be some mistakes. I tried our best to make this repot a successful one but because of shortage of time and also inadequate resources there may be some lacking. I hope that readers will understand it and will be very pleased with the work to make this research report a successful one.
2.4 Scope and Delimitation of the Study: Nobody is perfect in this world. As human being & making mistakes is quite usual. Despite making this report with extreme care, there may be some mistakes. I tried our best to make this repot a successful one but because of shortage of time and also inadequate resources there may be some lacking. I hope that readers will understand it and will be very pleased with the work to make this research report a successful one.
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2.5Objectives of the Study: To be meaningful, every work must have some objectives. For this reason, every researcher has to formulate the objectives of the study. So, in the light of the research topic, this study has been designed on the basis of the following objectives:
i. Broad Objective To understand the scope for credit approval process and risk assessment criteria for different types of loans in prime bank.
ii. Specific Objectives To understand to whole strategies follow by the Prime bank, in their credit operations, basically the credit approval process and risk assessment criteria for different types of loans and the ways to perform better then previously by overcoming the existing problems with these.
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CHAPTER – 3 METHODOLOGY OF THE STUDY
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3.1 Methodology of the research work In conducting this report basically, there have been two types of data and information used. The name of those two types and their sources to reveal the information for preparing this report is given below:
3.2 Data Sources To complete the study in the light of research objectives, information both from the primary and secondary sources will be considered. However, as the primary sources this study will use two methods. These are:
3.2.1 Primary Source Personal investigation with bankers, Personal experience gained by visiting different desks, Different circular sent by Head Office of PBL and Bangladesh Bank.
3.2.2 Secondary Source Different ‘Procedure Manual ‘published by PBL, Study of old files, Previous Internship report, Publications of Bangladesh Bank. Web site searching data on banking Reference books on banking Annual Report
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CHAPTER – 4
ANALYSIS AND INTERPRETATION OF THE DATA
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4.0 Description of Corporate division of Prime Bank 4.1 Organization Structure of Credit Department of PBL Adequate segregation of duties is a prerequisite of an effective system of internal control. To be adequate, segregation must that the following functions are performed by persons independent of each other: •
Sales and Marketing-Sales and Branch
•
Credit Assessment and Approval-By Credit Unit
•
Credit Documentation and Administration-Loans Processing and disbursement unit
•
Credit recovery-by recovery & Collection unit
The credit approval team will be independent from the sales and branch team who will evaluate and approve the loan. The credit administration under retail operations team will check and ensure the documentation and disburse the loan. This will ensure the better control of the asset and mitigate the risk of compromise of the duties. The following chart represents the Management Structure Credit Department of PBL:
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Head of Credit Department
Head of Credit Corporate
Credit Administration
Head of Credit General
Credit Recovery
SOD, Bank Guarantee
Credit Retail (CCS)
FIG 4: Management Structure of Credit Department of PBL The following chart represents the retail banking management structure:
Head of Retail Credit
Head of Assessment Credit analysis Team
Head of Sales & Marketing
Head of Recovery
Sales Team
Sales Team Collection Team
MIS & Planing
Credit Administration Team
FIG 5: Organization Structure of Retail Credit Department
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4.2 Different Types of Loan/advance offered by PBL The Prime Bank is offering the following loan and advance product to the client for financing different purpose that fulfill the requirements of the bank and have good return to the investment as well as satisfy the client. The loan and advance products are as the following: Loan and Advance have primarily been divided in to two major groups: A. Fixed Term Loan: These are the loans made by the Bank with fixed repayment schedules. Fixed term loans are categorized into three based upon its tenure which is defined as follows: Short Term: Upto 12 Months Medium Term: More than 12 and upto 36 months Long Term: More than 36 Months B. Demand Loan: SOD, Export C. Continuous Loan: These are the loans having no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance of the customer. These categories of loans are accommodated under the 7 prime sectors which are as under: 1. Agriculture 2. Term loan to Large & Medium Scale Industry 3. Term loan to Small & Cottage Industries 4. Working Capital: CC(H), CC(Pledge), OD
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5. Export
Credit:
“Export
Cash
Credit
(ECC)�,
Packing
Credit(PC).Foreign
Documentary Bill Purchased( FDBP), Inland Documentary bill purchased etc. 6. Commercial Lending: Loan against Imported Merchandise (LIM), Loan against Trust Receipt (LTR), Payment against Documents (PAD), Secured overdraft (SOD), cash credit etc for commercial purpose. 7. Other: transport, personal loan, work order finance. 4.2.1 Types of Credit Facilities Depending on the various nature of financing, all the credit facilities have been brought under two major groups; A. Funded credit B. Non-funded credit Under Non-funded credit, there is basically two major products namely1. Letter of Credit 2. Letter of Guarantee Under Funded credit, there are the following products1. Loan (General) 2. Housing Loan (Commercial 3. Home Loan (Swapna Neer) 4. House Building Loan (Staff) 5. Other loan to Staff (CCS) 6. Cash Credit (Hypo) 7. Cash Credit (Pledge) 8. Hire Purchase 9. Lease Financing 10. Consumer Credit Scheme (CCS) 11. SOD (Financial Obligation e.g. FDR, MBDR) 12. SOD (General) 13. SOD (Work Order)
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14. SOD (Export) 15. PAD, LIM, LTR, IBP 16. Export Cash Credit (ECC) 17. Packing Credit (PC) 18. FDBP, IDBP, FBP.
4.3 Credit Assessment System 4.3.1 Introduction of Credit Assessment System Commercial banks and financial institutions intermediate between lenders and borrowers. These financial intermediaries collect deposit and disburse it as loan and advance to the individual people, business, commercial, industrial entity. The loan and advance should be given to them who has the certain and predicted cash flow to repay the credit. If the credit officer fail to analyze the clients viability of repaying the loan and the projects cash flow possibility of default may arise due to the information. In sanctioning the loan, is the key to identify the borrowers' ability, expertise, efficiency, and industry analysis, business performance to ensure the recovery of the credit along with the good supervision, monitoring and the relationship. The purpose of appraisal is to be sure that the proposed advance will be safe, liquid, and profitable and for acceptable purpose covered by adequate security.
4.3.2 Allocation of Authority To assure proper and orderly conduct of the banking operation, the board of directors empowered the Managing Directors and executives of the bank to lend up-to certain under certain terms and conditions at their discretion. Important point is that an officer will not be delegated certain power on the basis of his position. In other words, an officer does not automatically get lending authority by virtue of his corporate /functional title. Specified lending authority will be delegated by the Managing
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Director to various Executives after taking into consideration his proven credit judgment, Knowledge, and experience.
4.3.3 Approving Authority In PBL the credit proposal go through certain steps that are ordered in terms of hierarchy. Branch Credit Department
Branch
Head Office
Credit
Credit
Department
Department
Executive Committee
Board of Director
FIG 6: Approving Authority Sequence The board of directors is the ultimate authority and it delegates different power to the different committees. In PBL there are following hierarchies in approving credit facilities.
4.3.4 Branch Credit Committee The branch credit department is maintained by the branch manager and the other members are second man or manager operation, credit in-charge, and other members are nominated by the branch manager and the credit officer who prepares the proposal calls them relation officer. As the ultimate performance of the branch depends on the loan all of the members are give importance. If the credit amount wanted is not under the sanctioning authority of the branch committee, it is sent to the Head Office Credit Committee for approval.
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4.3.5 Head Office Credit Department After receiving the loan proposal from different branches, credit committee (HO) seats after certain interval for analyzing the proposal. The credit officers review the proposal and look for what other information is needed to provide with it to present before the executive committee. Here they also appraise the loan proposal in the same way the branch does. The HO credit committee is headed by the Managing Directors of the bank and he selects other members. Mainly the HO credit department is responsible for the following activities:
• The committee evaluates the quality of the lending staff posted in the branch and take appropriate steps to made them efficient and effective.
• Ensuring that all the required information and documents are collected and are in order. 4.3.6 Executive Department If the limit of the loan proposal exceeds the authority delegated to the HO credit committee, the loan proposal is forwarded to the executive committee for sanction. Approving the credit facility as delegated by the Board of Directors.
• Supervising implementing the directives of the Board of Directors. • Reviewing of each extension of the credit approval by the HO credit committee or Managing Director.
• Communicate the result of all the above function to the Board of Directors. 4.3.7 Board of Directors If the credit demand of the client crosses the delegated power of the executive committee, the proposal is sent to the board of directors for approval. The Board of Directors has, in the PBL, retain the following credit related responsibilities in their hand:
• Delegating authority to approve and review credit 26
• The board of directors will approve the credit for which authority is not delegated to anybody.
• The board of directors will establish the credit-related, policy and procedures. 4.4 Steps in Loan Processing There are some stages the proposal has to come across. The steps are: Request for Credit from the Client
Scrutinizing & Collection of Information
Appraisal of Credit & Presentation of Credit Proposal for Approval
Approval of Credit by Branch/Credit Committee/ Executive Committee/ Board Directors Preparing the of Proposal Sanction of Credit Mentioning Terms and Condition
Disbursement of Credit
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Credit Administration
Credit Monitoring and Classification of Accounts
Taking Precaution/ Legal Action against Delinquent Clients
4.4.1 Credit Request In general the client having an account approached the bank official for financial help in the form of credit. The client may directly go to the credit department or talk with the manger of the branch. While talking with the client the officer try to find out the following cues: 4 Borrower's identity, Family background, Character, Capacity and honesty.
• Reputation in business circles, friends, and competitors and employees. • Educational qualifications, Business Experiences. • Physical Fitness and Eagerness. • Purpose of the Loan, Popularity and marketability of the product. • Availability of the raw materials, transport and communication. • Expected terms of repayment. • Other sources of income. • Lifestyle of the Borrower. • Declaration of the assets and liabilities. • Whether reason for credit facility seeking is justifiable. • Tendency to disclose the information.
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Here this discussion is like preliminary screening of the client. So the credit officers need to be cautious about the facility the client is seeking and the available fund in the bank. Moreover most of the businesses in our country don't have any standard form of accounting department and don't have any audited statements. So the main task of the credit officers is to make a relationship with the client to find out the hidden income sources.
4.4.2 Credit Application form The client is given a credit application form if and only if the credit officer is satisfied discussing with the client when he approached. This can be said the preliminary screening of the client. The PBL credit application request form is said to be a standard one. A sample Credit Application Form is given in the appendix. The client has to provide the following information in the credit application form
• Mode of financing and amount of credit wanted. • Primary information of the Business • Directors name along with their shareholding percentage of net worth and filled up net worth statement
• Sister concern’s information and working capital related basic information. 4.4.3 Scrutinizing and Collection of Information
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In case of clients who have previous record of taking credit facilities, their in-file records are examined to see whether the client has a good record of payments in time.
• Information gathered through direct inquiry. • Information gathered through in-file ledger fact. PBL request the client to provide the following documents when the complete credit application form is submitted. These documents are used to collect information for processing the loan proposal. These also help the credit analyst to appraise the client and to prepare proposal. The information or documents that must be given by the clients are as follows.
Broad Resolution for availing credit
Property Document
facility from Prime Bank Certified copy or photo copy of the
Copy of the original title deed of the
Memorandum
landed property offered for mortgages
of
Articles
of
Association/certificate of incorporation Photocopy of the directors duly attested. Personal Networth of the directors
Bia Deed of the previous owner of the
same property CERTIFIED copy of the Mutation
Copy of the TIN and Trade License duly
Khatian Duplicate Carbon Copy (DCR)
attested Last three years audited balance sheet
Up-to-date rent receipt and Municipal
list/stock
Tax Receipt Certified copy of CS, S.A, and RS
Group brochure/Machinery
report/list of buyers Short description of the products of the
Khatian. Up-to-date
company Project Profile (if new project) Name and address of the present
non-Encumbrance Certificate. Valuation certificate by an engineer. RAJUK approved plan of the building
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bankers Name address of the sister concern
with the approved letter. Photograph of the land from the three
Quotation Marketing Distribution System/Export
different sides. Photograph of the owner of the land Board resolution of mortgaging the
Target
property if the same belongs to any limited company
Short
mentioning their business experiences Brief Description of the management of the
Profile
company
educational
of
the
Directors
mentioning and
their
professional
experiences. A latest liability position of all the business concerns of the group with other bank or financial Institutions.
4.4.4 Credit Appraising & Presentation of Credit Proposal for Approval 1. Appraising the client or Credibility Appraisal The credit officer has to check the integrity and the honesty of the client that is the management and the other allied company as well. The integrity is checked through different ways. They are as follows: Personal interview: When the client approached for credit, the credit officer talked with him to identify whether the client has any need of seeking credit facility. The credit officer has to have deep analyzing power to find out the clue. Report form PBL If the customer hold an account or is enjoying credit facility from the PBL, the statements of the accounts are collected for analyzing the performance of the existing facility, transaction summery of the accounts along with the integrity of the client. 31
Report from other Bank: The client has to mention whether he has other liability in other bank in the name of the project and or in the name of the sister concern in the time applying for credit. From the given information the credit officer contact, communicate with the respective authority of those banks with which the credit seeker has the transaction to collect the information about few things:
Whether the client has taken any loan in the name of the proposed project or any other sister concern.
The amount outstanding and whether classified or not.
The payment habit of the client
All the collected information is kept confidential. Report from society: Some times the credit officer collects information from other businessman having relationship with PBL. Informally the credit officers discuss about the project and the initiator and the potentiality with the businessman. CIB Report: The branch office collects CIB report through the head office. It is known that all the banks have to send liability position of the client. The CIB authority provides the related information for which he is asked for. 2. Financial strength analysis Analyzing the financial position is one of the main factors to be identified before financing any business. In the application form the client has to furnish the total investment made by him in the said project he is seeking loan facility. The credit officer must find out the Networth of the client.
Look for the net-worth of all the directors
Paid–up capital
Investment in business
Leverage (Equity Multiplier) 32
Cash flow
Allied deposit in PBL.
Tangible net-worth of the business for the lasts three years and projected two years.
Total Asset-Total Debt Overall group strength (if applicable)
The strength also appraised by the business performance.
3. Liability position analysis Facility from PBL & other banks taken by the client must be provided while applying for credit facility. The credit officer looks for:
Existing facility enjoying by the Client Company from the PBL and other banks.
Existing facilities for the sister concerns if applicable.
Debt to Asset ratio.
Here the credit officers need to look for the Nature, limit, outstanding, overdue, CL status, security value of the credit facilities
Whether the amount outstanding are classified or not
Monthly installment payment or fixed charge coverage performance of the client.
4. Management Competence’s or Capability Appraisal The ability of the management to run the business smoothly and business background of the promoter and the sponsor director and the management are important. As most of the established businessman are traditional and has not business education it is very difficult to find out. To identify and judge PBL collect the following information from the client:
Brief description of the directors educational background & business back ground
Brief profile of the management
Business performance for the last three years as performance of the business implies the capability of the management’s running the business.
Equity mobilization of the directors as it implies their risk-taking attitude.
If it is revealed that the directors are in the business for a long time and have operated the business well is said to have the capability to run the business.
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4.4.5 Approval of Credit by Higher Authority Branch Credit Committee: Branch credit committee to be headed by the Branch Manager, other members to be selected by the manager in consultation with Head Office. Head Office Credit committee: Head office credit in accordance with authority established and delegated by the Board of Directors. Reviewing, analyzing and approving extension of credit in accordance with authority established and delegated by the Board of Directors. Evaluate the quality of tending staff in the bank & take appropriate steps to improve upon. Recommending credit proposal to the Executive Committee/Board of Directors which are beyond the delegated authority. Ensuring, that all elements of Credit application i.e. Forms, Analysis of statements and other papers have been obtained and are in order. Confirming that the transaction is consistent with existing loan policy and Bangladesh Bank guidelines & if not the Committee may prepare a recommendation form an exception to or change in policy for consideration by the Executive Committee/Board of Directors. Executive Committee: Approving credit facilities as delegated by the Board of Directors. Supervising the implementation of the directives of the Board of Directors. Reviewing of each extension of credit approval by the Head Office Credit Committee/Managing Director. Keeping Board of Directors informed covering all these aspect.
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Board of Directors: Establishing overall policies and procedures for approving and reviewing credits. Delegating authority to approve and review credits. Approving credit for which authority is not delegated. Approving all extensions of credit which are contrary to bank's written credit policies.
4.4.6 Sanction of Credit Most important step of providing credit facility is the sanctioning of credit, because sanctioning authority will be held responsible for any discrepancy. In this step all the documentation is completed and the customer is sent an advising letter for the credit facility along with all the terms and conditions. Norms maintained in sanctioning of credits are described below: Credit will be sanctioned and disbursed strictly in terms of the approved Credit Operational Manual of the Bank and Head Office Circulars issued from time to time. All norms informed through the Circulars of Credit Division in particular and all other relevant circulars in general, which are to be followed meticulously while exercising power. Credits will be subject of Bangladesh Bank restriction. The party to whom credit will be allowed should be as far as possible within the command area i.e. Area of operation of the Branch. Deviations, if any are to be explicitly explained in the proposal. No Sanctioning Officer can sanction any credit to any of his near relations and to any firm/company where his relations have financial interest. Such cases should be sent to the Head Office. All Sanctioning Officers maintain a Sanctioned Register for recording serially all the credits sanctioned by him. Sanctioning officer will accountable for non-recovery due to his injudicious decision. All approval of credit facilities must be conveyed under dual signature. Ideally both the signatories must have the required lending authority. If however, two lending
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officers of the required lending are not available, one of the signatories must have the required authority.
4.4.7 Disbursement of Credit Disbursement of credits presupposes observance of all norms and procedures, which are conveyed through different Circulars of Head Office, issued from time to time.
4.4.8 Credit Administration and File Maintenance Credit File Maintenance: The credit file for each facility shall contain all information necessary to facilitate ready monitoring of that facility. It should contain a through history of the customer relationship to help credit officer': track any problems, assist a newly assigned credit officer in understanding the customer and make the lending process transparent. Primary items in Credit File include: ďƒ˜ Credit application and Credit approval notes/analysis. Evidence of credit approval and data upon which approval was granted together with any comments, if appropriate. ďƒ˜ Copy of sanction and loan agreement. A checklist along with copies of all legal & banking documents obtained/to is obtained. Details and 6 monthly updated information of all related facilities to the name customer group, ďƒ˜ All supporting data such as financial statements and analysis, references, credit investigation results, CIB & other Bank reports and notes of all discussions with the borrower and other relevant parties with paper clipping.
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Correspondences call reports, site visit reports, stock report etc. each credit file shall be maintained in a secured location and where access restricted to authorized personnel's only. Copies of the information may be kept where regular access is required.
Facility Evidence Maintenance: All charge documents should be maintained in a place of utmost security. All charge documents as prescribed by the bank & local laws, for the relevant credit facility, Signed credit agreement, Signed guarantees or other evidence of credit security or collateral agreement shall be kept in fire proof safe under the custody of Branch manager or his designate alternative and another officer. A register of charge and security documents should be maintained under the supervision of the Branch Manager.
4.4.9 Credit Monitoring and Reviewing It is the responsibility of the Manager to monitor the over all profile and risk aspect of the credit portfolio in accordance with the criteria set down in the Bank Credit Policy. Such monitoring shall be evidenced from the comments of the Manager in monthly Call/Visit Report and be kept in the Credit File with a copy to the Head Office. This Review shall be formally performed at intervals prescribed by Head Office but it is the responsibility of the Manger to ensure at all times that the credit portfolio meets the standard set forth by the Bank. Periodic Review and Follow-up should aim at ensuring: Terms of approval have been maintained. Conduct (turnover, regularity of repayment etc.) of the borrowing accounts during the period under the review has been satisfactory or as expected. Continuing value of the collateral is adequate.
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There are no adverse trends in market, economic and political conditions which may endanger the reliability of the facility. Business reciprocity offered and received is commensurate with the facilities allowed. Earning from the account is cost effective (i.e. adequate to meet business cost of funds and leave sufficient margin for adequate risk reward, overheads and profits). Borrowers business is being satisfactorily conducted as reflected through a review and analysis of the financial and operating statements.
4.4.10 Taking Precaution/Legal Action against Delinquent Clients The responsibility for review and classification of credit facilities starts at Branch level. The frequency of the supervision and monitoring depends on the classification of credits.
4.5 Credit Risk Management In perspective of Prime Bank Limited risk is Defined as the possibility of Losses, Financial or else. Now a days management plays a vital role to reduce uncertainty of assets and or else. The major area of risk the bank think is that credit risk, liquidity risk, Matket risk, Operation risk an reputation risk due to money laundering risk. Market risks include Foreing Exchange risk, Interest rate risk and Equity risk.
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Credit Risk
Market Risk
Risk Management Liquidity Risk
Operation al Risk Reputation Risk
Fig 8: Types of Risk management Of Prime Bank Limited
4.5.1 Risk Management Process To manage the risk, prime bank Limited takes some Steps. They actively involve analysis, evaluation, acceptance and management is not only for regular process but also improve financial performance of the Bank. The risk management policy of the Bank operates under 5 broad principles: Oversight by the Executive Committee. Board approves Policies and Processes of risk management recommended by the management and executive Committee approves through credit proposals Submitted by the Management. Audit committee of the Board reviews the internal audit reports of the Bank and risk management Covering credit Risk, Operational Risk and Including money Laundering risk, market Risk, and Liquidity risk.
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Dedicated independent risk management units via Credit Risk Management Units, Credit Administration Unit, Credit Monitoring and Recovery Unit, Internal Control and Compliance Unit are responsible for implementation of the risk policies and monitoring of compliance with risk Policies. They are also responsible for identification and measuring risks. Dedicated committee at Management Level has been set up to monitor risk viz. Credit Risk through credit Review Committee and risk Management Division, Operational risk through Management Committee and Internal Control Division. Market Risk and Liquidity risk through Asset Liability Committee (ALCO); Information risk through MRS Committee and Reputation risk arising out of Money laundering through chief Compliance officer of the Bank and Compliance Officers of the Branches. In order to Streamline risk control features in a more effective manner, PBL has put in places all manuals as suggested in the core risk management guide lines of Bangladesh Bank. Its Standard Operating Procedure (SOP) Contains all the guide lines and also includes some of the internationally accepted best Practices. Departments including corporate banking, SME banking, retail banking, Credit Card, foreign exchange, treasury, human resources and financial administration. The SOPs include all processes related to the initiation, maintenance, settlement/Closure and recording for the entire range of products offered by the Bank. SOPs will help the Bank maintain control over its operations, clarify the links with the IT system, act as an effective communication tool that reduce training time, improve risk management and work consistency.
4.5.2 Credit Risk Credit risk is one of the major risks faced by the Bank. This can be described as potential loss arising from the failure of a counter party to perform according to contractual arrangement with the bank. The failure may arise due to unwillingness of the counter Party or decline in economic condition etc. Therefore the Bank’s risk management has been designed to address all these issues.
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4.6 Credit Principles Credit Principles are used to reduce the risk of credit. These are as follows: Loan – Deposit Ratio Loans and Advance are financed from customer deposits some time from capital fund of the Bank. Prime Bank Limited financed the Loan less then their deposits. May be one branch can exits the loan-deposits ratio but from short term money market or out of temporary fund. Credit Quality Credit facilities shall be allowed in a manner so that credit expansion goes on ensuring optimum asset quality i.e. Bank standard of excellence shall not be compromised. Credit facilities will be extended to customers who will complement such standard. Compliance All credit extension must comply with the requirements of Bank’s Memorandum and Articles of Association, Banking Companies Act, 1991 as amended from time to time, Bangladesh Bank’s instruction circulars, guidelines and other applicable Laws, rules and regulations, Bank’s Credit risk management Policy, Credit operational manual and al relevant circulars in force. The officer originating a credit a credit proposal shall specifically declare that it complies with all above mentioned rules, regulations, policy etc. Credit officer have to check that all of the information is properly verified. And mentioned document is in the given to the bank is Correct. Deviation Any deviation from the internal policy of the bank must be justified and well documented. Specially, all credit assessment form shall invariably include the deviations from the policy, if any. However, no external regulations shall be compromised. Return Credit operation of the Bank should be contributed at optimum level within the defined risk limitation. In other words, credit facilities should be extended in such a manner that each deal 41
becomes a profitable one so that Bank can achieve growth target and superior return on capital. Besides, credit extension shall focus on the development and enhancement of customer’s relationship and shall be measured on the basis of the total yield for each relationship with a customer. Repayment Capacity Credit facilities will be extended to those customers who can make best use4 of them thus helping maximize bank’s profit as well as economic growth of the country. To ensure achievement of this objective the Bank bases its lending decision mainly on the borrower’s ability to repay. Diversification The portfolio shall always be well diversified with respect to sector, industry, geographical region, maturity, size, economic purpose etc. Concentration of credit shall be carefully avoided to minimize risk.
Proper staffing Proper credit assessment is complex and requires high level of numerical as well as analytical ability of the concerned officer. To ensure effective understanding of the concept and thus to make the overall credit portfolio of the bank healthy, proper staffing shall be made through placement of qualified officials having appropriate background, right aptitude, formal training in credit risk management, familiarization with bank’s credit culture and required experience as well.
Name Lending No credit facility shall be allowed simply considering the name and fame of the key person or corporate image of the borrowing company. The Bank shall carefully avoid name lending. Credit facility shall be allowed absolutely on business consideration after conducting due
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diligence. In all case viability of business, credit requirement, security offered, cash flow and risk level will be meticulously analyzed. Single customer Exposure Limit PBL will always comply with the prevailing banking regulation regarding “single customer Exposure Limit” set by Bangladesh Bank from time to time. As per prevailing regulation, Bank will take maximum exposure (outstanding at point of time) on a single customer (Individual, Enterprise, Company, Corporate, Organization, Group) for the amount not exceeding 30 percent of Bank’s total capital subject to condition that the maximum outstanding against funded facilities does not exceed 15 percent of the total capital. However, for single customer of the export sector maximum exposure limit shall be 50 percent of the total capital subject to the condition. Total funded facility shall not exceed 15 percent of the total capital of the bank at any point of time. Security Security taken against facilities shall be properly valued and affected in accordance with the laws of the country.
Large loan Credit facility to a single customer (Individual, Enterprise, Company, Corporate, Organization and group) shall be treated as large loan if total outstanding amount against the limit at a particular point of time equals or exceed 10% of the total capital of the Bank. PBL’s total large loan portfolio exposure shall not exceed 56% of the total outstanding loans and advances at any point of time.
4.7 Credit Risk Assessment The primary factor determining the quality of the Bank’s credit portfolio is the ability of each borrower to honor, on timely basis, all credit commitments made to the bank. The authorized 43
credit officers prior to approval must accurately determine this. Therefore a thoroughly credit risk assessment shall be conducted prior to the sanction of any credit facilities. While assessment a credit proposal more emphasis shall be given on repayment potential of loans out of funds generated from borrower’s business (cash flow) instead of realization potential of underlying securities. Credit risk assessment process in the Bank shall be governed by the following principles: Assessment Frequency A comprehensive credit Assessment (Due Diligence) shall have be conducted before sanction of any loan. Thereafter, it will be done annually for all types of credit facilities i.e. Demand Loan, Continuous Loan and Term Loan. Assessment Documentation The result of the credit assessment shall have to be presented in the credit assessment. From enclosed in Annexure-2. Initially, it will be originated by the relationship officer of the Branch and reassessed in corporate Banking division and finally in credit risk management unit of credit division.
KYC Policy Bank’s KYC Policy applicable for the depositors & also is applicable for the borrowers customers. In addition, before sanctioning any credit facility the concerned relationship officer must physically visit the business premises of the customer, talk with important personalities of the locality, collect information on the borrower from his/her existing banker, if any and summarize all these information in the pre-sanction inspection report. Accountability The relationship manager (presently Head of Branch) shall be the owner of the customer relationship and be held responsible to ensure the accuracy of the entire credit application from submitted for approval. He/she will be responsible for conducting due diligence on the borrower, principles and guarantors.
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Filing up credit assessment form Credit assessment form must be filled in with accurate information in full. No field in the assessment form should be erased or overlooked. If information is not available concerned field should be filed in with “information not available with proper justification. Repayment source: Repayment source of the borrower must be assessed properly. The relation ship officer will apply prudence to find out actual credit requirement of the borrower and the place his finding in the credit assessment form. Risk and Mitigating factor: Risk inherent in a credit proposal shall be identified and appropriate justifying factors should be applied. These are to be summarized in the credit Assessment form. That has to identify properly. If any risk factor is identified by the credit officer but that is actually not mitigating factors. That will be make loss for the organization.
Collateral Cellmates offered against a credit facility shall properly be valued and verified by the concerned relationship officer or relationship manager and revalued and re-verified annually.
4.8 Credit Risk Grading Banks should adopt a credit risk grading system. The system should define the risk profile of borrower's to ensure that account management, structure and pricing are commensurate with the risk involved. Risk grading is a key measurement of a Bank's asset quality, and as such, it is essential that grading is a robust process. All facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities
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should be immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications. These Grades are as follows----1. Superior (SUP) •
Credit facilities, which are fully secured i.e. fully cash covered.
•
Credit facilities fully covered by government guarantee.
•
Credit facilities fully covered by the guarantee of top tier international bank.
2. Good (GD) •
Strong repayment capacity of the borrowers.
•
The borrower has excellent liquidity and low leverage.
•
The company demonstrates consistency strong earning and cash flow.
•
Borrower has well established, strong market share.
•
Very good management skills and expertise.
•
All security documentations are in place.
•
Credit facilities fully covered by the guarantee of a top tier local bank
•
Aggregate score of 85 or greater based on Risk Grade Score sheet.
3. Acceptable (ACCPT) •
These borrowers are not strong as good grade borrowers, demonstrate earnings,
•
cash flow and have a good track record.
•
Borrowers have adequate liquidity, cash flow and earnings.
•
Credit in this grade is secured acceptable collateral (I't charge
•
over inventory/receivables/equipment/property).
•
Acceptable management.
•
Acceptable parent/sister company guarantee. 46
•
Aggregate score of 75-84 based on Risk Grade Score sheet.
4. Marginal/Watch list (MG/WL) •
This grade warrants greater attention due to conditions affecting the Borrowers, the industries or the economic environment.
•
These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow or inconsistent earnings.
•
Weaker business credit and early warning signals of emerging business credit detected.
•
The borrower incurs a loss.
•
Loan repayment routinely falls past due.
•
Account conduct is poor, or other untoward factors are present.
•
Credit requires attention.
•
Aggregate score of 65-74 based on Risk Grade Score sheet.
5. Special Mentioned (SM) •
This grade has potential weakness that deserves management's close attention. If left uncorrected, this weakness may result in a deterioration of the repayment prospects of the borrower.
•
Severe management problems exist.
•
Facilities are downgraded to this grade if sustained deterioration in financial condition is noted (consecutive losses, negative net worth, excessive leverage).
•
Bangladesh Bank criteria for Special Mentioned (SM) shall apply.
•
Aggregate score of 55-64 based on Risk Grade Score sheet.
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6. Substandard (SS) •
Financial condition is weak and capacity or inclination to repay is in doubt.
•
These weaknesses jeopardize the full settlement of loans.
•
Bangladesh Bank criteria for Substandard (SS) shall apply.
•
Aggregate score of 45-54 based on Risk Grade Score sheet.
7. Doubtful (DF) •
Full repayment of principal and interest is unlikely and the possibility of loss is extremely high.
•
However, due to specifically identifiable pending factors, such as litigation, liquidation procedures or capital injection, the asset yet is not classified as Bad & Loss.
•
Bangladesh Bank criteria for Doubtful Credit shall apply.
•
Aggregate score of 35-44 based on Risk Grade Score sheet
8. Bad and Loss (BL) Credit of this grate has long outstanding with no progress in obtaining repayment or on the verge of wind up/liquidation.
4.9 SWOT analysis of Credit Department of PBL Strength
Weakness
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FactorsInternal
o Diverse loan
o All branches aren’t on-line
o New Scheme like Any
o
Purpose Loan
Service.
o Huge disbursement in the
o Well funded
o
Same day in Motijheel
o Strong Marketing Activities
o
Branch
o Strong credit management
o Improper file Maintenance
System o Good Monitoring system o Large customer base o Management knowledge of o
Industry
o Financial condition: Strong o
Capital and asset quality
o Efficiency in providing o
Customer services
o Same schedule toward a o
Different aspect of the same
o Lack of customer confidence as a new Bank o Biasness to grant loan o More time taking for approving loan that discourage the customer for taking loan o Excess limit charge Credit Card o Late
of
payment fee on fractional shortfalls
o Strong employee bonding
o Receiving renewal card after expiry date or more lately
o Efficient Performance
o Too many contract workers
o
Goal,
o “One-to-one” meeting o Companionable o Environment o Young Enthusiastic o
Workforce
Opportunity
Threats
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External
o All Branches should provide On-Line Service o Increased New sector loan facilities o Reduced overdue through strong Recovery system o Increase market share through Growth of loan portfolio
Factors
o Proper Advertisement to attract CCS o Promotion of new products o Enhanced business development in all product areas and promotion of those products
o Reduce market price of the security o Increased the problem loan o Frequent Transfer of Staff o Lack of Flexibility to adopt to any change o Increased new bank o Increased new credit scheme o High interest rate reduced customer o High rate interest on overdue increased the classified loan o Upcoming Banks
o More experienced & managerial Know-how o Countrywide network
The above analysis tried to show the strengths, weakness of the credit department, which are their internal factors. This analysis also helps to bring out the opportunities and threats, which are their external factors.
4.10 Topic Analyses and Discussion 50
Prime Bank Limited (PBL) has diversified its credit facilities in different sectors. The Credit Portfolio increased by Tk 12.67 billion during 2009. Credit covers following core areas: Corporate, SME, Retail and Credit Card, Investment banking (Portfolio margin Finance). These core areas % of Loan are given below.
4.10.1 Comparable picture of sector-wise loans and Advances Type of Loan Industrial Loans Commercial Loan Export Financing House Building Loan Retail Loan Small and Medium Enterprise Special Program Loan Staff Loan Others (SOD) Total
2010 TK. 45291774713 19564268060 9363160717 3435341726 9290648830 5757282961 13776232 17204586886 109920840125
2009 TK 37593714199 16350124011 6312646658 2680883273 6629671400 3593916717 62941052 19840155 15419271368 88663008833
Analysis: The above chart has shown that PBL mainly focus on the Industrial Loan sectors.
But Now
the Bank focused on the Consumer Credit Schemes. It emphasize on New Schemes such as any purpose loan. In 2010 every type of loan is increased than in 2009.
4.10.2 Comparable picture of Classified loan and advanced Particulars Unclassified Sub-Standard Doubtful Bad or Loss
2010 TK 109799698892 534434000 123946000 709310000
2009 TK 88103122489 383019000 187001000 579080000 51
Total loan
111167388892
89252222489
Analysis: By periodic review of the problem loan, bank can ensure that the loans are consistent with the credit policy. In 2010 the amount of classified loan is increased than in 2009.
4.10.3 Percentage of Provisions for classified Loan and advances 2010TK Provision for classified loans and 642136164
2009TK 631144561
advances 1% General
1147987400
provision
for 1458594900
Unclassified Loans and advance
Analysis: The above chart shows that PBL bank kept a large percentage provision for its problem loan and advances and it is higher in 2010 than in 2009
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CHAPTER – 5 FINDING OF THE STUDY
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5.1Major Findings The prime Bank giving different types of loan to the borrowers based on times, different sector & securities. Prime Bank Limited though performing very well and hold the first position in the CAMEL rating published by the Bangladesh Bank. No doubt this is the good management that this bank comes to this stage only by ten years. The living standard of the middle-class is increasing. As a result, amount of Consumer Credit loan increased with the increase of the buying power. Sometimes the down payment paid by customer is very high with PBL compare with other bank like Dhaka Bank. According to CCS Policy the loan processing time will not exceed more than 7 days but in reality it takes more time than that. The Head Office sets up the rate of interest. Interest rate has to be with in a limit notified by Bangladesh bank. Credit allocation is set –up by the Head Office Credit Committee. It’s depending on the volume of the loan. The Head of the Branch can authorize less than 20 Lac. For avoiding high risky loans, they maintain a risk assessment structure. They are using three things: (a) Lending Risk Analysis (LRA), (b) Risk Grading Scorecard and (c) Risk Grading. These three things will help to identify the risk of any loan. They are also testing risk by calculating some ratios. There are some rules and regulation for filing all the documents. The document is not distorted even if its expirees.
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CHAPTER – 6 RECOMMENDATIONS
55
6.1 Recommendations To the based of my knowledge and experience, which I achieved during internship at Prime Bank Ltd, principal Branch, I like to give some recommendation for further growth and expansion of this Branch:
They can focus more things before giving the loans to the borrowers. Not only on the borrowers or its own position but also to the national economic conditions, changing trend, and risk associated with it. Credit officer measures the risk associated with the credit facility. He should not be liberal in this respect; he should strictly follow the credit evaluation principle setup by the bank. It should improve in file management system to faster the dealings with the client's proposal. A time budget for the project to be implemented with mentioning the exact time of beginning and ending must be collected. So that time over-run while project completion can be avoided. For reducing the cost problem the credit officer must look for whether the construction be given contract and turnkey basis. Disbursement of fund procedure must be improved –the credit officer must become sure that the funds are going to the project it is sanctioned. There must be a credit officer assigned to the project and he will be responsible for completing the “Stage Completion Report Form” which will mainly deal with the details of the cost incurred in the previous period. PBL has a great image as they have already achieved first position in CAMEL rating consecutively for three years. Using this reputation they should be more service oriented by implementing any branch services, Tele banking and introducing more new product.
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The management of PBL may invest more in interest sensitive asset by taking deposit of short term and lend for long to reduce gap between its interest rate sensitive assets and interest rate sensitive liabilities. . The HRD should look into the matter that the branches are well staffed with the right people in the right position. PBL should actively manage the complaints of various customers and encourage customers to give feedback about the services. The management should collect, document complaints, use that information to identify dissatisfied customers, correct individual problems where possible and identify common service failure points.. The bank should focus more on existing customers in order to build strong and loyal relationship with them as most satisfied customers recommends the bank to friends and relatives. Thus the power of relationship will foster positive Word of Mouth Communication and will attract new customers at a lower cost. Employee trainings and workshops should be administered in order to give them knowledge and professionalism in customer interactions. With a more professional base, employees can better satisfy the customers. Day by day the Banking policies are changing, for that to walk with the change the bank can choose new methods for credit approval process and risk assessment criteria which will be effective to perform better.
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CHAPTER – 7 CONCLUSION
58
7.1 Conclusion The credit function is one of the oldest and most important functions of a bank. The size of the department handling loans will vary with the size of the bank and the type s of the loans granted. In PBL the loan department consists of officers and employees who make all kinds and type of loans. The officer of the department is specialist to do their responsibility. Though Credit Management is the most important sector in banking Industry, It is not an easy process. Credit risk concern with sanctioning loan, that’s earns a lot of profit for a bank. Who deals with credit risk has to very careful in collecting data & Gathering risk. In perspective of Socio-Economic condition of Bangladesh, it is very difficult to collect proper information in compete with all commercial banks as well as Government Banks.
That’s why in the field of sanctioning loan have to calculate and analyze risk associated with credit, almost perfectly for getting competitive advantage. But in the real field the theoretical thoughts have conflict with practical aspects. Credit management policies and techniques used in PBL at present no doubt are comparable to the international standard. Officials have to follow the rules and regulations very strictly. Credit assessment function is periodically monitored. Management is trying to find out the more effective process and risk management mechanism.
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Appendix (tables, relevant organizational documents, data etc.) XYZ Knit Composite Limited wants to take a term loan from PBL. for approving borrower proposal the responsible banker analysis ratios on the basis financial statement of XYZ Knit Composite Ltd. A. Liquidity Ratios: 1. Current ratio=Current Assets/Current Liabilities 1st Year 2nd Year 3rd Year Current ratio 1.36 1.68 1.88 Note: It is a rough indication of a company’s ability to serve its current obligation. 2. Quick ratio= Current Assets – Inventories/Current liabilities 1st Year 0.41
Quick ratio
2nd Year 0.67
3rd Year 0.82
Note: It is a measure of a firm’s ability to pay off short term obligations without relying on the sale of inventories. 3. Other liability ratios of the company are: Sales
/
1st Year Net 10.45
2nd Year 6.05
3rd Year 0.82
2nd Year 1.34
3rd Year 0.95
working capital B. Leverage Ratios: Total
1st Year 1.81
Liabilities/Net worth Note: The liabilities will be reduced at a reasonable rate and after third year of operations, net worth of the borrower will be higher than its liability. 60
C. Asset Management or Activity Ratios: 1. Fixed Asset Turnover = Sales/ Net fixed Assets 1st Year 2nd Year 3rd Year Fixed Asset Turnover 1.98 2.15 2.21 Note: The increasing rate of Fixed Asset turnover shows a positive sign. 2. Total Assets Turnover = Sales/ Total Assets 1st Year 2nd Year 3rd Year Total Asset Turnover 1.15 1.14 1.13 Note: According to the projected Balance sheet, sales in comparison with total assets are increasing moral less in a parallel way is significant. D. Coverage Ratios: Interest Coverage
1st Year 1.98
2nd Year 2.15
3rd Year 2.21
(EBIT/Total Interest) Dept Service Coverage
12.45
4.21
4.74
(EBITDA/Total Interest=CMLTD) Note: Interest Coverage and Dept-Service Coverage ratio of the project works out to 12.45, 4.21 and 4.74 times during the first three years of the projected operation of the project.
E. Debt Management Long-term fund Dept equity ratio =
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Shareholder’s fund 4316.66 = 2891.67 =
60:40 is an ideal ratio for financing a company
Bibliography Burt Edwards (2004), Credit Management Handbook 5th Edition
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Anonymous (2010), Prime Bank Limited Annual Report 2009 Prime Bank Limited Bangladesh Anonymous (2009), Prime Bank Limited Social Report 2008 Prime Bank Limited Bangladesh Anonymous (2010), Prime Bank Limited Prime Magazine 2009 Prime Bank Limited Bangladesh Prime Bank Limited Website: Retried from http:// www.primebank.com.bd on July 20, 2010. Prime Bank Limited Website: Retried from http:// www.prime-bank.com on July 20, 2010. Anonymous: Retried from http://www.banglapedia.org/httpdocs/HT/P_0273.HTM on July 20, 2010 Anonymous: Retried from http://www.primebank.com.bd/one_stop_service.jsp on August 1, 2010 Anonymous: Retried from http://investing.businessweek.com/research/stocks/snapshot/ on August 1, 2010.
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