This report is to get an idea about the operations of “Credit Analysis� of National Housing finance and Investments Ltd.
Executive Summary National Housing Finance and Investments Ltd (NHFIL) is one of the best names in the non-banking financial industry of Bangladesh. It has been leading in the non-banking industry with its distinct products and excellent services. Technology and competition have made this sector more competitive. NHFIL put emphasis on meeting this continuous challenge of managing relationship significant achievements by their experts and experienced management team. NHFIL is very fortunate to have a strong senior management team. They are committed to the continued implementation of sound strategic programs. It focuses on creating a culture that places importance on integrity, caring and
excellence. NHFIL value closes relationships with each other. At the same time it brings the decision making authority close to the customers to give them the best service available. NHFIL will continue to reinforce the efforts to meet the needs and expectations of its customers. NHFIL are setting goals and challenges for its employer to respond to customer needs; NHFIL want to differentiate itself from its competitors’ through flexible and personalized services. To conduct my study collected data from annual reports, respective department of head office, last annual meeting report. However information has also been collected from primary sources by interviewing the respective department’s Officers. With the changes in business environment, the ways of doing business is also changing. The competing institutions are aggressively developing new products, which will facilitate the purposes of their clients. But NHFIL’s R&D division is weak comparing with other non-banking financial institution. If NHFIL don’t develop new products to provide more facilities to the clients they may well be bitten by competitor institutions and may lose clients to other banks. This may seriously hamper the profitability of NHFIL.
Chapter: 1
1.1 Introduction The primary purpose of this report is to get an idea about the operations of “Credit Analysis” of National Housing finance and Investments Ltd. Credit Performance plays an important role in the balance of trade in our economy. In this regard Credit Performance of Bangladesh, non-banking financial institutions plays an vital role. This report is an attempt to reflect the position of Credit Performance of National Housing Finance and Investments Ltd.
1.2 Origin of the Report MBA program is designed with an excellent combination of theoretical and practical aspects. As the classroom discussion alone cannot make a student perfect in handling the real business situation, so it is an opportunity for the students to know about real life situation through this internship program. This internship program provides the students to link up their theoretical knowledge with practical fields. In this connection, the assigned to National Housing Finance And Investments Ltd (NHFIL), Gulshan Branch, Credit department for my practical orientation. I am required to prepare an internship report under the supervision of our honorable teacher Md. Shahnawaz Mostofa on “Credit Analysis of National Housing Finance and Investments Limited” to conduct a depth analysis on this subject matter. The tried level best to present my experience of the practical orientation in this report.
1.3 Objectives of the report • • • • •
Determine the ways of measuring the creditworthiness of potential borrowers. Assessing the performance of different types of Loan products. Identification of weaknesses and problems regarding Credit management system. Analyzing Loan disbursement and collection procedure as well as their effectiveness and efficiency. Assessing existing Loan innovation system and practices
1.4 Scope of the report •
•
The report intends to cover National Housing Finance and Investments Ltd’s company profile, historical background, organizational overview, management, capital structure, products and functions regarding social responsibilities performed by the bank. Main focus will be given to Credit performance analysis.
1.5 Rationale of the study
Bangladesh is one of the developing countries in the world. The economy of the country has a lot left to be desired and there are lots of scopes for massive improvement. In an economy like this, Credit Analysis can play a vital role to improve the overall economic condition of the country. The Non-Banking Financial Institutions (NBFI) by playing the role of an intermediary can mobilize the excess fund of surplus sectors to provide necessary finance, to those sectors, which are needed to promote for the sound development of the economy. This report is an effort to reflect a clear idea about the strategies, activities, and performance of Bangladesh regarding Credit Performance Business.
1.6 Limitations To prepare this report, the faced some limitations, which are mentioned below. • Limitation of time: It was one of the main constraints that hindered to cover all aspects of the study. • Lack of Secondary Information: The secondary source of information was not enough to complete the report. • Limitation of the Scope: Some confidential information was not disclosed by various personnel of their respective department.
1.7 Methodology 1.7.1 Techniques of Analysis Secondary Data will be collected from different sources. Then those data includes repayment pattern, disbursement pattern, recovered amount, amount due to be recovered, loan overdue amount of different types of loan will be collected. The necessary information need to be collected to calculate Cost of Capital of the Branch. 1.7.2 Data Required To prepare this report mainly focused on numerical data. Also used theoretical portion as report’s demand. Because to analyze Credit Performance of a Financial Institutions both theoretical and technical knowledge are necessary. Then based on everything analyzed and made conclusion. 1.7.3 Sources of Data Sample Information Information is mainly collected from annual report of National Housing Finance and Investments Limited, annual meeting report, brochures and web sites. The information
incorporated in this report is also collected both from the primary sources and as well as from the secondary sources. Primary Source of Data I collect data directly from the practical field of different sectors that is National Housing Finance and Investments head office. This data is called primary source of data. Secondary Sources of Data The secondary data is also collected from annual report, different conceptual matters, internet and different articles published in different sessions. Secondary Sources are: • Annual Reports of different years of NHFIL. •
Annual Report of Bangladesh Bank of 2009.
•
Other published documents of NHFIL.
•
Respective sectors of head office.
•
Internal Reports
•
Institution’s Record Books.
•
Different types of manuals related to banking, its credit policy etc.
Chapter: 2 Overview of NBFI 2.1 About NBFI A non-bank financial institution (NBFI) is as financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFIs facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering.[1] Examples of these include insurance firms, pawn shops, cashier's check issuers, check cashing locations, currency exchanges, and micro loan organizations.(reference:5) Non-Bank Financial Institutions (NBFIs) are those institutions that are licensed and controlled by FIA of 1993. NBFIs give loans and advances for industry, commerce, agriculture or housing;
carries on business of hire purchase transactions including leasing of machinery or equipment; involves in business of the underwriting or acquisition of, or the investment or re-investment in shares, stocks, bonds, debentures or debenture stock or securities issued by the government or any local authority; finances venture capital; gives loan for house building and property purchases and uses its capital to invest in companies. The major differences of NBFIs with commercial banks are that the former cannot accept any deposit which is payable on demand by cheques, drafts or orders drawn by the depositor and cannot deal in foreign exchange. Starting from the IPDC in 1981, a total of 29 NBFIs are now working in the country as of November 2009. For NBFIs the prime sources of funding are loans from commercial banks and other financial institutions, term deposits from the public, funds from capital market by issuing shares, debentures, bonds etc. and loan facilities from the international agencies like ADB, IDA, IFC etc. NBFIs are mostly dependent on funds from the credit lines of the commercial banks at a relatively higher rate of interest ranging up to 15%. Moreover, they have to provide high and expensive collateral securities like fixed deposits at the time of borrowing fund from the commercial banks. Raising fund from capital market is a prospective way to reduce dependency on borrowed funds and boost up the activities of NBFI’s in an efficient manner. The lease financing practices in Bangladesh have grown significantly within the last 10 years. Competition among the leasing companies has grown stronger with the growth of the NBFIs, besides entrance of commercial banks in the lease financing market who have the advantage of lower costs of fund compared to the NBFIs. Currently, out of 29 NBFI, 22 specialize in lease financing. As per central bank data released in May 2010, lease financing constituted 54.5% of total long term assets, with the rest consisting mainly of term financing.(reference:9)
2.2 NBFI Position Bangladesh Leasing and Finance Companies Association, a representative body NBFI has been formed in 1999, to serve as a forum for interacting among the NBFIs on matters which affect the industry and to act as the official voice of the sector. Out of 29 licensed NBFIs 26 have registered themselves as member of the association. The Association is active and has been playing a positive & creative role to protect the
interest of the member and contributing in the formulation and implementation of various national financial policies.
2.3 Role and Function The role and importance of non-bank financial intermediaries is clear from the various functions performed by these institutions. Major functions of the NBFIs are as follows: 1. Financial Intermediation: The most important function of the non-bank financial intermediaries is the transfer of funds from the savers to the investors. Financial intermediation is economical and less expensive to both small businesses and small savers, (a) It provides funds to small businesses for which it is difficult to sell stocks and bonds because of high transaction costs, (b) It also benefits the small savers by pooling their funds and diversifying their investments. 2. Economic Basis of Financial Intermediation: Handling of funds by financial intermediaries is more economical and more efficient than that by the individual wealth owners because of the fact that financial intermediation is based on (a) The law of large numbers: Financial intermediaries operate on the basis of the statistical law of large numbers. According to this law not all the creditors will withdraw their funds from these institutions. And (b) Economies of scale in portfolio management: Large size of the asset portfolios enables the financial intermediaries to reap various economies of scale in portfolio management. The main economies are: •
Reduction of risk through portfolio diversification:
•
Employment of efficient and professional managers; and
•
Low administrative cost of large loans and
•
Low costs of establishment, information and transactions.
3. Inducement to Save: Non-bank financial intermediaries play an important role in promoting savings in the country. Savers need stores of value to hold their savings in. These institutions provide a wide range of financial assets as store of value and make available expert financial services to the savers. As stores of value, the financial assets have certain special advantages over the tangible assets (such as, physical capital, inventories of goods, etc.). They are easily storable, more liquid, more easily divisible, and less risky. In fact, saving- income ratio is positively related to both financial institutions and financial assets; financial progress. Induces larger savings out of the same level of real income. 4. Mobilization of Saving: Mobilization of savings takes place when the savers hold savings in the form of currency, bank deposits, post office savings deposits, life insurance policies, bills, bond's equity shares, etc. NBFI provides highly efficient mechanism for mobilizing savings. There are two types of NBFTs involved in the mobilization of savings; (a) Depository Intermediaries, such as savings and loan associations, credit unions, mutual saving banks etc. These institutions mobilize small savings and provide high liquidity of funds. (b) Contractual Intermediaries, such as life insurance companies, public provident funds, pension funds, etc. These institutions enter into contract with savers and provide them various types of benefits over the long periods. 5. Investment of Funds: The main objective of NBFIs is to earn profits by investing the mobilized savings. For this purpose, these institutions follow different investment policies. For example, savings and loan associations, mutual saving banks invest in mortgages, while insurance companies invest in bonds and securities.
3.4 Role of Bangladesh Bank
Non-banking financial institutions (NBFIs) have come under Basel-II framework on a test-run basis from January 1 this year as part of the central bank’s move to consolidate their capital base and minimize inherent risk. The central bank of Bangladesh has already introduced draft guidelines on BAFI, which will come into force from January 01, 2012 with its subsequent supplements and revisions. “The central bank has taken the move to boost financial base of the NBFIs and ensure their management efficiency in the long run through using the best global best practices," a senior official of the Bangladesh Bank (BB) told BBN in Dhaka. The Basel-II framework, the most widely used accord which sets the benchmarks for banks and other financial institutions across the globe – has come into effect for all Bangladeshi commercial banks from January 2011. The framework is based on three mutually reinforcing pillars: ensuring MCR, SRP and market discipline. The accord outlines the level of capital required by a NBFI against credit, market and operational risk based on the risk profile of the organization. “The primary objective is neither to raise nor to reduce regulatory capital for the financial institutions. However, the capital requirements for a specific financial institution may increase or decrease depending upon its own risk profile,” the central bank said. (Reference: 8)
Chapter: 3
Organizational Profile 3.1 Background of NHFIL National Housing Finance And Investments Limited (NHFIL) was incorporated on August 18, 1998 as a public Limited Company under the Companies Act, 1994, obtaining license from Bangladesh bank under the Financial Institutions Act, 1993 on December 29,1998. The main objectives of the Company are to carry on the business of
financing the acquisition, construction, development and purchase of houses, plots, apartments, real estates commercial spaces, etc. The company has obtained permission from Bangladesh Bank on June 03, 2003 to enter into lease finance operation keeping housing finance as its core business. The Company extends lease finance for all types of industrial, manufacturing and service equipments including vehicles to individual companies, and corporate houses. The registered office of the company is located at, National Plaza (7 th & 8th floor), 109, Bir Uttam C.R. Datta Road (Ex-Sonargaon Road), Dhaka-1205.
3.2 Principal Activities of NHFIL The Company provides loan to the extent of 70.00% of the total purchase price of houses, plots and apartments under usual repayable terms varying from 5 to 20 years. The properties for which loans are disbursed are kept under registered / equitable mortgage as security. In addition to this NHFIL also involves with other activities such as accepting deposits, SME, lease financing, project financing etc.
3.3 Goal of NHFIL Build up excellent client relationship and thereby add long-term value to the shareholders.
3.4 Mission of NHFIL • • • • •
Be equal Housing Lender to all irrespective of caste, creed and sex. Provide top quality services with care and sophisticated technology. Create innovative products to cater to the requirements of competitive market. Build a high quality employee team by providing job satisfaction and prospect of outstanding career development. Maximize steady return on shareholders’ equity by quality investment of funds.
3.5 Vision of NHFIL Become the role-model financial institution with a keen sense of corporate social responsibility through maintaining the highest standards of business ethics. In doing so, the Company would add value to the wealth of the customers, employees, shareholders and to society as a whole.
3.6 Core Value of NHFIL
• • • •
Protect national interest and be part of national growth and prosperity. Create good leaders rather than typed managers. Give high priority on honoring trust, fairness, confidentiality, rules and regulations, objectivity, transparency, integrity, and corporate, individual and social responsibility. Always keep pace with state of the art technology and innovative ideas.
3.7 Objectives of NHFIL • • • • •
Maximize shareholders’ value through development of stringent investment strategy and control procedures. Create balanced portfolio in potential sectors for enhancement of corporate strength. Provide diversified products and uninterrupted services to the valued clients. Pursue ways to reduce cost, apply extremely vigilant terms to monitor risks and to operate most efficiently. Maintain highest standards of transparency and strengthen good corporate governance practices.
3.8 Code of Conduct & Ethical Principles • • • • •
• • •
Maintain strict professional integrity, proficiency, decency and self-esteem with the customers and related parties. Comply with all applicable laws, rules and regulations. National Housing is always straightforward in disclosing any conflict of interest. Maintain stringent confidentiality of customers’ information unless otherwise directed by competent regulatory authority. Courtesy and cooperation to the client is our manifesto. Encourage employees to act in a professional and ethical manner so as to create a good impression of National Housing and its employees, Trustworthy commitment to customers to build long-term relationship. Apply professional judgment and high quality care in all cases. Apply own corporate policies and appropriate technical and professional standards for rendering services to the client. Encourage and act against falsification, dishonesty, fraud, trickery and forgery. Uphold the company’s good name and integrity.
3.9 Products & Services of NHFIL Home Mortgage Loan
• • • • • •
Self Construction of Own home Purchase of Apartment or House Renovation of Existing House/Apartment Housing Plot purchase Commercial space and Chamber for Professionals Any purpose Mortgage Loan
Project Mortgage Loan •
Project Mortgage Loan for property Development.
Lease Finance • • •
Acquisition of industrial Machineries, Equipments, Generator, Power plant etc. Car purchase Medical/ Hospital Equipments
Term Loan for Industries • •
Work Order Finance Factoring
Deposit Schemes with Attractive Return • • • • •
Term Deposit Account Double Money Account Income Account Monthly Savings Scheme Millionaire Savings Account
Deposit Scheme 1) Income Account Invested Amount: 1 Lac Term
Monthly Income
Quarterly Income
2 Years
1,000
3,000
Half yearly Income 6,000
3 Years
1,111
3,332
6,665
4 Years
1,111
3,332
6,665
5 Years 2) Term Deposit Account Term
1,111
3,332
6,665
Applicable Rate of Return
6 months
13.00%
1 Year
13.50%
2 Years
14.00%
3 Years
14.25%
3) Double Money Account Term
Applicable Rate of Return
72 months 4) Monthly Saving Scheme Monthly 500 1,000 1,500 Ins. Payable after 3 21,750 43,500 65,260 years Payable after 5 41,250 82,500 123,750 years 5) Millionaire Scheme Period Monthly Installment
16.67% 2,000
2,500
5,000
87,015
108,770
217,540
165,000
206,250
412,500
Payable after Maturity
7 years
7,750
1,000,000
10 years
4,440
1,000,000
SME Loan • •
Refinancing Scheme by Bangladesh Bank to support entrepreneurs of small and Medium Enterprises Refinancing Scheme by Bangladesh Bank to support women Entrepreneur of small and Medium Enterprises
3.10 Corporate Information & Key Milestones of NHFIL Registered Name Legal Form Incorporated on Registration Number Authorized Capital Paid-up Capital Certificate of Commencement
: National Housing Finance and Investments Limited : Public Limited Company under Companies Act, 1994 : August 18, 1998 : C-36097(397)/98 : BDT 2,000 million : BDT 520 million : August 18,1998
Date of Bangladesh Bank License : December 29, 1998 First Mortgage Loan : June 16, 1999 Opening of Motijheel Branch : August 18, 2001 First Lease Finance : February 22, 2004 Opening of Chittagong Branch : April 06, 2004 Opening of Gulshan Branch : June 01,2004 Date of listing:Dhaka Stock Exchange : December 23, 2008 Chittagong Stock Exchange : November 11, 2008 Opening of Bogra Branch : April 19, 2009
Auditors: Hoda Vasi Chowdhury & Co., Chartered Accountants, BTMC Bhaban (8 th Level) 7-9 Kawran Bazar,Dhaka-1215, Bangladesh.
Contact Details: Head Office: 109 BIr Uttam C.R. Datta Road (Ex-Sonargaon Road), National Plaza (7th & 8th Floor). Dhaka-1205, Tel: 9670612-4, 9677181-2, 9669800 Fax: 9671016E-Mail: info@nationalhousingbd.com
Legal Advisor: Barrister Masudur Rahman, (Masudur Rahman & Associates), Barrister ASM Abdur Razzaque, (Abdur Razzaque & Associates) Barrister Abdul Kuddus, (Law and Remedy)
3.11 Corporate Social Responsibility The business and economic environments have undergone dramatic changes all over the world. Escalation of poverty and climate changers have become great hurdles for economic growth of the world. Considering these, the concept of Corporate Social Responsibility (CSR) is the demand of the current era. CSR has become a concept that frequently overlaps similar approaches, such as corporate sustainability, corporate sustainable development and corporate responsibility. To meet CSR, the sponsors of National Housing Finance and Investments Limited formed a public Limited Company under the Companies Act, 1994 and licensed by Bangladesh Bank under the Financial Institutions Act, 1993 to meet the most important basic need of housing of urban people. National Housing is a socially responsible organization and always keen to promote the interest of customers, employees, shareholders and communities as a whole. National Housing has upheld its CSR in the following ways: • National Housing has provided 4074 Home Mortgage Loans over the years at comparatively low interest rate on reasonable terms and for long durations.
•
A good number of clients got waiver of interest due to their inability to pay the loan because of permanent disability or through death. Furthermore, their loans are rescheduled for reasonable durations with installments commensurate with their ability to pay their loans.
•
National Housing is always strict on principle about not providing any lease/loan facilities for any environmentally hazardous or child labor oriented company.
3.12 Director Information List of Board of Directors SL
Name
1
Mr. Latifur Rahman
2 3 4
Mr. Neaz Ahmed (Director) Mr. Sayed Monjurul Islam (Director) Mr. Muminul Haque Chowdhury (Director) Mr. Md. Rezaul Karim (Director) Mr. Azmal Hossain (Director) Mr. Mahamudul Huq Taher (Director) Mr. M. Azmal Hoque (Director) Mr. Mizanur Rahman (Director) Mr. Md. Kabir Reza (Director) Mr. Syed Ali Jowher Rizvi (Director)
5 6 7 8 9 10 11 12 13
Representation (Chairman)
Prof. Imran Rahman (Independent Director) Md. Abdur Rob (Managing Director)
Bangladesh Lamps Ltd. National Bank Ltd. IFIC Bank Ltd. Borak Travels (Pvt.) Ltd. Shadharan Bima Corporationd Eastern Insurance Co. Ltd. National Life Insurance Co. Ltd. Estland Insurance Co. Ltd. Shaw Wallace Bangladesh Ltd. Square Pharmaceuticals Ltd. Overseas Investors Forum (Zambia) N/A Ex- officio Director
3.13 Shareholding Structure of the year end 2011 Sponsor Shareholder Banks • IFIC Bank Ltd. • National Bank Ltd.
90.31% 14.15%
•
United Commercial Bank Ltd.
Insurance Companies • • • • • • •
33.41%
Eastern Insurance Company Ltd. Eastland insurance Company Ltd. Jibon Bima Corporation National Life insurance Company Ltd. Pragati Insurance Ltd. Reliance Insurance Ltd. Sadharan Bima Corporation
Local Corporate/Business Groups • • • • • • •
33.32%
Bangladesh Lamps Ltd. Borak Travels (pvt.) Ltd. HRC Bangladesh Ltd Shaw Wallace Bangladesh Ltd Square Pharmaceuticals Ltd. Summit industrial and Mercantile Corporation (Pvt.) Ltd. Unicorn Equities Ltd.
Non-Resident Bangladeshi Investors • •
9.34%
Overseas Investors Forum (UK) Overseas Investors Forum (Zambia)
General Shareholders Total-
9.69% 100%
Chapter: 4 Credit performance department
4.1 4.2 4.3 4.4 4.5 4.6 4.7
Loan and Credit Department Credit Evaluation Principals Pre disbursement Compliance Steps involved in Credit processing Existing Process of handling Loan Credit Query Documentation of the Loan
4.8
Loan and Credit Facilities
4.1 Loans & Credit Department: Credit decisions are heart of all credit works. Generally branch manager and the credit in-charge of a branch are held responsible for appraising of a loan proposal. The customer request for credit limit and the credit officer prepares a credit memo and send it to the head office, credit division. After taking all the relevant information from the branch the head office credit division sent the credit memo to the credit committee. Credit committee of NHFIL is comprised of Managing Director and other top-level executive. If credit committee is convinced about the merit of the proposal then it is sent the broad of directors. The board is final authority to approve or decline a proposal. The whole process takes a month or more.
4.2 Credit Evaluation Principles
Some principles or standards of lending are maintained in approving loans in order to keep credit risk to a minimum level as well as for successful banking business. The main principles of lending are given below:
4.2.1 Liquidity:
Liquidity means the availability of institutions funds on short notice. The liquidity of an advance means it repayment on demand on due date or after a short notice. Therefore, the non-banking financial institutions must have to maintain sufficient liquidity to repay its depositors and trade off between the liquidity and profitability is must.
4.2.2 Safety:
Safety means the assurance of repayment of distributed loans. It is in business to make money but safety should never be sacrificed for profitability, To ensure the safety of loan. The borrower should be chosen carefully. He should be a person of good character & capacity as well as financial institutions must have to maintain eligible number of security from borrower.
4.2.3 Profitability:
Financing is a business aiming at earning a good profit. The difference between the interest received on advances and the interest paid on deposit constitutes a major portion of the institutions income. The financial institutions will not enter into a transaction unless a fair return from it is assured.
4.2.4 Intent: Banks sanction loans for productive purpose. No advances will be made by bank for 5nproductive purposes though the borrower may be free from all risks.
4.2.5 Security: The security offered for an advance is an insurance to fall financial institution upon in cases of need. Security serves as a safety value for an unexpected emergency. Since risk factors are involved, security coverage has to be taken before a lending.
4.2.6 National interest: Banking industry has significant role to play in the economic development of a country. The bank would lend if the purpose of the advances can contribute more to the overall economic development of the country.
4.3 Pre-disbursement Compliance When the credit proposal are approved the credit officer must have to be ensured that the disbursement of the credit facilities must comply with the directions written in the credit policy and circular made by time to time along with checking all the following terms and conditions.
4.4 Steps Involved in Credit Processing 4.4.1 Application for loan: Applicant applies for the loan in the prescribed form of Organization. The purpose of this forms is to eliminate the unwanted borrowers at the first sight and select those who have the potential to utilize the credit and pay it back in due time.
4.4.2 Getting Credit information: Then the organization collects credit information about the borrower from the following sources: 1. Personal Investigation 2. Confidential report from other bank/ Head office/Branch/Chamber of commerce 3. CIB report from central bank
4.4.3 Scrutinizing and Investigation: Non-banking financial then starts examination that whether the loan applied for is complying with its lending policy. If comply, than it examines the documents submitted and the credit worthiness. Credit worthiness analysis of financial conditions of the loan applicant are very important. Then bank goes for Lending Risk Analysis (LRA) and spreadsheet analysis, which are recently introduced by Bangladesh Bank. According to Bangladesh Bank rule, LRA and SA is must for the loan exceeding Dhaka core. If these two analyses reflect favorable condition and documents submitted for the loan appears to be satisfactory then, financial institution goes for further action.
4.5 Existing process of handling loans: The process of sanctioning loans is as follows:
The C’s of Good & Bad Loan: The Branch manager of NHFIL try to judge the possible client based on some criteria. These criteria are called the C’s of good and bad loans. These C’s are described below:
4.5.1 Character The outcome of analyzing the character is to have overall idea about the integrity, experience, and business sense of the borrower. Two variables; Interaction/interview, and Market Research are used to analyze the character of the borrower. 1. Interaction/interview: the indicators are a) Prompt and consistent information supply, information given has not been found false (Willingness to give information). b) CIB also reveals business character. c) Willingness to give owns stake/equity & collateral to cover. d) Tax payer. 2. Market Research: a) Information on business is verified. b) Dealing with supplier and or customer as supplier is also a kind of lender; the payment character can also be verified.
4.5.2 Capital For identifying the capital invested in the business can be disclosed using the following indicators. a) Financial Statements b) Receivable, Payable, statements to practically assess the business positions. Net worth through financial statements or from declaration of Assets & Liabilities.
4.5.3 Capacity (Competence) Capability of the borrower in running the business is highly emphasized in the time of selecting a good borrower. As the management of the business is the sole authority to run the business that is use the fund efficiently, effectively and profitably. The indicators help to identify the capacity of the borrower. a) Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization. b) Management competencies both marketing and products detail, ability to take decision. c) Resilience or shock absorption: Connection, Back up (if first time falls second lines come to help.)
4.5.4 Collateral Make sure that there is a “second way out “of a credit, but do not allow that to drive the credit decision.
4.5.5 Cash Follow: Cash flow is the vital factor that is used to identify whether the borrower will have enough cash to repay the loan or advance. Cash keeps the liquidity to ensure
repayment. The relationship managers try to identify the annual cash flow from the submitted statements.
4.5.6 Conditions: Understanding the business and economic conditions can and will change after the loan is made.
4.5.7 Complacency: Do not rely on past history to continue. Stay alert to what can go wrong in any loan.
4.5.8 Carelessness: Remember that documentation, follow-up and consistent monitoring is essential to high quality loan portfolios.
4.5.9 Communication: Share credit objectives and credit decision making both vertically and laterally within the financial institution.
4.5.10 Contingencies: Make sure that you understand the risks; particularly the downside possibilities and that you structure and price the loan consistently with that understanding.
4.5.11 Competition: Do not get swept away by what others are doing.
4.6 Credit Query: The loans and advance department gets a form filled up by the party seeking a lot of information. The officer of Loan Administration must collect the acceptance of the customer’s of the terms and conditions on the duplicate copy of the sanctioned advice. They will thoroughly examine and ensure that the subject credit facility does not contradict to any law, rules and regulation of the country, Bangladesh Bank and •
Deed of the Mortgage and power of the Attorney to be drafted and executed under the Supervision of the financial institution’s Legal Advisor.
•
Lawyers certificate to the effect that all the legal formalities (Equitable/ Registered Mortgaged) has been properly created on the land and building in favor of the financial institution & institution has acquired the effective title of the property.
•
Registered power of attorney has been collected form the borrower (contractor) assigning the work order favoring the NHFIL and the power of attorney has been registered with the work order given agency and they have agreed that they will issue all the cheques favoring NHFIL.
•
The legal documents of the vehicle have been obtained.
Collection of the satisfaction certificate in respect of all the documents both legal and banking from the lawyer. •
Entry has been made in the Safe -in and Safe-out register and the documents are preserved.
After being satisfied all the above terms and conditions the credit in-charge will disburse the loan amount to the client.
4.7 Documentation of the Loan:
Documentation is obtaining such agreement where all the terms and condition and securities are written and signed by the borrower. It specifies rights and liabilities of both the lender and the borrower. In documentation each type of advances requires a different set of documents. It also differs with the nature of securities. The documents should be stamped according to the stamp Act. There are no hard and fast rules of documentation and it varies from organization to organization. Generally, the documents are taken in the case of a secured advance by NHFIL: i. Demand promissory note: Here the borrower promises to pay the loan as and when demand by bank to repay the loan. ii. Letter of arrangement. iii. Letter of continuity. iv. Letter of hypothecation of goods and capital machinery. v. Stock report: This report is used for OD and CC. In this report, information about the quality and quantity of goods hypothecated is furnished. vi. Memorandum of deposit of title deed of property duly signed by the owners of the property with resolution of Board of Directors of the company owning the landed. vii. Personal guarantee of the owners of the property. viii. Guarantee of all the directors of the company. ix. Resolution of the board of directors to borrow fund to execute documents and completes other formalities x. Form no. XVII/XIX for filling charges with the register of joint stock companies under relevant section. xi. Letter of Revival xii. Letter of lien for advance against FDR.
4.9Loans and Credit Facilities: Credit Facilities and Program Home Mortgage Loan: The main objectives of the company are to carry on the business of financing the acquisition, construction, development and purchase of houses, plots, apartments, real
estates, commercial spaces, etc. And the loans are full secured by registered mortgage of property against which the loans are extended. The Company provides loan to the extent of 70% of the total purchase price of houses, plots and apartments under usual repayable terms varying from 5 years to 20 years. 01 Purpose of Loan :
0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9
Area of operation Eligibility of lone Sanctioning Authority Security
: Metro politron city of Bogra. : Any residence of Ban loan. : MD and Board of Dir
Rate of Interest
: Which loans are disbu registered /equitable : 18%
Duration of loan
: Terms varying from 5
Mode of disbursement Repayment of loan
: Loan is disbursed by than one installment. : Repayable in monthly
Project Mortgage Loan 01
0 2 0 3 0 4 0
Purpose of Loan
Area of operation Eligibility of loanee Sanctioning Authority Security
:
: Metropolitan city of D Bogra. : Any residence of Ban loan. : MD and Board of Dir
: Which loans are disbu
5 0 6 0 7 0 8 0 9
Rate of Interest
registered /equitable : 18%
Duration of loan
: Terms varying from 2
Mode of disbursement Repayment of loan
: Loan is disbursed by
: Repayable in quarterl
Lease Finance • • •
Acquisition of industrial Machineries, Equipments, Generator, Power plant etc. Car purchase Medical/ Hospital Equipments
Term Loan for Industries • •
Work Order Finance Factoring
SME Finance • • •
Agro based Processing Industrial Loan Women Entrepreneur Loan Cluster Financing
Women Entrepreneur Loan
01
0 2
Target Group
Area of operation
:
: Metropolitan city of D Bogra.
0 3
Eligibility of clients
: The women entrepren have minimum litera having will power &i : MD and Board of Dir
0 4 0 5
Sanctioning Authority Security
0 6 0 7 0 8 0 9
Rate of Interest
: Personal guarantee o guarantee of the appl guarantee from any k person of the society. : 10%
Duration of loan
: Terms varying from 1
Mode of disbursement Repayment of loan
: Loan is disbursed by installment. : To be repaid on mont
ď ś
Chapter: 5 Credit Analysis and Findings of National Housing finance and investments Limited
Here we can see the portion of different sector of distribution and the major part is Home loan 57.39% and Lease finance 22.15
6.2 Operational Overview of National Housing
Despite depressed Market Conditions and subdued activities in the housing and construction sectors, NHFIL has been able to expand its business activities during 2011 which can be seen from the data furnished below: 2011 (Million) 2010 (Million) Particulars Disburseme Outstanding Disburseme Outstanding nt portfolio nt portfolio Home mortgage 350.35 2380.86 623.12 2386.53
loan Lease finance and 667.74 other loans Total: 1018.09
1765.66
887.16
1601.22
4146.52
1510.28
3987.74
Interpretation: We can see the main change of disbursement in home mortgage loan is decreased by Tk.272.77 million in 2011 from the year2010. This is very negative sign. On the other hand disbursement amount of lease finance and other loans are increased by Tk.219.42 million in 2011from the year 2010. This is very positive sign. The total portfolio of the company increased by Tk.158.78 million to Tk. 4146.52 million during 2011, registering a growth rate of 3.98%.
6.3 Intra Company Analysis: Horizontal Analysis: Basically, Statement
used this analysis in intra company analysis to analyze the Income and Balance sheet of National Housing Finance and Investments Limited.
Since this technique enable us to evaluate a series of financial statements over three so it helps to determine the increase or period of time (FY2009, FY2010, and FY2011) decrease that has taken place and the change has been expressed as an amount and also as a percentage. In this Horizontal analysis of income statement and balance sheet FY2009 has been assumed as base year and compare to this year the change as an amount or as a percentage of FY2010 and FY2011 has shown belowNational Housing Finance and Investments Limited Income Statement 31st December All Increase or Increase or figures (Decrease) (Decrease) Types in during 2010 during 2011 million Amou Perce Amou Percent 2009 2010 2011 nt nt (%) nt (%) Interest Income 656.86 613.31 736.30 (43.55) 79.44 12% 6.63% Interest paid on deposits, (425.69) (362.84) (476.46) (62.85) 113.62 31% 14.7% borrowings etc Net interest 231.18 250.47 259.84 19.29 8.3% 28.66 12.40%
Investment income Commission, exchange & brokerage Other operating income
8.27
62.00
6.99
%
%
7.75
8.63
00.53
%
%
1.89
5.04
10.83
%
%
Operating Revenue
249.09
326.14
278.19
77.05
31%
Salary & allowances Rent, taxes , insurance , electricity etc Legal expenses Postage, stamp , telecommunicati on etc Stationery , printings, advertisements etc Managing director's salary & allowance Directors' fees Auditors' fees Depreciation & repair of company's assets Other expenses Operating Expenses Total Profit before provisions General Provision Specific
29.1
11.68%
-
21.00
24.82
34.81
3.9
4.51
4.45
1.85
1.42
1.96
%
%
1.93
2.03
1.47
%
%
3.00
5.00
3.69
%
%
4.44
4.44
5.33
%
%
0.20 0.09
0.28 0.09
0.40 0.12
% %
% %
4.4
4.4
5.34
%
%
6.45
6.58
8.13
%
%
(47.28)
(53.57)
(65.74)
(6.29)
13%
(18.46)
39%
201.81
272.57
212.62
35.06
17%
10.81
5.35%
(7.4)
(19.50)
5.25
10.16
35%
34.20
117%
%
%
%
%
Provision Provision for diminution in value of investments Profit before taxes Current tax Deferred tax Profit after tax (available for appropriation)
%
194.41
253.07
217.87
(90.36)
(91.03)
(101.44)
104.05
162.04
1,16.43
58.66
30%
%
23.46
%
57.99
56%
12.06% % %
12.83
11.90%
Interpretation: This is a horizontal analysis of three years period of income statement of NHFIL. Mainly we can notice the significant changes that are amount increase or decrease and the percentage changes in year 2010 and 2011 that has been taken place compare to the base year 2009. Significantly, the following changes has taken place and shown belowFirstly, we can see the main changes in net interest income that is net interest income increased by tk.19.29 million or 8.3% in 2010 and interest income increased by tk.28.66 million or 12.40% in 2011 which is very positive sign. But here, in 2011 there is greater change compare to 2010 from the base period. On the other hand, operating revenue increase by tk. 77.05 or 31% in 2010 which shows also a better sign in profit figure. On other side we can notice greater change in operating expense which is tk. (6.29) or 13% in year 2010 and tk. (18.46) or 39% in 2011 so this change put effect on net profit. Compare to base year a large change we can see in between these two returns, PBT and PAT. 2010 to PBT respectively increase 30% and 2011to PBT increase 12.06% and PAT 56% increase in 2010 and in 2011 PAT increase 11.90%. So we can say that they are earning more as well as paying a huge amount of tax on their income. National Housing Finance and Investments Limited
Balance Sheet 31 December (Taka in million)
Types
All figures in million 2009
Property and Assets Assets Cash In hand 0.03 ( including foreign currencies) Balance with BB 38.31 & its agent banks ( including foreign currencies) 38.34 In Bangladesh Money at call & short notice Others Leases, loans & advances Leases, loans , cash credit & overdraft etc Fixed assets including premises, furniture & fixture Other assets Total Assets Liabilities & Capital Liabilities Borrowing from
Increase or (Decrease) during 2010 2010
2011
Increase or (Decrease) during 2011
Amoun Percent Amoun Percent t (%) t (%)
0.038
0.037
0.008
26%
0.007
23%
38.61
40.95
0.3
0.78%
2.64
6.89%
38.64
40.98
0.3
0.78%
2.64
6.89%
656.48
801.86 15.00
434.59 20.00
1,45.38 -
22.14%
(221.89) -33.79% 370.00
39.25 39.25
110.12 110.12
9.61 9.61
287.38 287.38 -
82% 82%
224.90 224.90 -
3568.01
3974.91
4146.52
406.90
11.40%
5,696.31 16.21%
29.24
34.57
36.77
5.33
18.22%
7.53
25.75%
240.42 4571.74
304.55 5279.65
400.01 5088.48
64.13 707.91 -
26.67% 15.48%
159.59 516.74 -
66.37% 11.30%
1060.88
1174.98
1471.02
114.1
10.75%
410.14
64% 64%
38.66%
other banks , financial institutions & agents Term deposit Other deposit
Other liabilities Total liabilities Equity Paid up capital Share premium Statutory reserve General reserve Dividend equalization reserves Retained earnings Minority interest Total equity Total Equity & Liabilities
2325.74 51.75
2765.62 40.10
2147.59 39.81
439.88 (11.65)
18.91% (178.15) -7.66% -22.51% (11.94) 23.07%
2377.49
2805.72
2187.74
428.23
18%
189.75
8%
394.69 3833.06
489.20 4469.68
5,56.11 4214.54
23.94% 16.60%
520.00
520.00
572.00
126.05 -
158.45 -
181.70 -
94.51 636.62 32.4 -
% 0% 25.70% 0%
161.42 381.48 52.00 55.65 -
40.89% 9.95% ! 10% 0% 44.14% 0% 0%
92.64
131.25
120.26
38.61
41.67%
27.62
29.81%
738.69 4571.75
809.7 5279.38
873.96 5088.51
71.01 707.63
0% 9.61% 15.78%
135.27 516.76
0% 18.31% 11.30%
Interpretation: From the above balance sheet we can see that a number of changes have occurred in NHFIL’s financial structure from 2009 to 2010 and 2011. At first we can look at assets section it can be easily interpreted that cash in hand are increase by 26% to 23% and balance with Bangladesh Bank and its agent are increase by o.78% to 6.89%. Balance with other banks & financial institutions have increased by 22.14% in 2010 and decrease by 33.79% in 2011. That means there is a big deference between 2010 and 2011. It means NHFIL has problem their liquidity power in 2011 compare to 2010.
Then we can notice that NHFIL’s Leases, loans & advances are increased 11.40% in 2010 to 16.21% in 2011; fixed assets including premises, furniture & fixture are increased 18.22% in 2010 to 25.75% in 2011 and other assets 26.67% in 2010 to 66.37% in 2011. Based on 2009 they have lots of change in their assets structure as they have increased their division and products in 2011. Total assets increase in 2010 15.48% and in 2011 11.30%. On the other hand total liabilities increase tk636.62m in 2010 and increase tk381.48m in 2011 compare to 2009. Percentage change 16.60% to 9.95% of total liabilities. We can see in liabilities term deposit increase tk439.91m or 18.91% in 2010 and tk178.15m or 7.66% decrease in 2011 compare to 2009. But borrowing from other banks, financial institutions & agents are increase tk114.10m or 10.75% in 2010 but in 2011 it increase tk410.14m or 38.66% compare to 2009 as I consider 2009 is base year. And total equity is increased by tk71.01m or 9.61% in 2010 to tk135.27m or18.31% in 2011. From overall analysis we can say that NHFIL should maintain balance between equity and its assets.
5.4 Overall Finding From all analysis we can come out some significant results which are very important to evaluate the financial performances of National Housing Finance and Investments Limited (NHFIL). Mainly from the intra company comparisons, we find horizontal analysis of Income Statement and Balance Sheet of NHFIL. Basically from the horizontal analysis of income statement we have noticed the changes which took place over the period of time and it reveal that the NHFIL’s profit trend are favorable and also find a true picture of balance sheet which reveals that National Housing Finance and Investments Limited expanded its asset base those years which have been financed more likely by term deposit rather than by other items as it is up in small percent. From income statement we can see Profit before Provision increase 17% in year 2010 and 5.35% in year 2011 compare to 2009 as it considers as base year. And profit before tax increase 30% in year 2010 and 12.06% in year 2011 compare to base year. Last Profit after Tax increase 56% in year 2010 and 11.90% in year 2011 compare to base year. From
balance sheet, we have found that total asset increase 15.48% in year 2010 and 11.30% increase in 2011 compares to base year. And total equity increase 9.61% in year 2010 and 18.31% in year 2011 compare to year 2009. Beside this the real estate sector ended on a sluggish note after going through a bad spell in the latter months of the financial year 2010-11. The sales of apartments have come down significantly in recent months. While apartment prices have gone up continuously in last few years. The high price of apartments makes it unaffordable for the middle income group clients.
Chapter: 6 Recommandation Recommendation Throughout
internship the found out that N a t i o n a l H o u s i n g Finance and
Investments Limited have the opportunity to improve in different section and their position in somewhere better than industry average. From outstanding portfolio of National Housing Finance and investments Limited we can see that the portion of other loan only 20.46%. National Housing Finance and Investments Should increase their other loan facilities. From operational Overview we can see the main change of disbursement in home mortgage loan is decreased by Tk.272.77 million in 2011 from the year2010. This is very negative sign. The total portfolio of the company increased by Tk.158.78 million to Tk. 4146.52 million during 2011, registering a growth rate of 3.98%. The growth rate of NHFIL is good as our economic condition. They should try maintaining ideal growth in their business. They could improve its growth rate by reinvesting more from its earnings. From intra company analysis or financial statement it is not easy to recommend to a company about their change in position. In horizontal analysis can say, that they have much change in their cash level in Bangladesh, other assets that indicate increase in
their total assets compare to 2009 as it considered as base year. National Housing Finance and Investments Limited also more depend on their equity, compare to 2009 their equity increase 9.61% in 2010 but in 2011 it increased by 18.31% also based on 2009. National Housing Finance and Investments Ltd should develop their SME & women entrepreneur loan. It can make more profit for NHFIL. One of the business strategies is promotion, successful business depends how they can promote their products or services to the customers. In this connection to improve the business status the National Housing Finance and Investments Limited should introduce more promotional programs. The number of branch is insufficient of National Housing Finance and Investments Ltd. So increase the operational activities NHFIL should more branch.