View with images and charts Credit Management & Foreign Exchange Activities of Arab Bangladesh Bank Ltd. Background of ABBL
AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982. AB Bank is known as one of leading bank of the country since its commencement 28 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumer’s and client’s trust while upholding their reliability, across time. During the last 28 years, AB Bank Limited has opened 78 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World. In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded the 2008 financial year with good results. The Bank’s consolidated profit after taxes amounted to Taka 230 cr which is 21% higher than that of 2007. The asset base of AB grew by 32% from 2007 to stand at over Tk 8,400 cr as at the end of 2008. The Bank showed strong growth in loans and deposits. Deposit of the Bank rose by Tk. 1518 cr ie., 28.45% while the diversified Loan Portfolio grew by over 30% during the year and recorded a Tk 1579 cr increase. Foreign Trade Business handled was Tk 9,898 cr indicating a growth of over 40% in 2008.
The Bank maintained its sound credit rating in 2008 to that of the previous year. The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an A1 rating in the long term and ST-2 rating in the short Term. AB Bank believes in modernization. The bank took a conscious decision to rejuvenate its past identity – an identity that the bank carried as Arab Bangladesh Bank Limited for twenty five long years. As a result of this decision, the bank chose to rename itself as AB Bank Limited and the Bangladesh Bank put its affirmative stamp on November 14, 2007. The Bank decided to change its traditional color and logo to bring about a fresh approach in the financial world; an approach, which like its new logo is based on bonding, and trust. The bank has developed its logo considering the contemporary time. The new logo represents our cultural “Sheetal pati” as it reflects the bonding with its clientele and fulfilling their every need. Thus the new spirit of AB is “Bonding”. The Logo of the bank is primarily “red”, as red represents velocity of speed and purity. Our new logo innovates, bonding of affiliates that generate changes considering its customer demand. AB Bank launched the new Logo on its 25th Anniversary year. AB Bank commits to nation to take a lead in the Banking sector through not only its strong financial position, but also through innovation of products and services. It also ensures creating higher value for its respected customers and shareholders. The bank has focused to bring services at the doorstep of its customers, and to bring millions into banking channels those who are outside the mainstream banking arena. Innovative products and services were introduced in the field of Small and Medium Enterprise (SME) credit, Women’s Entrepreneur, Consumer Loans, Debit and Credit Cards (Local & International), ATMs, Internet and SMS Banking, Remittance Services, Treasury Products and Services, Structured Finance for Corporate, strengthening and expanding its Islamic Banking activities, Investment Banking, specialized products and services for NRBs, Priority Banking, and Customer Care. The Bank has successfully completed its automation project in mid 2008. It envisages enabling customers to get banking services within the comfort of their homes and offices. AB Bank has continuously invests into its biggest asset, the human resource to drive forward with its mission “to be the best performing bank in the country.” The bank has introduced Dress Code for its employees. Male employees wear designed ties and females wear Sharee or Salwar Kamiz, all the dresses are consisted with the unique AB Bank logo. AB is recognized as the people’s choice, catering to the satisfaction of its cliental. Their satisfaction is AB’s success. Vision of ABBL "To be the trendsetter for innovative banking with excellence & perfection" Mission of ABBL "To be the best performing bank in the country" Objectives of ABBL •
Bringing modern Banking facility to the doorstep of general public through diversification of Banking services, thereby arousing saving propensity among the people.
•
Foreign a cordial, deep-rooted and firm banker-customer relationship by dispensing prompt and improved client’s service.
•
Taking part in the development if the national economy through productive deployment of the Bank’s resources as well as patronizing different social activities.
•
Connecting clients to modern banking practice by the best application of improved information technology, so that they get encouraged to continue and feel proud of banking with ABBL.
•
Ensuring highest use of the professional workforce through enhancement of their aptitude and competency.
•
Responding to the need of the time by participating in syndicated large loan financing with likeminded Bank’s of the country, thereby expanding the area of investment of the Bank.
•
Elevating the image of the Bank at home and abroad by sustained expansion of its activities.
•
Ensuring maintenance of capital adequacy, comfortable liquidity, asset quality and highest profit through successful implementation of the Management Core Risk program.
Business Ideology: Alongside providing best service to the clients, patronizing and taking part in social development activities as well as making due contribution to growth of the national economy. Business Strategy: The strategy of ABBL is to create and attitude toward savings by giving various multibanking services at the door of the clients. It can increase its branches even in Upazila level.Another strategy may be to create deeper and cordial relation between bank and clients through quick, prompt and developed client services. Bank can participate in financial and social programs through investment. To facilitate the clients by use of advance “Information Technology”. Branches of ABBL: ABBL started its journey through its first branch at, 102 Kazi Nazrul Islam Avenue, BSEC Bhaban, Karwan Bazar, Dhaka 1215, on April 12, 1982, as a first Joint Venture Bank in Bnagladesh. The Bank is now at 28 years of age and meanwhile it has established as many as 77 branches throughout the country and made a smooth and comprehensive network inside the country as well as around the globe. At present area wise Branches of the Bank around the country is presented below:
Region
Number of Branches
Dhaka Division Chittagong Division
29 25
Khulna Division
6
Rajshahi Division
5
Sylhet Division
8
Barisal Division
4
Total
77
Board of Directors: AB Bank Ltd. the Board of Directors has been conceived as the sources of all headed by its chairman. It is a legislative body of the Bank. Board can delegate its power and authority to professional but cannot delegate relinquish or avoid their responsibilities. Board of Directors
M.Wahidul Haque Salim Ahmed Vice Chairman
Chairman
Feroz Ahmed Director
M. A. Awal Director
Shishir Ranjan Bose FCA Director
Faheemul Huq Director
Syed Afzal Hasan Uddin Director
Mishaal Kabir Director
Md Mesbahul Hoque Director
Md. Anwar Jamil Siddiqui Director
Dr. M. Imtiaz Hossain Director
Runa Zakia Shahrood Khan Director
Bipad Bihary Saha Roy Director
Kaiser A. Chowdhury President& Managing Director
Management Committee: The board delegates its functional responsibilities of the professional management team headed by Managing Director. He is an ex-officio of the Board of Director and has to take the full load of carrying out the guidelines, rules and regulations. He has to provide all vital information to the Board of Director time to time for their knowledge and effective decision making. Division of ABBL The Bank has strict control over its all organizational activities. The Bangladesh Bank directives indicate some control measures. The central bank conducts credit inspection by a team. The AB Bank Ltd has audit and inspection department to take controlling measures in internal operations. Audits and inspection team send to the branches now and then is responsible for preparing report that will be submitted to the Chief Administration to take necessary actions. Name of the divisions of ABBL are as follows: Human Resource Division. General Banking Division. Audit and Inspection Division. Credit Card Division. Finance and Administration Division. Marketing Division. CRM Division Retail Banking Division IT Division
Reconciliation Division Dispatch. Accounts Division. Remittance. Public Relation. Law and Recovery Division. Foreign Exchange Division. Merchant Banking Division. Two Special Divisions: Special Audit Division. Tax Department.
Highlighting Islampur Branch of ABBL AB Bank, Islampur Branch (ISLP) is of larger branch of ABBL is located at Islampur Dhaka. Different types of business organization is doing their business in this area. But there were few financial institutions for assisting the business organization in that area. The Board of Director decides that they established the branch of AB Bank Ltd. at Islampur Dhaka. Islampur Branch of ABBL was established in the 27th April 2002 with a view to contribute in the expansion of small and medium industries and commercial activities by giving short, medium and long term loan or advance to the entrepreneurs in the commercial area of Old town. Management Hierarchy of ABBL (Islampur Branch) From the top to the bottom Management body of can be divided into four levels •
Top level Management
•
Executive level Management
•
Mid level Management
•
Junior level Management
Hierarchy of AB Bank (Islampur Branch) Relationship Manager & Head of Branch Relationship Officer (Corporate)-0E
Relationship Officer (SME) -2E
Credit Admin in charge 1E Relationship Officer (Retail) -1E
Credit Monitoring -0E
Credit Recovery- 0E
Operation Manager
General Banking In charge -1E
Cash In Charge-1E
Priority Banking -0E
Acc Opening, Cheque book-2E
Customer Service Desk -1E
Local Remittance & Clearing -4E
Foreign Trade In Charge -0E
Foreign Remittance -0E
FCD -1E
Concurrent Auditor-0E
GSD & IT -1E
Cash Handling-7E
* E = Employee.
ABBL Products and Services Foreign Remittance Through Exchange House For Inward Remittance, AB Bank established extensive drawing arrangement network with Banks and Exchange Companies located in the important countries of the world. 2.14.8 Money Transfer Western Union a fast, reliable and convenient way to send a money transfer
Western Union Financial Services Inc. U.S.A. is the number one and reliable money transfer company in the world. This modern Electronic Technology based money transfer company has earned worldwide reputation in transferring money from one country to another country within the shortest possible time.
AB Bank Limited has set up a Representation Agreement with Western Union Financial Services Inc. U.S.A. Millions of people have confidence on Western Union for sending money to their friends and family. Through Western Union Money Transfer Service, Bangladeshi Wage Earners can send and receive money quickly from over 280,000 Western Union Agent Locations in over 200 countries and territories worldwide- the world’s largest network of its kind, only by visiting any branches of AB Bank Limited in Bangladesh.
Islami Banking To provide the Islamic banking services in accordance with the principles of Islamic Shariah, AB Bank has established Islamic Banking Wing and started its functioning by opening full-fledged Islamic banking branch on 23.12.2004. The branch is known as AB Bank Islami Banking Branch, Kakrail, and is situated at 82, Kakrail, Ramna, Dhaka. Prominent Islami Banker Mr. M. Azizul Huq has joined the Bank as its Islamic Banking Consultant. A dedicated team of experienced Islamic bankers is working under his active guidance both at head office and branch level. A competent Shariah Council consisting of Islamic scholars, Ulema, Fukaha and Islamic bankers headed by Mr. Shah Abdul Hannan, a prominent Islamic scholar and former Secretary, Government of Bangladesh has also been formed to guide the Islamic banking affairs. Board of directors as well as management of the bank are very much interested to promote Islamic banking system in the bank aiming at opening more Islamic branches in the near future. AB Bank has already obtained membership of Islamic Banks Consultative Forum (IBCF) and Central Shariah Board for Islamic Banks of Bangladesh. Investment Banking ABBL generally do four types of Investment Banking service. They areMerchant Banking Custodial Service Brokerage Service Future Products Merchant Banking Wing (MBW)
AB Bank Limited is the first Private Sector Joint Venture Bank in Bangladesh, which is now fully owned by the Bangladeshis. To expand its horizon, ABBL launched its Merchant Banking operations in the year 2003. As a fully fledged merchant banker, ABBL provide the following services: 1. Portfolio Management 2. Issue Management 3. Underwriting 4. Corporate Advisory 5. Bankers to the Issue 6. Private Placement The Merchant Banking Wing (MBW) of ABBL has made notable progress and is presently equipped to serve customers’ needs by offering a comprehensive range of financial solutions. ABBL has also launched Custodial Services with a view to provide one-stop Capital Market services to ABBL’s valued clients. ABBL understand an entrepreneur’s need for stability, trust, innovation and creativity required for the consolidation and growth of investments and endeavors to prosper. The professionals in ABBL MBW with its state of the art integrated computerized system, are always there to provide their vision, knowledge and service for client’s success. Why? Because, we at AB Bank, measure our success by the number of satisfied customer within a time frame.
Custodial Service Customers: Investors Who Are Interested to Invest In the Bangladesh Capital Market • Non Resident Bangladeshi (NRBs) • Foreign Institutional and individual clients • Local Institutions
• Sponsors' group and High net worth client
Services: • Safe custody of client securities • Foreign Trade Execution and Settlement • Share transfer in the name of client • Complete the Dematerialization process as per client request • IPO, Private Placement & Right share subscription as per client instruction with deposit • All types of corporate action that includes cash dividend, bonus share and right share collection • Open BO account • Instant information regarding client securities position as per their request • Quarterly reporting to the client by Custodial Department
Brokerage Service To introduce a Brokerage Service for the customer AB Bank limited (ABBL) has formed a subsidiary company named AB Bank Foundation (ABBF) and about 99.60% shares of the ABBF hold by AB Bank. The company was first established under the trust deed constituted and registered on the 14th day of May 2002. Services: 1. Brokerage Services.
AB Bank's subsidiary, AB Bank Foundation, which has corporate memberships on the Dhaka and Chittagong Stock Exchanges, can act as brokers on behalf of local and foreign individual and institutional client to trade in the local capital market. AB Bank's Sales & Trading Department will also support brokerage service for offloading shares through direct listing. 2. CDBL
Services as full service Depository Participant (DP) As a full service depository participant, AB Bank Foundation provides following services,
a) BO (Beneficial Owner) accounts opening and maintenance. b) Dematerialization & c) Rematerialization c) Freeze (freeze request and release request) and suspensions d) Pledging, unpledging and confiscation e) BO ISIN balances and master maintenance enquiry Future Products Expansion To extend Merchant Banking services of the Bank across the country, MBW has already launched its operation in Agrabad (Chittagong). ABBL are going to open 3 new service networks in Mohakhali (Dhaka), Uttara (Dhaka) and Sylhet soon.
New Business In addition, AB Bank will also expand its operations in the investment banking in the following areas: Business Area
Status
Islamic Capital Market Products
Processing
Derivatives Products
Supporting infrastructure going to be prepared
Asset Management / Mutual Fund
AB Bank Ltd. are planning to launch and manage Mutual Fund in future.
Card In the present context of banking business in the world, Card is the future of any bank. Electronic payment system is now ruling the world and some days from now cash transactions system will turn into a history found only in the text book. AB Bank Limited is one of the leading first generation private sector commercial banks with Branch Network all over the country. The Bank started issuing VISA Credit Cards from the end of year 2004 as a principal member of VISA International.
Financial Performance of ABBL at a glance Amount in million Taka SL 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Particulars Authorized Capital Paid up Capital Reserve Fund Deposits Loans, Advances & Bills Investments Import Business Export Business Operating Income Operating Expenditure Net Profit Before Taxes Net Profit after Taxes Fixed Assets & Other Assets Total Assets
2009 2000 896.46 3101.92 59875.89 70889.93 16369.26 59265.11 21458.88 1,460.36 1,100.29 190.07 90.07 324.94
2008 2000 743.26 1,356.91 53,375.35 40,915.35 8,884.60 48,289.73 20,676.43 4,656.58 1,331.29 2,817.99 1,903.49 7015.82
2007 2000 571.74 772.87 42,077.00 31,289.25 6,301.29 42,860.24 17,876.15 2,650.17 1,939.48 532.19 532.19 5361.22
2006 2000 519.76 650.20 27,361.44 21,384.63 4,060.95 23,150.85 12,595.20 1,577.50 822.47 407.45 162.45 4753.77
106912.31
63,549.86
47,989.34
33,065.40
5,000.00
4,656.58
4,000.00 3,000.00 Operating Income
2,000.00
2,650.17 1,577.50
1,460.36
1,000.00 0.00
2009
2008
2007
2006
Loans, Advances, Bills
2009
2008
2007
2006
60000 50000 40000 30000
Deposits
20000 10000 0
2009
2008
2007
2006
3500 3000 2009
2500
2008
2000
2007
1500
2006
1000 500 0 Reserve Fund
2.16 Key Financial Ratio
SL 1 2 3 4 5 6 7 8
Particulars Loan to Deposit Ratio Return on Assets Risk Weighted Capital Adequacy Ratio Net Loans & Advances To Total Assets Efficiency Ratio (Cost of Income) Net Interest Margin Liquid asset ratio Net NPL Ratio
2009 78.01% 5.15% 109%
2008 74.90% 5.05% 10.74%
2007 72.92% 1.31% 9.23%
2006 76.02% 1.24% 9.17%
66.8%
62.91%
63.94%
62.91%
25.45%
28.59%
73.18%
52.14%
2.72% 36.88% 8.32
3.84% 22.79% 2.07
2.27% 22.72% 2.13
3.49% 20.98% 5.63
10 8 6
Net NPL Ratio
4 2 0 2009
2008
2007
2006
60,000.00 50,000.00 40,000.00 30,000.00
Loans & Advances
20,000.00 10,000.00 0.00
2009
2008
2007 AB
Bank at a glance: YEAR 2009 Million Taka December 31
2009
2008
% Change
Gross Interest Income
7,366.85
5,269.90
39.79
Net Interest Income
2,030.69
1,439.28
41.09
Operating Profit (PBP & T)
4,298.39
3,325.29
29.26
Net Operating Profit (PBT)
3,600.62
2,817.99
27.77
Profit after Tax (PAT)
2,300.62
1,903.49
20.86
Deposits
68,560.47
53,375.35 28.45
Loans & Advances
56,708.77
40,915.35 38.60
Total assets
84,053.61
63,549.86 32.26
Shareholders' Equity
6,722.51
4,511.59
NIM%
2.75
2.58
Non Interest Income to Operating Income (%) 66.98
69.09
Cost Income Ratio
62.57
28.59
Return on Equity - ROE (%)
40.96
42.19
Return on Assets - ROA (%)
3.12
3.41
49.01
Advance Deposit Ratio (%)
82.71
76.66
Capital Adequacy Ratio
12.84
10.75
NPL as % of Advances
2.99
4.31
Earnings per Share (Tk.)
103.18
85.37
4500 4000 3500 3000 2500 2000 1500 1000 500 0
Operting Profit
2009
2008
2007
2006
2005
12 10 8 6
NPL
4 2 0 2009
2008
2007
2006
2005
100 80 60 Asset Utilization
40 20 0 2009
2008
2007
2006
2005
700 600 500 400 BVPS
300 200 100 0 2009
2008
2007
2006
2005
120 100 80 60
EPS
40 20 0 2009
70,000.00
2008
2007
2006
2005
68,560.47
60,000.00
53375.35
50,000.00
49,785.01
40,000.00 Deposits
30,000.00 20,000.00 10,000.00 0.00 2009
2008
2007
Sector Wise LDOs position as on December 30, 2009 Industrial sector
SIC Code
Limit
%
Figure in '000' Outstanding
Trading
1000
15,064,919
25%
12,130,869
Agriculture
2000
6,444,920
11%
5,477,990
Manufacturing
3000
23,816,061
40%
18,695,354
Services
4000
6,427,150
11%
5,376,696
Contractual Works
5000
1,693,475
3%
1,108,986
Energy & Mining
6000
1,016,647
2%
945,776
Others
7000
393,408
1%
350,843
100% Secured Loan
8000
2,633,006
4%
2,098,487
Special Scheme Loans
9000
2,095,618
4%
2,730,863
Trading Agriculture Manufacture Services Contract Energy Others 100% Secured Loan Special Scheme
* Sectorwise LDO's Position as on December 30, 2009 - Including CCS, Staff Loan, MSS, PF & Excluding Card Division. Profitability Ratio Return on Assets
From Return on Asset ratio of ABBL, it is found that from 2006 -2007 return ratio is not fluctuate very much, which was 0.58 in 2006, 1.24 in 2007 and 1.31 in 2008.The ratio here was in increasing trend. But in the year 2009 Return on Asset ratio was increased a lot which were 5.05. 6 5.05
5 4 3 2 1 0
1.31
1.24
0.58 2006
2007
2008
2009
Trend analysis of return on assets. Return on Equity Return on Equity (ROE) ratio shows us the return against equity capital. Here, ABBL’s ROE in 2006 was 15.97%, which increased in 2007 and reached at 29.41%. But in 2008 ROE decreased, which was 25.90%. In 2009 ROE increased by an huge percentage, which was 79.44%. 100.00% 80.00%
79.44%
60.00% 40.00% 20.00%
15.97%
29.41%
25.90%
0.00% 2006
2007
2008
2009
Figure: Trend analysis of return on equity.
Capital and Reserve Fund The authorized capital of the Bank remain unchanged till 2008 which was Tk. 2000 million but in 2009 an Extra Ordinary General Meeting held to increase the authorized capital of the Bank which is now Tk. 3000 million. Issued and paid up capital increased per year till 2008 and remain same in as per un audited financial statement of 2009. Besides this the amount of reserve fund increase per year.
3000 2500 2000 1500 1000 500 0
2005
2006
2007
A .C apital
2008
P aid up C apital
2009
R es erve
Deposits Total deposit of the Bank stood out Tk. 53,375.35 million in 2008 which is much higher than 2007, which was Tk. 42,077.00 million. But now in 2009 the deposit of the Bank raise on Tk. 62,340.57 million. The rate of growth is about 20%.
70000 60000 50000 40000 30000 20000 10000 0 2005
2006 Deposit
2007 Advance
2008
2009
Investment
Loans & Advances The total volume of advances extended by the Bank stood at Tk. 51,908.38 million at the end of June 30, 2009 and at the end of 31 December 2008 it was TK. 40,915.35 million, which is much higher than June, 2009. That means Bank has been able to make a high volume of advance to customers during last six month, which is Tk. 10,993.03 million higher than 2008. It gives us a clear idea that Bank will make a huge volume of loans and advances prior to
previous year. The loan amount in 2007 was Tk. 31,289.25 million and in 2006 it was Tk. 21,384.63 million. The rate of growth is about 23.52%. By adopting a time befitting policy in credit management and applying modern techniques of loan risk analysis, the Bank may be able to bring down the amount of bad loan to a tolerable level. In line with the Government industrial policy and in the light of Bangladesh Bank’s policy, guidelines, alongside priority sectors, the Bank may extend loan facility to different import sectors , such as information technology, agro based industry, textiles industry, lease financing, housing industry and other traditional and nontraditional industry. Export financing by ABBL in 2009 was Tk. 2236.60 million with a growth rate of 156.9%. The Bank finance 5.70% of its total funding in this sector.
18000 16000 14000
A gric ulture
12000
L arge & Medium S c ale Indus try W orking C apital
10000 8000
E xport
6000
C ommerc ial lending
4000
S mall & C ottage Indus try
2000 0
O thers 2007
2008
2009
Sector wise Loans & Advances of ABBL Banks Profits ABBL’s profit before provision and tax (Operating profit) in 2008 was Tk. 532.19 million and in 2007 it was Tk. 162.45 million and before provision and tax in 2009 was Tk. 1903.49 million. A profit curve trends shown below:
Operating P rofit 2000 1800 1600 1400 1200 1000 800 600 400 200 0
1903.49
532.19 90.07 2006
162.45 2007
2008
2009
SWOT analysis of ABBL Every organization is composed of some internal strengths and weaknesses and also has some external opportunities and threats in its whole life cycle. Strengths •
ABBL provides its customer excellent and consistent quality in every service.
•
ABBL is a financially sound company.
•
ABBL utilizes state-of-the art technology to ensure consistent quality and operation.
•
ABBL provides its works force an excellent place to work.
•
ABBL already achieved good image among the clients.
•
ABBL has research division.
Weaknesses •
ABBL lacks well-trained human resource in some area.
•
ABBL lacks aggressive advertising.
•
The procedure of credit facility is to long compare to other banks.
•
Employees are not motivated in some areas.
Opportunities •
Emergence of E-banking will open more scope for ABBL.
•
ABBL can introduce more innovative and modern customer service.
•
Many branches can be open in remote location.
•
ABBL can recruit experienced, efficient and knowledgeable work as it offers good working environment.
Threats •
The worldwide tend of mergers and acquisition in financial institutions is causing problem.
•
Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.
•
Lots of new banks are coming in the scenario with new service.
•
Local competitors can capture huge market share by offering similar products.
Credit Facilities of ABBL Loans and advances termed as ‘credit facility’ may either be funded (i.e. creation of funded loan) and funded (i.e. undertakes/indemnities) on behalf of the client to settle the liability of the client in case of his/their failure to perform certain contractual obligation. In the Bangladeshi commercial bank they have various types of the credit facilities are generally the following types of credit allowed by the commercial bank in our country to the individuals, partnership firms, companies and corporations and others, either on demand, time or self liquidating basis and are carried on Bank’s General Ledger. So the classification is huge and the discussion on these various types of loans by the commercial bank in Bangladesh has discussed belowDifferent Loan Products of ABBL Loans a) Demand Loans. b) Time Loans. c) Term Loans (more than one year) Overdrafts
a) Against pledge of goods/stocks b) Against hypothecation of goods/stock c) Against any other permissible securities Funded Credit Facilities a) Cash credit (cc) b) Cash credit (pledge) c) BLC d) Packing Credit e) LIM ( Loan Against Imported Merchandise) f) LTR ( Loan Against Trust Receipts) g) Local Documentary Bills Purchased (LDBP) h) Loan Against Other Securities (LOAS) i) Loan Against Work Order j) Advance Against FDR k) Special Credit Scheme l) Consumer Credit Scheme SME Loans a) Gati b) Proshar c) Digun d) Sathi e) Chhoto Puji f) Uddog g) Awparajtta
BESIDE THE ABOVE MENTIONED FACILITIES THERE ARE SOME NONFUNDED FACILITIES Non-Funded Credit Facilities a) Letter of credit b) Letter of guarantee Loans Demand Loan: Demand loan is used as one of the import finances of the commercial bank in Bangladesh. Under SEM (Secondary Exchange Market) L/C client has to provide the full L/C amount in foreign exchange to the bank. To purchase this foreign exchange, bank extends demand loan to the client at stipulated margin. No specific repayment date is fixed. However, as soon as the L/C documents arrive, bank request (demand) the client to adjust their loan and retire the L/C documents. Time Loan: Time loan is generally provided to the client where finance is required for a specific business deal for example bank may provide time loan to client to procure particular machinery required for his industry. The loan is disbursed in one or two installments as per specific repayment dates. Hypothecation of marketable goods and equitable mortgage of properties generally secure time loan. Term Loan: Term loan is only provided in selective cases in most of the commercial banks in Bangladesh. The basic characteristics of the loan are almost the same as time loan except that the repayment period is more than one year. Overdraft Facilities This is a credit facility extended to the clients as working capital finance for trading and manufacturing and also for finance against work order. Specific limitation is covering the sanctioned loan amount. Client is allowed to overdraw and maintain regular transaction up to this limit in his current account. The extent of which client can overdraw depends upon sanctioned amount and margin stipulation. Specific repayment dates are given within the client has to adjust his or her overdrawn amount. a) Against pledge of goods/stocks Under this arrangement, the credit facility is granted to the borrower against the security of ledge of goods/product in the form of raw material or finished products subject to credit/margin restrictions.
b) Against hypothecation of goods/stock Under this method, facilities are extended to borrower on his signing a letter of hypothecation, creating a charge against the goods/produce, plant and possession as well as the ownership of the hypothecated goods/produce etc. is retain by the borrower but binding himself to surrender possession of the foods of the bank as and when call upon to do so. c) Against any other permissible securities “Under these criteria there are several types of other loans” Funded Credit Facilities Cash Credit (CC) Cash credit is a credit facility offered by a bank against security of goods plus collateral immovable property. Collateral security is taken because it helps the banks to minimize its risk at the same time it allows the party to avail a higher limit from the goods he puts as security. The security also helps the party to enhance (extend) the limit in future. In most of the commercial banks in Bangladesh the CC is allowed for one year i.e. within one year the party has to adjust the money, he withdrawn from this account. If the party applies for enhancement of the limit or enhancement of the period by renewal, considering the security and credit need if bank thinks it logical to allow that opportunity the respective branch after getting sanction from head office extend the limit or renews the limit as the party applied for. Cash credit is a favorite mode of borrowing by traders, industrialists etc. for meeting their working capital requirement. It is operated like overdraft account. Depending on the needs of the business, the borrower can draw on his cash credit account at different time and when he gets money can adjust the liability. Depending on charging security there are two forms of cash credit: •
Cash Credit (Pledge): It is a short-term arrangement by which a customer is allowed to borrow money up to a certain limit sanctioned by the bank for a certain time. Under the condition the borrower is required to submit the stock fortnightly in the bank specimen form. It is allowed to maximum a period of one year.
•
Cash Credit (Hypothecation): It is also a continuous loan allowed against pledge of goods as primary securities fall under this head of advance. To avail cash credit (hypo) facility in the commercial banks the prospective borrower has to mortgage goods. The goods are not delivered to bank they are just showed to respective banker. Here some extra security is also taken from the party.
BLC:
Advances against import bills are originally from the lodgment of shipping document received from foreign correspondents against letter of credit established by the bank on behalf of its customers. In other words, this loan is created for settlement of payment of import documents. Packing Credit: Packing credit is provided against confirmed export orders covering tip to 90% of the value of the order. This type of loan is provided to procure and process materials for making finished goods for export purpose. The packing credit is adjusted through the export proceeds. (Loan Against Imported Merchandise) LIM Advances allowed for retirement of shopping documents and release of goods imported through L/C taking effective control over the goods by pledge fall under this type of advance, when the importer failed to pay the amount payable the exporter against import L/C, then banks gives loan against imported merchandise to the importer. The importer will bear all the expenses i.e. warehouse charges, insurance fees, etc. and the ownership of the goods is retain to the bank. This is also a temporary advance connected with import, which is known as post import finance. (Loan against Trust Receipts) LTR Advance allowed for retirement of shipping documents and release of goods imported through L/C falls under this head. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the advances within a given period. This is post import finance by the banks. (Local Documentary Bills Purchased) LDBP Payment made against documents representing sell of goods to local export oriented industries which are deemed as exports and which are denominated in Local currency! Foreign currency falls under this head. The bill of exchange is held as the primary security. The client submits the bill and the bank discounts it. This temporary liability is adjustable from the proceeds of the bills. (Loan Against Other Securities) LAOS Loan against Other Securities is a 100% secured advance, which requires no sanction from the Head Office. Marking lien on FDR, ICB Unit Certificate etc. bank sanction it. Loan Against Work Order Many commercials branches allow contractors loan against their work order. Here the following procedures are undertaken
First a contractor submits his work order to the bank mentioning his required amount of money in the application and stating his consent that his employer will send every payment in this branch and after deducting necessary margin the bank will transfer the rest of the money to borrowers account. After receiving the application the respective official of the banks will scrutinize the work order. Advance against FDR Advance is granted to a client against the security of fixed deposit receipt and advance is allowed to the person to whom the instrument belongs. The instrument is to be discharged duly the holder (or all of them if they are more than one) on appropriate revenue. Special Credit Scheme In most of the commercial banks in Bangladesh they have some kind of special credit scheme. They classify it in various terms like the House/building renovation loan. Small business loan. Personal credit scheme. Consumer credit scheme. SME Loans The main theme of SME financing is to provide loan to the small, medium and cottage industries in order to help the overall economic development of the country. For that AB Bank Ltd. also introduce some SME products to finance the small and medium industries in Bangladesh. The products are a) Gati b) Proshar c) Digun d) Sathi e) Chhoto Puji f) Uddog
g) Awparajtta Each product has its own unique characteristics. All the SME loans have a tenor of maximum three years and maximum amount of facility is of Tk. 50.00 Lac. Gati A loan facility for meeting regular as well as additional requirements of businesses; i.e. it will be part of working capital of the business. Proshar It is long term finance for infrastructure development /capacity building etc.; i.e. Term Loan for expansion & BMRE. Digun Double amount of loan against value of the savings instrument (ABBL FDR, DDS etc.) to meet any type of business requirement. Sathi Term loan for CNG Refueling conversion/Light Engineering/project finance (Package Deal including non-funded). Chhoto Puji Mortgage free Term Loan for working capital/fixed investment requirement. Uddog Loan for New entrepreneur/business. (For working capital as well as fixed capital investment.) Aparajita A loan facility for meeting working capital requirement as well as fixed investment in businesses for women entrepreneurs. Non-Funded Credit Facilities •
Back to Back Letter of Credit
Letter of credit is a commitment by the bank to pay an agreed sum to the seller of goods on behalf of the buyer (clients) under precisely defined condition. This is a non-fund
facility provided to the client for import of goods from abroad or in some cases to procure them locally. The liability is adjusted from export proceeds. •
Letter of Guarantee
Bank guarantee is also a non-funded facility provided to the client bank on behalf of the client undertakes to pay agreed amount of money at certain time of client fails due performance. Bank guarantee is generally provided in line of earnest money for bidding in tender by the client or as guarantee for due performance of any contractual obligation (performance Guarantee). Lending Process of ABBL Lending process of AB Bank Ltd. Most of the bank loans to individuals arise from a direct request from a customer who approaches a member of the bank’s staff and asks to fill out a loan application. Business loan requests on the other hand, often arise from contacts the bank’s loan officers and sales representatives make as they solicit new accounts from firms operating in the ban’s market area. Sometimes loan officers will call on the some business firm for months before the customers finally aggress to the bank a try by filling out al loan application or requesting other services. Most bank personnel will fill out customers contact report similar to the place customer’s place of business. This report in updated after each subsequent visit, giving the next loan officer crucial information about a prospective client before any other personal contacts is made. Once a customer decides to request a loan, an interview with a loan officer usually follows right away, giving the customer the opportunity to explain his or her credit needs. If the customer appears to lack sincerity in acknowledging the necessary of adhering to the terms of loan, this must be recorded as a strong negative factor weighing against approval of the loan request. If a business or mortgage loan is applied for a site visit usually will be made by an officer of the bank to assess the customer’s location and the condition of the properly and to ask clarifying question. The loan officer will contact other creditors who have previously loaned money to this customer to see what their experience has been. The customer’s previous payment record often reveals much about his or her character, sincerity of purpose and sense of responsibility in making use of bank credit. If all is favorable to this point, the customer is asked to submit several crucial documents needed by the bank to hilly evaluate the loan request, including director’s resolution authoring the negotiation of a loan with the bank. Once all documents are on file the Credit Analysis Division of the bank conducts a through financial analysis of those documents aimed at determining whether the customer has sufficient cash flow and back up assets to repay the loan. The Credit Analysis Division hence prepares a brief summary and recommendation which goes to the loan committee for approval Members of the credit Analysis Division will on larger loans, give an oral presentation and discussion will issue between staff analysis arid the loan committee over the strong and weak points of a loan
request. If the loan committee approves the customer’s request the loan officer or the credit committee usually will check on the property or other assets to be pledged as collateral in order to ensure that the bank gas immediate access to the collateral in defaulted. This is often referred to as perfecting the committee to satisfy that both the loan and the proposed collateral are sound the note and other documents that make up a loan agreement are prepared and signed by all parties to the agreement. The new agreement must be monitored continuously to ensure that the terms of the loan are being followed and that all required payments of principal and or interest are being made as promised. For large commercial credits the loan officer will visit the customer’s business periodically to check on the firms progress and to see what other services the customers need (Usually a loan officer of other staff member will place information about a new loan customer in a computer file known as a bank customer profile. This file shows what bank services the customer is currently using and contains other information required by bank management to monitor a customer’s progress and financial service needs). If the customer dose encounters serious problems in repaying of loan, a workout portion of its committee funds as possible. Come banks vest such responsibility on the officer that handled the loan in the first place. Other prefers that procedure brings more objectivity to the loan recovery process. Credit Assessment After getting loan application from the client loan disbursement process started. And for this credit assessment and risk grading analysis is must. A thorough credit assessment should be conducted prior to the granting of a facility, and at least annually thereafter for all facilities. The results of this assessment should be presented in a Credit Application that originates from the relationship manager/account officer (“RM”), and is reviewed by Credit Risk Management (CRM) for identification and probable mitigation of risks. The RM should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the entire credit application submitted for approval. RMs must be familiar with the Fl’s Lending Guidelines and should conduct due diligence on new borrowers, principals, and guarantors. It is essential that RMs know their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who they represent themselves to be. All Banks’ should have established Know Your Customer (KYC) and Money laundering guidelines which should be adhered to at all times. Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details: 1. Amount and type of facility(s) proposed 2. Purpose of facilities. 3. Facility Structure (Tenor, Covenants, Repayment Schedule, Interest) 4. Security Arrangements 5. Government and Regulatory Policies 6. Economic Risks
Credit Risk Assessment: • Borrower Analysis: The majority shareholders, management team and group or affiliate companies should be assessed. Any issues regarding lack of management depth, complicated ownership structures or inter-group transactions should be addressed, and risks mitigated. • Industry Analysis: The key risk factors of the borrower’s industry should be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified. • Supplier/Buyer Analysis: Any customer or supplier concentration should be addressed, as these could have a significant impact on the future viability of the borrower. • Historical Financial Analysis: Preferably an analysis of a minimum of 3 years historical financial statements of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analyzed. The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet. Specifically, cash flow, leverage and profitability must be analyzed. • Projected Financial Performance: Where term facilities (tenor> 1 year) are being proposed, a projection of the borrower’s future financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayments. Facilities should not be granted if projected cash flow is insufficient to repay debt. • Credit Background: Credit application should clearly state the status of the borrower in the CIB (Credit Information Bureau) report. The application should also contain liability status with other Banks and Fl’s and also should obtain their opinion of past credit behavior. • Account Conduct. For existing borrowers, the historic performance in meeting repayment obligations (trade payments, cheques, interest and principal). • Adherence to Lending Guidelines: Credit Applications should clearly state whether or not the proposed application is in compliance with the Ft’s Lending Guidelines. The Fl’s Head of Credit or Managing Director/CEO or Board should approve Credit Applications that do not adhere to the Fl’s Lending Guidelines. • Mitigating Factors:
Mitigating factors for risks identified in the credit assessment should be identified. Possible risks include, but are not limited to: margin sustainability and/or volatility, high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentrations; and lack of transparency or industry issues. • Facility Structure: The amounts and tenors of financing proposed should be justified based on the projected repayment ability and facility purpose. Excessive tenor or amount relative to business needs increases the risk of fund diversion and may adversely impact the borrower’s repayment ability. • Purpose of Credit: Bank have to make sure that the credit is used for the purpose it was borrowed. Where the obligor has utilized hinds for purposes not shown in the original proposal, Bank should take steps to determine the implications on creditworthiness. In case of corporate facilities where borrower own group of companies such diligence becomes more important. Bank should classify such connected companies and conduct credit assessment on consolidated/group basis. • Project Implementation: In case of a large expansion, which constitutes investment of more than 30% of total capital of a company or for a green field project, project implementation risk should be thoroughly assessed. Project implementation risk may involve construction risk (Gestation period, regulatory and technical clearances, technology to be adopted, availability of infrastructure facilities) funding risk, and post project business, financial, and management risk. • Foreign Currency Fluctuation: Credit application should clearly state the assessment of foreign currency risk of the applicant and identify the mitigating. • Security: A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed internally and preferably by a third party valuer. Facilities should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed. • Type of Control on Cash Flow: The credit application should contain and assess if there is any control on the borrowers cash flow for securing the repayment. This may include payment assignment from export precede, payment assignment form. • Exit Option: Credit application should clearly state the exit option from the borrower in case of early identification of deterioration of grading of the borrower.
• Name Lending: Credit proposals should not be unduly influenced by an over reliance on the sponsoring principal’s reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations should be discouraged and treated with great caution. Rather, credit proposals and the granting of facilities should be based on sound fundamentals, supported by a thorough financial and risk analysis. Risk Grading When the loan officer prepares a loan proposal than he/she must have to prepare the Credit Risk Grading (CRG) is must. CRG is a collective definition based on the pre-specified scale and reflects the underlying credit-risk for a given exposure. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure. Credit Risk Grading is the basic module for developing a Credit Risk Management system. Credit risk grading is an important tool for credit risk management as it helps the Financial Institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction. At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the lending price, what should be the extent of exposure,what should be the appropriate credit facility, what are the various facilities, what are the various risk mitigation tools to put a cap on the risk level. At the post- sanction stage, the Bank can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken. Risk grading should be assigned at the inception of lending, and updated at least annually. Bank should, however, review grading as and when adverse events occur. A separate function independent of facility origination should review risk grading. As part of portfolio monitoring, Bank should generate reports on credit exposure by risk grade. Adequate trend and migration analysis should also be conducted to identify any deterioration in credit quality. Bank may establish limits for risk grades to highlight concentration in particular grading bands. It is important that the consistency and accuracy of grading is examined periodically by a function such as an independent credit review group. Risk Rating for Consumer Lending For consumer lending, Bank may adopt credit-scoring models for processing facility applications and monitoring credit quality. Bank should apply the above principles in the management of scoring models. Where the model is relatively new, Bank should continue to subject credit applications to rigorous review until the model has stabilized. Ratings Review The rating review can be two-fold:
•Continuous monitoring by those who assigned the grading. The Relationship Managers (RMs) generally have a close contact with the borrower and are expected to keep an eye on the financial stability of the borrower. In the event of any deterioration the grading are immediately revised /reviewed. • Normally CRG should be reviewed at least once in a year. For risk grades starting from 5 to 8, CRG should be reviewed in every six months. • Secondly the risk review functions of the financial intuitions or business lines also conduct periodical review of grading at the time of risk review of credit portfolio. Loan Sanctioning Procedure Procedure of Sanctioning of Loans & Advances by ABBL Customer
Prayer for Loan
Branch Manager sent the application to Credit Officer Submit all required document to the branch credit division Fill up the application form by the customer Analyze and evaluate the proposal & security by the credit officer Is the loan limit is within the delegation of the branch?
Yes /N o
No
Sanction by the Branch Credit Division and approved by Branch Manager
Sent the loan proposal to Head office
Sanction by Head Office Credit Division
Flow chart of loan sanction Disburse loan
Loan Sanctioning Procedure: For the sanctioning loan, first the customer comes to the bank and applies to the bank authority for getting the loan from the bank. Firstly, the bank wants to know how much worth he or she wants to take from the bank as loan. Secondly, the banks wants to know how many assets are available as mortgage for taking the loan. If all required information is granted then the branch manager sent the application to the credit officer with submitted all required document. The Credit officer analyzes and evaluates the credit proposal and security assets very carefully. Basically, credit officer analyzes that is the loan limit is delegated of the branch. Then there are two types of outcome could be happened. If it is yes, then the loan is sanctioned by the credit division and approved by branch office. Then disburse the loan. If it is no, then the loan proposal is transfer to the Head office. If the head office’s credit division grants the loan, then the loan could be sanctioned. Check List for Loan Sanctioning
Required Management Information • Sponsors’ background • Shareholding structure of the company • Sponsors’ related businesses • Performance of the business concerns • Details of the management personnel Required Market Information: 1. Product • A full description of the product including size and packaging. • Brand name. • Brief description of the raw material of the product. • Proposed production program for the first 5 years. • Samples, catalogues and/or photographs of the product. 2. Supply • Current sources of supply of the proposed product to the local market. • Capacity of supplying companies, their product range and estimated market share. • Names and addresses of the local manufacturers/agents/distributors. 3. Demand
• Demand is assumed to be the summation of sales from local supply plus imports less exports. • Sales history of the sponsors. • Sales in the country and other markets have to be covered. • The history of demand over the previous 5 years, where possible show the break down according to the major regions of the country. • Estimation of the future market size of the period covered by the feasibility study. 4. Marketing Strategy • A brief statement of the sponsors’ rationale for the project including definition of target markets, perceived strengths and principal competitive advantages. 5. Pricing • Prevailing market prices per unit (retail and wholesale prices). • Sponsors’ proposed prices and pricing strategy. 6. Projected Sales & Market Share • Projected Annual Sales Volume until the project reaches its full installed capacity. • Estimated project’s market shares year by year. 7. Competition • Competitive brands, their prices and market shares. • Strengths and weaknesses of individual competitors. 8. Distribution • Proposed distribution channels (transportation methods, storage and warehousing facilities). 9. Marketing Organization • Structure of marketing and sales department including staff numbers, qualifications, experiences and job descriptions. 10. Sales Promotion/Marketing Support • Detailed plans for advertising and other sales promotion activities. 11. Marketing Agreements • Any marketing agreements (including agency, representation, trade mark, distribution). Required Technical Information: 1. Land • Situation of the land • Location Advantages
• Valuation of Land price • Land condition • Progress of land development 2. Product • The product and its function. • Technical description of each product accompanied with sketches, photographs of each type, size or sample if possible. • Is the product completely finished and ready to use when leaving the factory? • Any local or international standards that the product must comply to? Give details of them. 3. Process • A description of each operation in the process from raw material to finished product. This should specify the function of each piece of equipment needed. • A flow diagram showing the route of each piece of raw material through its various processes. • A scaled and dimensioned layout of equipment and machines within the factory showing storage areas for raw materials, work in progress, finished products, maintenance workshop, laboratory etc. • Special equipment for waste treatment. • Special internal factory environment control that is vital to the process. 4. Installed Capacity • Installed capacity of the machinery. • Proposed working hours per day and days per year. 5. Machinery & Equipment • A detailed list of machinery and equipment. • Competitive quotations for the machinery and equipment and reason for the selection of a particular quotation. 6. Building • A location plan of the site. • Details of the building. • Quotations of civil works and buildings. 7. Transportation • Required transport vehicles including distribution and delivery trucks, employee cars, labor buses etc. 8. Labor • Information about the laborers. 9. Raw Materials
• A list of different type of raw and packaging materials and their alternative sources. • Quotations of raw and packaging materials. • A detailed calculation of raw and packaging materials for each single unit of the product. 10. Utilities • Details of utilities. 11. Licensing Agreement • A copy of any technical or licensing agreement between the sponsor and another company, if any. Required Financial Information: 1. Summary of the total project cost. 2. Sources of funding of the project cost. 3. Projected Balance Sheet, Income Statement and Cash Flow Statement should cover the tenure of the loan. 4. Financial Ratios, Break Even Analysis, Internal Rate of Return. 5. All assumptions should be spelled out. Requirements for Preparing Proposal Business and SME Loan • An application with photo which includes name of the loan, amount, purpose, validity, security • CIB (Credit information Bureau) Report from Bangladesh Bank. • Credit appraisal report. • Personal Summary. • Personal Net-Worth Statement. • Party’s Declaration from Securities: 1. Hypo, pledge of stock of goods duly insured with bank clause covering the risk of fire, R & SD, Flood & Cyclone with maximum voluntary access. 2. Registered mortgage of land and building. 3. Registered irrevocable power of attorney shall be executed by the mortgagor in favor of bank enabling the bank to sell the property without intervention of the curt in case of failure to pay the bank dues by the borrower. 3. Work order (main copy). Securities for Limited Company: • Hypo of stock of raw materials and finished goods duty incurred under bank clause. • First charge on the fixed and floating assets of the company with the registrar of Joint Stock Company. • Personal guarantee of the all directors of the company. • Corporate counter guarantee is to be submitted. Charge Documents:
• Demand promissory Note / D P. Note. • Letter of arrangement • Letter of Hypothecation. • Personal Guarantee of (for Limited company) all directors and their spouses, (for partnership) all partners, (for proprietorship) owner shall be obtained. Personal guarantee of owner of the property shall be obtained. • Letter of Continuity/Disbursement. These are the papers, securities against loan from the individuals and limited company for business and SME loans. 5.5 CCS (Consumer Credit Scheme) This type of loan is issued for purchasing goods which are used in our domestic life. Such as TV, PC, AC, refrigerator, car etc. Requirements & Practices: • A SB Account in Bank • Fill up the application of “Consumer Credit Scheme”. • Two copies of photographs and visiting card. • Fill up “Guarantee Bond” by two persons and their TIN and Trade license (business), Salary Certificate (service holder) and visiting card. o Guarantee Bond given by spouse o Guarantee Bond given by any socially reputed person such as ward commissioner doctor, engineer, advocate etc.: Requires stamp of TK. 150 • Price Quotation: Letter against which pay order will be issued. • Bank will verify whether the GB (Guarantee Bond) is genuine. • Office Note including particulars. • Client issues 24 advance cheques signed. • 17.50% interest rate and 1% service charge. Charged Documents: • Demand promissory Note / DY. Note. • Letter of arrangement • Letter of Hypothecation. • Personal Guarantee of (for Limited company) all directors and their spouses, (for partnership) all partners, (for proprietorship) owner shall be obtained. Personal guarantee of owner of the property shall be obtained. • Letter of Continuity/Disbursement. These are the steps for sanctioning CCS loan.
Procedure of Loan Classification Loan Classification and Provisioning Phase Wise Programmed
Classification
PHASE 01
PHASE 02
PHASE 03
PHASE 04
PHASE 05
Status
Length of Overdue
Length of Overdue
Length of Overdue
Length of Overdue
Length of Overdue
Unclassified
Less than 12 Less than 9 Less than 9 Less than 6 Less than 3 months months months months months
Substandard
12 months or more but less than 36 months
9 months or more but less than 24months
9 months or more but less than 24months
6 months or 3 months or more but less more but less than 12 than 6 months months
Doubtful
36 months or more but less than 48 months
24 months or more but less 36 than months
24 months or more but less 3贸than months
12 months or 6 months or more but less more but less 24than than 12 months months
Bad/Loss
48 months or 36 months 36 months 24 months or 12 months more or more or more more or more
Provision Requirements Unclassified
1%
1%
1%
1%
1%
Substandard
10%
20%
15%
10%
20%
Doubtful
50%
50%
50%
50%
50%
Bad/Loss
100%
100%
100%
100%
100%
Frequency of classification
Annual
Half-yearly
Half-yearly
Quarterly
Quarterly
Classified Loan Status of ABBL Million Taka Loan
2009
2008
2007
Amount Total Loan Outstandi ng Classified Loan (CL) Sub Standard (SS) Doubtful (DF) Bad & Loss (BL)
% of CL
40,915.4
1,762.6
% of Amou Total nt Loan* 31,289. 3 4.31%
% of CL
1,256.5
% of Amou Total nt Loan* 21,384. 6 4.02%
% of CL
1,756.0
6.21%
200.6
11.4%
56.5
4.5 %
109.3
6.2 %
231.1
13.1%
81.5
97.4
1,330.9
75.1.5 %
1,120.6
4.5 % 89.0 %
5.1. 5% 86.2 %
1,549.2
* Percentage of Gross NPL (Non Performing Loan) Graphical representation of Classified Loans
45000 40000 35000
TO
30000
CL
25000 20000
SS
15000
DF
10000
BL
5000 0 2007
2008
2009
Classified Loan status of ABBL Islampur Branch Taka (‘000) Loan 2009 Total Loan Outstanding 40915.40
% of Total Loan*
Classified Loan (CL)
1762.6
Sub Standard (SS)
200.6
Doubtful (DF)
231.1
Bad & Loss (BL)
1330.9
Classified Loan Status of ABBL Islampur Branch of 31 December, 2009
Loan Status SS 0% DF CL 1% 4%
BD 3%
Total Loan 92%
Recovery & Follow up of Credit Loans and Advances in whatever form granted by the bank to its clients are repayable either on demand or at expire of fixed period or as per repayment schedule agreed upon while granting the facilities if a loan is repayable on installment Managers should, therefore, keep a close and constant watch on all their loans and advances to ensure that timely action is initiated in each case for adjustment of the account or it renewal, if it is decided to continue the facility for this purpose each branch should maintain a diary I card in prescribed format in which the due date of expiry of credit facility, to sent the borrower reminding him of the due date of repayment and making a formal demand for repayment / renewal as the case may be. Follow -up action should thereafter be taken by issuing repeated reminders and putting pressures on the borrower personally calling on him however, if in spite of vigorous persuasion the borrower fails to adjust the liability within the date of expiry of the facility, the liability should be transferred to past Due A/C to facilitate monitoring and further follow-up. The branches should however. Still make construct efforts to recover the advances if necessary, with threat of legal action. If the threat of litigation does not yield the desired result. The Head office may then consider filing a suit against the borrower for recovery of the advance. In order to facilitate, follow-up and recovery of past due loans, overdrafts etc. the branch manager should review all the past due loan. Incorporating and prepare a fact sheet including
a report on the past due loan to incorporating their comments regarding the prospects and measures taken for recovery. On this basis of this report each branch should prepare a monthly statement of past due loans and advances as per prescribed formats as at so as to reach the credit Division with 10th of the following month. The reports of the past due loans and advances are reviewed in the Credit Committee Meeting at Head Office and guidelines are provided to the branches for recovery. Credit Rating List: CRAB RATING SCALES AND DEFINITIONS LONGTERM – COMMERCIAL BANKS ENTITY RATING AAA (Triple A): Have extremely strong capacity to meet financial commitments, maintains highest quality, with minimal credit risk. AA1, AA2, AA3* (Double A): Have very strong capacity to meet financial commitments, maintains very high quality, with very low credit risk. A1, A2, A3 (Single A): Have strong capacity to meet financial commitments, maintains high quality, with low credit risk, but susceptible to adverse changes in circumstances and economic conditions. BBB1, BBB2, BBB3 (Triple B): Have adequate capacity to meet financial commitments but are susceptible to moderate credit risk. Adverse changes in circumstances and economic conditions are more likely to impact capacity to meet financial commitments. BB1, BB2, BB3 (Double B): Have inadequate capacity to meet financial commitments and possess substantial credit risk, with major ongoing uncertainties and exposure to adverse business, financial, or economic conditions. B1, B2, B3 (Single B): Have weak capacity to meet financial commitments and are subject to high credit risk. Currently meeting the financial commitments, but adverse business, financial, or economic conditions are likely to impair capacity to meet obligations. CCC1, CCC2, CCC3 (Triple C): Currently vulnerable, and are dependent upon favourable business, financial, and economic conditions to meet financial commitments. Have very weak standing and are subject to very high credit risk. CC (Double C): Currently highly vulnerable, highly speculative and are very near to default, with some prospect of recovery. C (Single C): Currently very highly vulnerable to non-payment, may be subject of bankruptcy petition or similar action, though have not experienced payment default. C is typically in default, with little prospect for recovery. D Default. 'D' rating also will be used upon the filing of bankruptcy petition or similar action if payments on an obligation are jeopardized. *Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
RATING DEFINITION (SHORT TERM): Commercial Banks ST-1: Highest Grade. Highest capacity for timely repayment of obligations. ST-2: High Grade. Strong capacity for timely repayment of obligations. ST-3: Average Grade. Average capacity for timely repayment of obligations. ST-4: Below Average Grade. Below average capacity for timely repayment of obligations. ST-5: Inadequate Grade. Inadequate capacity for timely repayment of obligations. ST-6: Lowest Grade. High risk of default or are currently in default. Credit Rating Report of AB Bank:
Credit Recovery Process of AB Bank LTD
Renewal and Status Verification On expire of facility, the borrower may come forward with a proposal either for renewal of the facility for a further period of time or for enhancement of the existing facilities. He may also agree to offer additional stocks / securities or even furnish a guarantor. The Branch Manager should vary carefully examine all such proposals and if he is thoroughly satisfied
regarding the honesty of purpose of the borrower and his financial status and position at that time vis- a- vis the security offered the proposals should be placed / sent to sanctioning Authority for consideration and processing duly supported by the MI down credit analysis including report of verification of stocks / collateral securities act. As is done in case of fresh proposals. The Head office in turn will process the renewal/ enhancement proposals verifying the following factors. a)Justification for renewal, b)Reasons for non- payment I adjustment of loan, c)Security aspect in term of outstanding loan, d)Credit worthiness of the client. Legal Action
Legal proceedings are lengthy and time consuming as such every effort must be made to settle a defaulter’s outstanding out of court. However, if situation compels the Bank to take legal action for recovery of stuck up loans and advance, the bank should be done with prior approval of Head office. The Banks legal Retainer should conduct all legal process. If necessary in consultation with Banks legal Advisor. Security against Advances Collateral Securities The tangible securities pledged / assigned by the borrower to the Bank and additionally held by the Bank to secure a loan is called COLLATERAL SECURITIES or simply collateral. In case of advances against pledge / hypothecation of goods, Bank may insist in immovable properties as collateral. Margin The difference between the market value / assessed value of the collateral pledged hypothecated to secure a loan / advance and the amount of the loan / advance (normally the drawing power) is known as “MARGIN� The rate of margin to be obtained for types of loans/ advances and against the forms of collateral is normally regulated under the credit restrictions imposed by Bangladesh Bank. Documentation against Credit Document is a written statement of facts and a proof or evidence of existence of a particular transaction between parties involved there to be answerable / liable on placement before a count of law , for satisfaction of the charges created there in while allowing credit facilities to any borrower, it should be ensured that each and every loan and advance is fully documented and each document is properly executed in consultation with legal Adviser / Retainer before disbursement of the loan, to safeguard the future interest of the Bank. Mortgage of Immovable Property Documents to be Reduced
Equitable Mortgage Obtain the following documents: 1) Original Title Deed of Property: If the original deed has not been received from the Registration office then the certified copy with duly discharged original delivery receipt may be accepted in lieu of original deed. Close watch should be kept through regular follow-up with the Registration office for collecting the original deed / documents etc. in due time as these are destroyed / burnt away generally after expiry of two years in the cases of lease hold land prior permission of leasing authority should be obtained if such clauses are stipulated in the lease Deed. 2) Memorandum of Deposit of Title Deed must be properly executed Name, address (both present and permanent), and father’s/ Husband’s name must be stated in the memorandum Name, address and signature of two witnesses must be taken. 3) Latest R.S, C.S, and S.A preferably i.e. records of right and land Revenue / Tax payment receipt. 4) Non- encumbrance certificate preferably issued by the office of the District Registrar / subRegistrar etc. In the alternative, certificate from a registered searcher may be accepted. 5) Valuation certificate from a reputed Architect / Engineer supported by Branch Manager / Credit officer’s own valuation regarding adequacy of the value of the collateral for recovery of Bank dues in case of adverse situation. The inspection reports on real estate to be prepared. 6) Lawyers Certificate on verification and scrutiny of title deed etc. 7) Registered irrevocable Power of Attorney executed by the property in case of default. 8) Mutation certificate Note: Equitable mortgage of rural property may be avoided (Equitable mortgage can only be created in a Municipal town). Legal Mortgage Obtain following documents: 1) Mortgage Deed drafted by Bank’s approved Lawyer / Retainer and registered with the concerned Registrar’s office with proper stamp duly. 2) All other documents as required in case of equitable mortgage except (a) Memorandum of deposit of Title Deed and (b) Registered Irrevocable power of Attorney.
Power of Attorney i. Must be taken on proper stamp paper. ii. Relating to immovable property, generally it should be registered. if not, must be duly notarized by vetted by Legal Adviser / Retainer. iii. If the Bank is authorized by any power of attorney to realize bills payments etc. from any authority / Person, then the borrower must produce evidence that they have accepted the said power of Attorney. in most cases such authority / persons denies their responsibilities unless prior acceptance is received from them. Tripartite Agreement a) Must be sealed and signed by all parties including the Bank. b) Witnesses must also sign. Disbursement of Loan No loan should be disbursed before completion of documentation In exceptional and very urgent cases disbursement may be made if the officer concerned is sure that he can get the documents completed in due course. Set of Documents to be Obtained Against Different types of Credit The following three documents are common for each type of Loans and Advances. (a) Documents common to all Advances. i. D.P Note signed to all Advances. ii. Letter of Agreement. iii. Acceptances of the terms and conditions of sanction advice on duplicate. (b) General Documents i. D.P Note. ii. Letter of Agreement. iii Letter of continuity. Other documents are to be obtained according to the types of advance nature of securities offered and status of the borrower as classified below, in consultation with the Legal Adviser i Retainer. (a) In case of Limited Company i. Personal guarantee of all directors. ii. Board’s resolution covering corporate borrowing power. Authorizing the Director(s) to execute the security documents Resolutions must be duly certified. iii. Memorandum and Articles of Association of the company duly certified by the register of the joint stock companies. (b) In case of partnership Firms. i. Photocopy of Registered partnership Deed duly certified by notary public.
ii. An undertaking in the prescribed for in case of firms not registered with Registrar of finns. iii. Photocopy of Registrar Certificate duly certified by” NOTARY PUBLIC” in case of firms registered with Registrar of firms. iv. Personal Guarantee of all the partners. v. Resolution of the partners for taking loan(s) and authorizing partner(s) to execute security documents. Note: a) Loan to partnership at will should not be entertained. b) Inquiry should be made about income tax liability. Preferably their GIR number should be obtained. c) In case of proprietorship: i. Municipal Trade License to prove the ownership of the concern. ii. GIR number to ascertain whether he is an income tax assessor or not. Guarantee/Indemnity Guarantee or indemnity is also playing a very vital role in recovery of loan in ABBL. Recovery Position of ABBL Recover position of ABBL has improved a lot and it can be said that it is in satisfactory level. From the following table we can understand the situation: NPL (Non Performing Loan) Movement Particulars
2009
2008
2007
2006
Opening Balance of NPLs
1,258.52
1,755.19
1,932.54
3,934.38
Less : Cash recovery
182.36
374.98
202.43
205.77
Less : written off
19.31
107.28
235.87
2,216.52
Up 73.31
219.80
187.36
307.80
Less : gradation/rescheduling Add : Inc. generation
779.10
205.39
448.30
728.25
Closing balance – Gross NPLs
1,762.64
1,258.52
1,755.19
1,932.54
Fresh NPL Generation rate 61.91% (Gross) against CL
11.70%
23.20%
18.51%
Fresh NPL Generation rate 1.90% Gr.)against Loan outstanding
0.66%
2.10%
4.28%
NPL recovery %
14.49%
21.36%
10.47%
5.23%
25.00% 20.00% 15.00% Recovery
10.00% 5.00% 0.00% 2009
2008
2007
2006
AB Bank’s net NPL stood at BDT 827.31 million in 2008 as against BDT 652.96 million in 2006. As a result, net NPL as a percentage of net loans & advances improved to 2.07% from 2.13% in the same period on account of provisions & interest suspense accounts. Basically if NPL ratio increases, side by side, net NPL ratio also increases. However, here in 2008, Gross NPL ratio increased but Net NPL ratio decreased because of good amount of provision against classified loans & advances maintained. During 2007, where BDT 35 million specific provisions were kept by the Bank, in 2008 it rose up to BDT 245.80 million. In 2008, Bank’s NPL recovery rate was 14.49% compared to 21.36% of the last year with the decrease in the amount of cash recovery of BDT 182.36 million over the year 2008 from BDT 374.98 million in 2007. The Bank wrote off huge amount of bad loan in 2005 amounting BDT 2,216.52 million which helped to reduce its NPL at this level. Although, only 1.90% NPL was newly generated in 2008 from total outstanding loans and advances, such fresh NPL amount increased to BDT 779.10 million from BDT 205.39 million. Analysis of top 50 fresh NPLs in 2008 shows that 22 contracts fell into Bad loan category. Low rescheduling amount with high new NPL generations was liable for the increase the gross NPL in 2008, which should be concern by the Bank management. Here, from the graph it is said that the recovery position of ABBL is satisfactory. Because here Gross Non Performing Loan (NPL) percentage is in decreasing trend from 2004 to 2007, which was 19.25% in 2003, 11.37% in 2004, 8.21% in 2005 and 4.02% in 2007. That shows that the classified loan amount decreased, which means that the recovery position increases a lot. In 2007, AB Bank’s NPL slightly increased to 4.31% from 4.02% in 2007. However, the Bank showed great improvement in reducing its non performing loans in the recent years. During 2003 to 2008, ABBL’s NPL reduced from 24.74% to 4.31%. To minimize the credit losses Bank starts effective monitoring on a regular basis and it is done to detect early indication of the deteriorating financial health of a borrower. Constant monitoring is the key element in Risk Management and timely identification of accounts that have risks, monitoring, supervision, or close attention by management called Early Alert Accounts and minimize subsequent risks to a large extent. Timely corrective actions are taken to address findings of any internal, external or regulator inspections. Because of efficient
credit risk management of ABBL, percentage of bad loan to total loans and advance reduced year by year; cash recovery, recovery from write-off loans increases. Lending Rates
Products
Mid Rate
Interest Rate W.E.F May 09, 2010
1) Agriculture
13.00%
13.00%
2) Large and medium scale industries
13.00%
13.00%
3) Small Industries (Term Loan)
14.75%
13.25%-16.25%
a) Large and medium scale industries
11.50%
10.00%-13.00%
b) Small Industries
14.50%
13.00%-16.00%
5) Export
7.00%
7.00%
6) Commercial Lending
13.00%
13.00%
7) Housing Loans
13.00%
13.00%
8) Consumer Credit
16.00%
14.50%-17.50%
9) Credit Card
2.00% month
10) Finance to NBFI's
13.00%
13.00%
i) Cash Collateral - ABBL FDR
12.50%
11.00%-14.00%
ii) Cash Collateral - Other Banks FDR or WDB
13.50%
12.00%-15.00%
4) Working Capital
per
2.00% per month
11) Others
iii) Women Enterpreneur (Awparajita upto Tk 50.00 lac) 10.00%
10.00%
iv) Special Scheme Loans – SME
13.00%-15.00%
14.00%
Notes: 1. For lending against ABBL FDR, the rate is minimum 3.00% above the rate of the instrument subject to minimum 11.00%. 2. Exposure under cash collateral of other banks requires clearance from FI & Treasury. 3. For taking exposure on "Digun Loan" under Special Scheme, the rate will be 8% above the instruments' rate; subject to minimum 15% p.a. 4. For Wemen Entrepreneur (Awparajita above Tk. 50.00 lac) under Special Scheme, the rate will be minimum 13.00%. Foreign Exchange Division
In ABBL (Islampur Branch), the most profitable division is foreign exchange,As – In the ABBLIslampur branch there are four peoples are working continuously with great effort and teamwork. There are quite efficient skills and talented the above jobs are performed in this department. Bangladesh bank and the respected VP of this section control them. There are more than 20 clients and more than 40 countries they are dealing with. They believe in teamwork and extreme hard work. THE FLOW CHART OF THIS DEPARTMENT
H.E. Evitt defined “Foreign Exchange” as the means and methods by which rights to wealth expressed in terms of the currency of one country are converted into rights to wealth in terms of the currency of another country. Foreign Exchange Department is international department of the bank. It deals with globally and facilitates international trade through its various modes of services. It bridges between importers and exporters. Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals with foreign currency. This is why this department is called foreign exchange department. Some national and international laws regulate functions of this department. Among these, Foreign Exchange Act, 1947 is for dealing in foreign exchange business, and Import and Export Control Act, 1950 is for Documentary Credits. Governments’ Import &Export policy is another important factor for import and export operation of banks. ABBL, Motijheel Branch foreign exchange department started foreign exchange operation five years ago it deals mainly in import but it also operates export remittance and other activities. Foreign Trade
Foreign trade can be easily defined as a business activity, which crosses national boundaries. These may be between parties or government ones. Trade among nations is a common occurrence and normally benefits both the exporter and importer. In many countries, international trade accounts for more than 20% of their national incomes. Foreign trade can usually be justified on the principle of comparative advantage. According to this economic principle, it is economically profitable for the country to specialize in the production of that commodity in which the producer country has the grater comparative advantage and to allow the other country to produce that commodity in which it has the lesser comparative advantage. It includes the spectrum of goods, services, investment, technology transfer etc. This trade among various countries calls for loses linkage between the parties dealing in trade it has been dealing with more than 40 Countries. The banks, which provide such transactions, are referred to as rendering international banking operations. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller. And this flow of goods and payment are done through Letter of Credit. ABBL follows the rules of Bangladesh government and Bangladesh bank strictly. There are some instruments & process of foreign exchange transacsactions, those are --------------------Letter Of Credit Letter of credit (L/C) can be defined as a “Credit Contract” whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include, amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit. The Uniform Customs & Practices for Documentary Credit (UCPDC) published by international Chamber of Commerce (1993) Revision; Publication No. 500 defines Documentary Credit: Any arrangement however named or described whereby a bank (the “issuing bank”) acting at the request and on the instructions of a customer (the “Applicant”) or on its own behalf, 1. Is to make a payment to or to the order of a third party(the beneficiary) or is to accept and pay bills of exchange(Drafts)drawn by the beneficiary, or 2. Authorizes another bank to effect such payment or to accept and pay such bills of exchange (Drafts) 3. Authorizes another bank to negotiate against stipulated documents provide that terms and conditions are complied with. Types of Documentary Credit Documentary Credits may be either: (i)
Revocable or, (ii) Irrevocable.
Revocable credit A revocable credit is a credit that can be amended or cancelled by the issuing bank at any time without prior notice to the seller.
In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available. In the modern banking the use of revocable credit is not widespread. Irrevocable credit An irrevocable credit constitutes a definite undertaking of the issuing bank (since it can not be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. This sort of credit is always preferred to revocable letter of credit. Sometimes, Letter of Credits is marked as either ‘with recourse to drawer’ or ‘without recourse to drawer’. Parties to a letter of Credit The parties are The Issuing Bank, The Confirming Bank, if any, and The Beneficiary. Other parties that facilitate the Documentary Credit are:
i. ii.
The Applicant, The Advising Bank, The Nominated Paying/ Accepting Bank, and The Transferring Bank, if any. Importer – Buyer who applies for opening the L/C. Issuing Bank – It is the bank which opens/issues a L/C on behalf of the importer.
Issuing Bank (Bangladesh) Advising Bank (India)
Reimbursing Bank (Japan) Negotiating Bank (India)
iii.
Confirming Bank – It is the bank, which adds its confirmation to the credit and it is done at the request of issuing bank. Confirming bank may or may not be advising bank.
iv.
Advising / Notifying Bank – is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporters country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit. Negotiating Bank – is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank. Paying / Accepting Bank – is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank. Reimbursing bank – is the bank, which would reimburse the negotiating bank after getting payment – instructions from issuing bank.
v. vi. vii.
Some important Documents of L/C Forwarding Forwarding is the letter given by the advising bank to the issuing bank. Several copies are sent to the issuing bank. All copies including original should be kept in the bank. Bill of Exchange According to the section 05, Negotiable Instruments (NI) Act-1881, A “bill of exchange” is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay [on demand or at fixed or determinable future time] a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. It may be either at sight or certain day sight. At sight means making payment whenever documents will reach in the issuing bank. Invoice Invoice is the price list along with quantities. Several copies of invoice are given. Two copies should be given to the client and the other copies should be kept in the bank. If there is only one copy, then its photocopy should be kept in the bank and the original copy should be given to the client. If any original invoice contains the custom’s seal, then it cannot be given to the client.
Packing List Packing list is the letter describing the number of packets and there size. If there are several copies, then two copies should be given to the client and the remaining should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and the original copy should be given to the client. Bill of Lading Bill of Lading is the bill given by shipping company to the client. Only one copy of Bill of Lading should be given to the client and the remaining copy should be kept in the bank. Certificate of Origin Certificate of origin is a document describing the producing country of the goods. One copy of the certificate of origin should be given to the client and the remaining copy should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and the original should be given to the client. Shipment Advice The copy mentioning the name of the insurance company should be given to the client and the remaining copies should be kept in the bank. But if only one copy is given, then the photocopy should be kept in the bank and the original copy should be given to the bank. Import Section Imports of goods into Bangladesh is regulated by the ministry of commerce and industry in terms of the Import and Export (Control) Act, 1950, with import policy orders issued by annually, and Public Notices issued from time to time by the office of the Chief Controller of Import and Export (CCI & E). Through the process of import some vital but which are inadequate in our country products are imported to meet the local needs of the people. ABBL also play a important role of importing goods. Import Mechanism To import, a person should be competent to be and importer’. According to Import and Export (Control) Act, 1950, the officer of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He requests or instructs the opening bank to open an L/C. FORM – IMP This form is prepared for maintaining account of the money, which goes out side the country for the purpose of payment. This form is required by Bangladesh Bank. It is an application for permission under 4/5 of the Foreign Exchange Regulation Act, 1947 to purchase foreign currency for the payment of import. IMP – FORM has four copies 1. Original copy for Bangladesh Bank.
2. Duplicate copy for authorized dealers. It is issued for processing Exchange Control Copy of bill of entry or certified invoice. 3. Triplicate copy for authorized dealers’ record. 4. Quadruplicate copy for submission to the bank in case of imports where documents are retired. Following documents are sent with FORM-IMP Letter of Credit Authorization Form, a) One copy of invoice, b) Indent copy / Proforma invoice. The following information is included in the FORM-IMP i. ii. iii. iv. v. vi.
Name and address of the authorized dealer, Amount of foreign currency in words and figures, Names and address of the beneficiary, L/C Authorization Form number and date, Registration number of L/C Authorization Form with Bangladesh Bank, and Description of the goods.
Source of Finance Import may be allowed under the following sources of finance: (a) Cashi. Cash foreign exchange (balance of the foreign exchange reserve of Bangladesh Bank); ii. Foreign currency accounts maintained by Bangladeshi Nationals working/living abroad. (b) External economic aid. (c) Commodity exchange. Import Procedures An importer is required to have the following to import through ABBL--i. Applicant has to apply for opening L/C by a prescribed form. ii. Applicant has to submit the Letter of Indent or Letter of Proforma Invoice. Letter of Indent: Many sellers have their agent in seller’s country. If the contract of buying is made between the buyers and the agent of the sellers then Letter of Indent is required. Letter of Proforma Invoice: If the contract is made directly between the buyers and the sellers then Letter of Proforma Invoice is needed. iii.
Applicant has to submit IRC (Indenters Registration Certificate). It is a certificate being renewed every year. This certificate is necessary if the contract is made between the buyers and the agents of the sellers. IRC is of
two types – COM and IND. COM is given for commerce purpose and IND is given for industrial purpose. iv. Applicant has to submit LCAF (Letter of Credit Authorization Form). v. Applicant has to submit insurance document. vi. Applicant has to prepare FORM-IMP. vii. Recently, there has been made a provision to give a certificate named TIN (Tax Payers Identification Number). Taxation department issues this certificate. viii. Then after proper scrutiny bank will open an L/C. While opening L/C, importer must keep certain percentage of the document value in the bank as margin. 9.5.5 Procedures of Opening L/C to Import To open an L/C, the requirements of an importer are: a. He must have an account in ABBL. b. He must have Importers Registration Certificate (IRC). c. Report on past performance with other bank. ABBL collects this report from Bangladesh Bank. d. CIB (Credit Information Bureau) report from Bangladesh Bank. e. A proposal approved by the meeting of executive committee of the bank. It is necessary only when the L/C amount is small or there is no limit. f. If the L/C amount is large or there is a limit, then an approval from Bangladesh Bank is needed. Usually this approval is needed for amount more than one crore. Remittance in ABBL International remittances are defined as the portion of migrant workers’ earnings sent back from the country of employment to the country of origin (ILO, 2000). Remittances can be individual and it can also be collective. When individuals send remittance to his/her household or kith and kin that can be termed as individual remittance. When a group of migrants, their associations or professional bodies mobilize resource together and send for collective or community programmers that can be termed as collective remittance. Individual remittances are mostly geared towards the family whereas collective remittances are generally used for community development. Currently two types of voluntary international migration occur from Bangladesh. One takes place mostly to the industrialized west and the other to Middle Eastern and South East Asian countries. Voluntary migration to the industrialized west includes permanent residents, work permit holders and professionals. They are usually perceived as long term or permanent migrants. Migration to Middle East and South East Asia are usually for short term. The migrants return home after finishing their contract. Although long term migration is much older than short term yet information on their types, extent and composition is not available with the government. Information on the short term labor migrants who officially go overseas for employment is available with the Bureau of Manpower Employment and Training (BMET) Currently, Saudi Arabia, UAE, Kuwait, Qatar, Oman, Iraq, Libya, Bahrain, Iran, Malaysia, South Korea, Singapore, Hong Kong and Brunei are some of the major countries of destination. Saudi Arabia alone accounts for nearly one half of the total number of workers who migrated from Bangladesh. Labor market of Bangladeshi workers is not static. During
the 1970s Saudi Arabia, Iraq, Iran and Libya were some of the major destination countries. While the position of Saudi Arabia remains at the top, Malaysia and UAE became important receivers. In mid-1990s, Malaysia became the second largest employer of Bangladeshi workers. However, since the financial crisis of 1997, Bangladeshis migrating to Malaysia dropped drastically Now UAE has taken over its place. Migrants use different methods in sending remittance involving both official and unofficial channels. Officially, transfer of remittance takes place through demand draft issued by a bank or an exchange house; travelers’ checks; telegraphic transfer; postal order; account to account transfer; automatic teller machine (ATM) facilities; electronic transfer and in kind. When remittances are transferred directly from the foreign account of migrant worker to his own account at home it is known as direct transfer. This can be through telegraphic means or otherwise. Remittances are frequently sent through demand draft in Taka issued by a bank or an exchange house in favor of a nominee of migrant. Usually the draft is sent by post or in emergency by courier service. One can send remittance through the postal authorities. In such case the remitted money is handed over to the receiver by the local post office. Travelers’ cheques are also used as a means to send remittance. However they will be treated as official transaction when they are encashed through banks. While coming from abroad one can bring in foreign currency. If the amount is more than US$5000 one has to declare at customs by filling up the FMJ form. Migrants can also send remittance to their Non-resident Taka and Non-resident foreign currency accounts. Local Remittance Bank has a wide network of branches all over the country and over various kinds of remittance facilities to the public. The main instruments used by the AB Bank are 1. 2. 3.
Payment Order (PO) Demand Draft (DD) Telegraphic Transfer (TT)
Payment Order (PO) Payment Order (PO) is an instrument that is used to transfer funds within a local area, i.e. within a particular clearing house. To transfer funds from one place to another place within Dhaka, then ABBL can use PO. In AB Bank, they charge different amount of commission to remit funds on the basis of the principal amount. The chat of commission is as follows: Principal amount of PO
Commission
Up to 10,000/-
Tk. 25/-
Tk. 10,001 – Tk. 1,00,000
Tk. 75/-
Tk. 1,00,001 and above
Tk. 150/-
(Source: GB Department of AB Bank Ltd. Islampur Branch) Table 3.2: Commission on PO Demand Draft (DD)
Demand Draft is an instrument that is drawn on one bank office to another or other bank office to transfer certain sum of amount to the named person. It is generally used to remit funds from one corner of the country to another corner. DD is also a most popular instrument of remit funds. A commission of 0.15% on the principal amount or minimum Tk. 30/- has been charge for DD. • • • •
It is drawn by a Banks Branch on another branch. It cannot be made payable to bearer. Its payment cannot be stopped or countermanded. It is always payable on demand.
Telegraphic Transfer (TT) Telegraphic Transfer is been used on the demand of remit fund. Sometimes the remitter wants the money to be remit to the destination immediately. That why the bankers use TT to transfer funds from one place to another. The charge is 0.15% on principal amount for TT and additional Tk. 50/- has been charged for using telex/telephone. In case of TT both the applicant and beneficiary should have the account on the same bank in different branches.
Clearing Section For safety and security in financial transaction people use financial instrument like DD, PO, Cheque etc. commercial banks are to collect these financial instruments on behalf of its customer. This process that the banks use is known as clearing and collection. The main function of this section is to collect the instrument of customer or the collect the amount of instrument through Bangladesh Bank clearing house. There have two kind of clearing Outside Bank Clearing (OBC) and Inter Branch Clearing (IBC). The clearing section has to examine some matter. These are: 1. Whether the paying bank is within the Dhaka city. 2. Whether the paying bank is outside the Dhaka city. 3. Whether the paying bank is their own branch.
Table 3.3: Different charges of OBC Amount
Charge
Minimum Charge
Up to 25,000/-
0.20 %
Tk. 25/-
25,001 – 1,00,000
0.20 %
Tk. 75/-
1,00,001 – 5,00,000
0.10 %
Tk. 200/-
5,00,001 and above
0.05%
Tk. 600/-
Postage Charge Tk. 25/- will be applied
(Source: GB Department of AB Bank Ltd, Islampur Branch)
Problem Identification and Recommendations Problems of ABBL During collection of information and data from ABBL for this project report the following problems have been found: •
Decision making process is very lengthy and sometimes it creates problems, which is unexpected to the customers. Head office controls the decision-making and it is centralized.
•
The total number of employees in comparison with needed is very short. This is hampering the daily operation of the bank.
•
The system of loan recover aid supervision is not scientific and modern. Lack of proper explanation of records and document records keeping system is not modern and scientific.
•
ABBL is lacking of modern scientific tools to collect and disseminate the banking related information in time and proper way.
•
There is hardly any arrangement for training of lower level employees.
•
Numbers of branches are not enough to serve the people of all places of the Country.
•
The salary structure of the bank is not impartial. There is wide gap between the officers and of the staffs.
•
Loan recovery system is not fully unbiased.
•
Lacks of post credit sanction assistance.
•
Credit failed to reach the grass root level of the society.
•
LC opening process is too much lengthy.
•
High cost margin in LC opening.
•
Restriction on bill In-Land bill purchase because of non AD branch.
•
Insufficient ATM booth.
•
Credit lending policy should be easier to clients.
•
Approval policy of loans and exchange processing should be synchronized.
•
Credit management and monitoring process is not strong enough.
•
Lack of market communication.
Recommendations 1. Decision-making: Decision making power is preserved by head office Branch manager has to wait for decision from center. This system should be changed. 2. Number of Employees: A handsome number of staffs and officers are necessary to be appointed very soon for maintaining the normal flow of work. 3. Loan recovery system and supervision: Loans & Advances require regular follow-up and frequent supervision. Bank should maintain due date diary showing details information of the clients. This diary should be renewed daily. The loan officers maintain all information about the clients business and he should update the same. 4. Records keeping system: Filing and records keeping system of the bank should be modernized. At present operation system is partially computerized but management should computerize all of its function. 5. Effective information system: Effectiveness of credit policy largely depends on Bank’s branch, divisional & national level information system. 6. Development of manpower: Effective implementation of credit policy and recovery rate depends on higher educated, trained and skilled personnel. Bank should procure and develop such types of employees for its credit wings. 7. Expansion of Branches: People from different corners of Bangladesh need modern banking services and credit facilities for total economic uplift of the country. So ABBL should consider this matter from a realistic point of view and set up new branches. 8. The bank should give loan in more needful sectors.
9. Expansion of Electronic Booth all over the country.
10. Foreign exchange should be more active elaborately. 11. The branch should be empowered as AD branch. 12. Making the loan process easier for the client and for the new 13. Bank should increase the L/C margin for the client. 14. The Bank should use different IMC tools to communicate with the market. 15. Loan recovery system should be unbiased. 16. Loan and exchange process should be done within a short period of time. 17. There should be availability of ATM booth. 18. Lending policy and requirement should be easier for client. 19. Credit management and monitoring process should be more empowered. 20. Bank should increase the interest rate and should minimize the deposited amount. Conclusion AB Bank Limited, the pioneer private bank of the country has created a sense of mass participation through its diversified activities over the last 28 years. The number of client’s service recovers and supporters have been increased rapidly. For its diversified banking service, it has got a wide range of publicity and created a special image the banking area of the country. ABBL has started making profit from 1985 to still now. The report is aimed at the credit analysis and recovery system. The project is to design to serve the purpose. At the concluding stage of the report, it may be on the basis of the discussion in the project. The recovery rate of the bank is at not satisfactory level compared to previous year. Now at the end of 2009 the total classified loan of ABBL was Tk. 1762.63 million in which Tk. 1330.89 in Bad & Loss category and at the end of 2008 the total classified loan was Tk. 1258.51 million in which Tk. 1120.58 million in Bad & Loss category, but position of 2007 was Tk. 1755.95 million in classified loan and Tk. 1549.17 million in Bad and Loss category. So, compare between says that loan recovery position was not satisfactory in 2009 not only that the improved recovery situation of 2008 was recovered by Bad loans rather than good one. Bibliography
Basudevan, S.V., Theories of Commercial Banking, Reading Materials on Theory & Practices of Banking, Bangladesh Institute of Banking Management. http://www. abbank.com.bd
http://www.bangladesh-bank.org
Financial Statements of AB Bank Limited. Andley. K.K. & Mattoo, V.J., Foreign Exchange Principles and Practices, Sultan Chand & Sons, New Delhi, 1996. Awasthi, GD., Trade Payments: Commentary, Cases & Text, Academy of Business Studies, New Delhi, 1997. Balachandran, Dr. P., Foreign Exchange: A Manual for Managers, Skylark Publications, New Delhi, 1991. Basudevan, S.V., Theories of Commercial Banking, Reading Materials on Theory & Practice of Banking (B-101), Bangladesh Institute of Bank Management (BIBM), 2000. Chowdhury L.R., A Textbook On Foreign Exchange, Fair Corporation, Dhaka, 2000. Chowdhury, Dr. T.A., Modes of Payment in International Trade, Reading Materials International Trade & Finance (E-102), Bangladesh Institute of a management (BIBM), 2000.
ACRONYMS ATM
Automatic Teller Machine
BTB
Back to Back L/C
BCD
Bearer Certificate of Deposit
BL
Bill of Lading
CCI&E
Chief Controller of Import & Export
CIB
Credit Information Bureau
CAD
Cash against Document
DFCA
Depositors Foreign Currency Acc
ERC
Export Registration Certificate
FDR
Fixed Deposit Receipt
FDBP
Foreign Documentary Bill Purchase
IRC
Import Registration Certificate
IBCA
Inter Branch Credit Advice
LCAF
Letter of Credit Authorization Form
LTR
Loan against Trust Receipt
LIM
Loan against Imported Merchandise
ABBL
AB Bank Limited.