-
3.7 Methodology . 34
3.7.1 Approach ... 34
i. primary sources ii. secondary sources
3.7.2 Sampling . 35
i. population ii. Sample units iii. Sampling frame iv. Sampling
design v. Sample size
3.7.3 Data collection methods .. 36
3.7.4 Data analysis ... 36
3.8 Limitations of the study 37
3.9 Qualitative analysis ... 38
3.10 Findings .. 43
3.11 Recommendations .. 43
3.12 Conclusions. 44
Part 4: References
Part 5: Appendixes
List of Figures & Charts
Page no. Figure 1.1.5: Corporate Hierarchy at Dutch Bangla Bank,
Bangladesh 06
Figure 1.1.7.a: Corporate Hierarchy of Credit Division, DBBL
09
Figure 1.1.7.b: General Procedure for Loans and Advances 15
Figure 1.1.7.c: Loan appraisal and approval process 21
Figure 2.2: Business Credit Application Form of DBBL. 28
Chart 1.1.5: Board of directors (Corporate governance) 07
Evaluation of Credit Assessment & Risk grading management of
Dutch Bangla Bank Ltd.
Prepared by:
Moazzem Hossain ID: 0920489
An Internship report presented in partial fulfillment of the
requirements for the degree
Bachelor of Business Administration
Independent University, Bangladesh September 2012
-
Evaluation of Credit Assessment & Risk grading management of
Dutch Bangla Bank Ltd.
Prepared by:
Moazzem Hossain
ID: 0920489
Has been approved
Md. Monzoor Morshed
Lecturer
School of Business
Independent University, Bangladesh
September 2012
For Evaluation Only.Copyright (c) by Foxit Software Company,
2004 - 2007Edited by Foxit PDF Editor
-
Md. Monzoor Morshed
Lecturer
Independent University, Bangladesh
Sub: Submission of the Internship Report
Dear Sir,
I have the pleasure to submit my Internship report on Evaluation
of Credit Assessment & Risk grading management of Dutch Bangla
Bank Ltd as requirement for my graduation. You are aware that I
completed my internship program in Dutch Bangla Bank Ltd (DBBL)
from 10th June 2012 to 30th August 2012, in the banana branch of
DBBL. I feel most privileged to be associated with an experienced,
efficient and professional team in one of the most reputed Banks of
Bangladesh. I strongly believe that this report will satisfy your
requirements and expectations.
I have tried my best to make this report as informative,
practical, reliable and relevant as possible. In preparation of
this report, I have reviewed few books, journals, articles from
internet, taking few interviews and on the basis of these available
information I drew a set of recommendation which I believe will
help the credit department to improve their competence.
I appreciate your kind advice, cooperation, patience and
suggestions regarding this report, which will definitely help me to
follow as a guideline in future endeavors.
I will be available for any further query and clarification
regarding this report whenever necessary.
Sincerely,
Moazzem hossain
ID: 0920489
Dept: BBA
Independent University, Bangladesh
-
Acknowledgement
Firstly, I would like to thank my honorable faculty, Md. Monzoor
Morshed for his kind patience, guidance and support for the
preparation of this report. I will always be indebted to him for
the valuable suggestion and the time that he had spent for guiding
me through the report
I would also like to acknowledge my great appreciation toward
Mr. Shariar kabez, the head of credit department and Shuhash
Chowdhury (Associate) for being patient and supporting me
throughout my 3-month long internship program. They have provided
their time and effort to direct me throughout my time at DBBL.
My peers and colleagues at the bank had also been very kind and
helpful and they made my internship a more comfortable one. I would
like to specially thank MD.Anwarul Alam (Associate), Bulbul Ahmed
(Associate) for being there whenever I needed their support.
Last but not the least; I also want to thank all the employees
for being patient in taking part in the survey that has been so
crucial for my report.
-
Executive Summary Dutch-Bangla Bank is a second generation
commercial private Bank. The Bank commenced its banking business
with one branch on July 4, 1996. As a part of my under graduation
program, I have completed my internship in this organization.
Throughout the period of my internship, I had been working in
several departments. However, I was officially appointed to work in
the credit department. The report will reveal the background of the
company, description of the loans, findings and recommendations
based on the experience gathered. One of my major responsibilities
was to assist the clients in opening new accounts. Alongside, my
work was limited to Account opening section, Bills and clearing
section and Local Remittance section. I had been given access to
unique software, called Flexcube. I would be required to log in
with username and password, and then search for specific clients.
In one hand, I was assigned to provide account opening related
information to the new customers. Every day, one of my
responsibilities was to capture new or existing information related
to account opening and then, disseminate those information to the
clients who are interested to open accounts in DBBL. On the other
hand, I was assigned to keep a database of the information
collected. Alongside, I prepared and fill up new and existing files
for the department.
The report is based on my critical observation while working in
the credit division of DBBL. Lending is one of the principal
functions of the bank. Sound lending practice therefore, is very
important for profitability and success of a bank. For the sake of
sound lending, it is necessary to develop a sound policy and modern
credit management techniques to ensure that loans/ advances are
safe and the money will come back within the time set for
repayment. For this purpose, proper and prior analysis of credit
proposals is required to assess the risk. The success of a bank
depends on the quality of the services it offers. All the
commercial banks, therefore, try to provide quality services with
competitive interest rates. DBBL is not an exception. Although, the
comparative analysis shows that DBBL is in better position, but
there are some obstacles it faces to sustain the position. However,
the continuous improvement of the services will certainly place the
bank in the best position in one decade.
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Table of contents Page no.
Part One: Organization Profile & Overview
1.0 Banking Sector in Bangladesh 1.0.1 Overview of banking
sector .. 01 1.0.2 Current structure of banking system in
Bangladesh.. 02 1.1 Dutch-Bangla Bank Limited 1.1.1 History. 03
1.1.2 An over view of DBBL... 04 1.1.3 Mission ... 05 1.1.4
Vision.. 05 1.1.5 Organizational structure and management .. 06-07
1.1.6 Business and support activities 08 1.1.7 Credit Management of
Dutch Bangla Bank Ltd... 09-26 Part 2: My Roles &
Responsibilities 2.1 General Banking department 27 2.2 Credit
Division . 28 2.3 Other activities . 29 2.4 Experience 29 Part 3:
Research 3.1 Introduction .. 30 3.2 Statement of the problem .. 30
3.3 Purpose of the study .. 30 3.4 Objective of the study ... 31
3.5 Literature review ... 31 3.6 Conceptual Framework . 33
-
3.7 Methodology . 34
3.7.1 Approach ... 34
i. primary sources ii. secondary sources
3.7.2 Sampling . 35
i. population ii. Sample units iii. Sampling frame iv. Sampling
design v. Sample size
3.7.3 Data collection methods .. 36
3.7.4 Data analysis ... 36
3.8 Limitations of the study 37
3.9 Qualitative analysis ... 38
3.10 Findings .. 43
3.11 Recommendations .. 43
3.12 Conclusions. 44
Part 4: References
Part 5: Appendixes
List of Figures & Charts
Page no. Figure 1.1.5: Corporate Hierarchy at Dutch Bangla Bank,
Bangladesh 06
Figure 1.1.7.a: Corporate Hierarchy of Credit Division, DBBL
09
Figure 1.1.7.b: General Procedure for Loans and Advances 15
Figure 1.1.7.c: Loan appraisal and approval process 21
Figure 2.2: Business Credit Application Form of DBBL. 28
Chart 1.1.5: Board of directors (Corporate governance) 07
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Part 1 Organization Profile & Overview
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1
Organization Profile & Overview
1.0 THE BANKING SECTOR IN BANGLADESH
1.0.1 OVERVIEW OF THE BANKING SECTOR There is no denying the
fact that the financial system plays a significant role in the
economic
development of a country. The importance of an efficient
financial sector lies in the fact that, it
ensures domestic resources mobilization, generation of savings,
and investments in productive
sectors. In fact, it is the system by which a countrys most
profitable and efficient projects are
systematically and continuously directed to the most productive
sources of future growth.
Financial sector in Bangladesh, like most in developing
countries, is dominated by banking
institutions. With recent gains in financial fronts Bangladesh's
financial sector is now
comparable with most of the countries in South and East Asia in
terms of financial deepening.
Bangladesh, like other developing countries, still has an
underdeveloped financial system and is
facing serious problems with the operation of its financial
system and poor financial
intermediation presents significant disincentives to foster
economic growth.
Nevertheless, the banking sector occupies an important place in
Bangladesh because of its
intermediary role; it ensures allocation and relocation of
resources and keeps up the momentum
of economic activities. It plays a pivotal role in the economic
development of the country and
forms the core at the money market.
Banks can be defined in various ways. In Bangladesh, any
institution which accepts for the
purpose of lending or investment, deposits of money from the
public, repayable on demand or
otherwise, and is transferable by checks, draft order or
otherwise, can be termed as a bank. The
purpose of banking is thus to ensure transfer of money from
surplus unit to deficit units or in
other words, to work as the repository of money.
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2
1.0.2 CURRENT STRUCTURE OF BANKING SYSTEM IN BANGLADESH At
present, the financial system in Bangladesh is mainly composed of
two types of institutions -
banks and non-bank financial institution (NBFIs).
The formal financial sector in Bangladesh includes:
(a) Bangladesh Bank as the central bank;
(b) 47 commercial banks, including 4 Government owned commercial
banks (SOCB), 30
domestic private banks (PCBs) (of which 7 banks are operating
under Islamic Shariah), 9 foreign
banks (FCBs) (of which 1 bank is operating as Islamic bank); and
4 government-owned
specialized banks (DFIs);
(c) 31 non-bank financial institutions (NBFIs) licensed by the
Bangladesh Bank;
(d) 2 large government- owned insurance companies (life and
general) and 62 private owned
(18 life and 44 general) insurance companies;
(e) 2 stock exchanges and;
(f) Some co-operative banks
(Source: http://www.bangladesh-bank.org/fnansys/bankfi.php)
Besides, a good number of semi-formal micro finance institutions
(MFIs) also are operating in Bangladesh. Among the nine FCBs, one
such well-known multinational bank operating in Bangladesh is Dutch
BanglaBank, which will be the next focus of my report
For Evaluation Only.Copyright (c) by Foxit Software Company,
2004 - 2007Edited by Foxit PDF Editor
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3
1.1 Dutch-Bangla Bank Limited
1.1.1 HISTORY Dutch-Bangla Bank Limited is a scheduled
commercial bank. The Bank was established under
the Bank Companies Act 1991 and incorporated as a public limited
company under the
Companies Act 1994 in Bangladesh with the primary objective to
carry on all kinds of banking
business in Bangladesh. The Bank is listed with Dhaka Stock
Exchange Limited and Chittagong
Stock Exchange Limited. DBBL- a Bangladesh European private
joint venture scheduled
commercial bank commenced formal operation from June 3, 1996.
The head office of the Bank
is located at Senakalyan Bhaban (4th floor), 195, Motijheel C/A,
Dhaka, Bangladesh. The Bank
commenced its banking business with one branch on 4 July
1996.
Dutch Bangla Bank Limited (DBBL) a public company limited by
shares, incorporated in
Bangladesh in the year 1995 under companies Act 1994. With 30%
equity holding, the
Netherlands Development Finance company (FMO) of the Netherlands
is the international
cosponsor of the Bank. Out of the rest 70%, 60% equity has been
provided by prominent local
entrepreneurs and industrialists & the rest 10% shares is
the public issue. During the initial
operating year (1996-1997) the bank received skill augmentation
technical assistance from ABN
Amro Bank of the Netherlands.
DBBLs focus is to provide one counter service to clients
covering: Commercial Banking
(Deposit Accounts), Consumer Banking (Retail Baking) - Traveler
Cheques- Foreign & Inland
Remittances, Financial Services, Corporate Banking, Asset &
liability management, Liquidity &
capital Resources Management, Information technology, Human
Resources. DBBL Internet
banking enables customer to access his/her personal or business
accounts anytime anywhere
from home, office or when traveling. Internet Banking gives
customer the freedom to choose
his/her own banking hours. It can save time, money and effort.
It's fast, easy, secure and best of
all. DBBL, since its inception was active in various social
activities, which increased manifold
over the period of time and its growth. It is one of the fast
growing leading online banks in
private sector. The emergence of Dutch-Bangla Bank Ltd. in the
private sector is an important
event in the banking area of Bangladesh. The Netherlands
Development Finance Company
(FMO) of the Netherlands is the international sponsor of the
Bank. The FMO is the Dutch
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4
development bank of the Netherlands specialized in the financing
of private enterprises in Asia,
Africa, Latin America and Eastern Europe. Dutch-Bangla Bank Ltd.
came into existence with
joint venture as a public limited company incorporated in
Bangladesh on June 26, 1995 with the
primary objectives to carry on all kinds of banking business in
and outside of Bangladesh. DBBL
has started its business with foreign bank. DBBL commenced its
business as scheduled bank
with effect from July 04, 1995 with one branch-Motijheel Branch,
Dhaka, with a motto to grow
as a leader in the banking arena of Bangladesh through better
counseling and effect service to
clients and thus to revitalize the economy of the country. All
the branches are currently providing
truly On-Line banking facility. DBBL resumed its operational
activities initially with an
authorized capital of Tk.400 million and paid up capital of
Tk.202.14 million.
1.1.2 An over view of DBBL (CURRENT POSITION) Dutch-Bangla Bank
started operation is Bangladesh's first joint venture bank. The
bank was an
effort by local shareholders spearheaded by M Sahabuddin Ahmed
(founder chairman) and the
Dutch company FMO.
From the onset, the focus of the bank has been financing
high-growth manufacturing industries
in Bangladesh. The rationale being that the manufacturing sector
exports Bangladeshi products
worldwide. Thereby financing and concentrating on this sector
allows Bangladesh to achieve the
desired growth. DBBL's other focus is Corporate Social
Responsiblity (CSR). Even though CSR
is now a clich, DBBL is the pioneer in this sector and termed
the contribution simply as 'social
responsiblity'. Due to its investment in this sector, DBBL has
become one of the largest donors
and the largest bank donor in Bangladesh. The bank has won
numerous international awards
because of its unique approach as a socially conscious bank.
DBBL was the first bank in Bangladesh to be fully automated. The
Electronic-Banking Division
was established in 2002 to undertake rapid automation and bring
modern banking services into
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5
this field. Full automation was completed in 2003 and hereby
introduced plastic money to the
Bangladeshi masses. DBBL also operates the nation's largest ATM
fleet and in the process
drastically cut consumer costs and fees by 80%. Moreover, DBBL
choosing the low profitability
route for this sector has surprised many critics. DBBL had
pursued the mass automation in
Banking as a CSR activity and never intended profitability from
this sector. As a result it now
provides unrivaled banking technology offerings to all its
customers. Because of this mindset,
most local banks have joined DBBL's banking infrastructure
instead of pursuing their own.
Even with a history of hefty technological investments and an
even larger donation, consumer
and investor confidence has never waned. Dutch-Bangla Bank stock
set the record for the highest
share price in the Dhaka Stock Exchange in 2008.
1.1.3 Mission Each business unit needs to define its specific
mission within the broader company mission.
Dutch-Bangla Bank engineers enterprise and creativity in
business and industry with a
commitment to social responsibility. "Profits alone" do not hold
a central focus in the Bank's
operation; because "man does not live by bread and butter alone.
Mission statements are at their
best when they are guided by a vision.
1.1.4 Vision
To become a leading banking institution and play a pivotal role
in the development of the
Country
Vision, a compelling view of a future yet to be, creates meaning
and purpose which catapults
both individuals and organizations to high levels of
achievement. Dutch-Bangla Bank dreams of
better Bangladesh, where arts and letters, sports and athletics,
music and entertainment, science
and education, health and hygiene, clean and pollution free
environment and above all a society
based on morality and ethics make all our lives worth living.
DBBL's essence and ethos rest on a
cosmos of creativity and the marvel-magic of a charmed life that
abounds with spirit of life and
adventures that contributes towards human development.
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6
1.1.5 ORGANIZATIONAL STRUCTURE AND MANAGEMENT Dutch Bangla Bank
follows a hierarchy of command. The following organization chart
shows the chain of command that is followed at the Head Office of
the Dutch Bangla Bank in Bangladesh.
Figure 1.1.5: Corporate Hierarchy at Dutch Bangla Bank,
Bangladesh
(Source: Human Resource Department of Dutch Bangla Bank)
Managing Director
Deputy Managing Director (Administration)
Deputy Managing Director (Operation)
Senior executive vice president
Executive vice president
Senior vice president
First vice president
Vice president
Senior assistant vice president
First assistant vice president
Assistant vice president
Senior executive officer
Executive officer
Senior officer
Officer Assistant officer
Traniee officer
Aditional Managing Director
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7
Corporate governance
Board of directors
Designation
1 Mr. Abedur Rashid Khan Chairman
2 Mr. Sayem Ahmed Director
3 Mrs. Frey-Tang Yuen Mei Barbara Director
4 Mr. Md. Fakhrul Islam Director
5 Dr. Irshad Kamal Khan Independent Director
6 Dr. Syed Fakhrul Ameen Director from the Depositors
7 Mr. Chowdhury M. Ashraf Hossain Director from the
Depositors
8 Mr. K. Shamshi Tabrez Managing Director
Chart 1.1.5: Board of directors (Corporate governance) Source:
Intranet Site of Dutch Bangla Bank
(http://www.dutchbanglabank.com/about_us/board.html)
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8
1.1.6 BUSINESS AND SUPPORT ACTIVITIES Dutch Bangla Bank
operations consist of two sets of activities. One is the business
segment and
the other is the support segment. The business segment
represents the business activities of the
bank - their products, services and solutions that they offer
their clients and the support segment
represents the services that the bank provides the business
segment internally and helps them
operate efficiently.
Services offered by Dutch Bangla Bank have been customized to
suit the needs of the people in
Bangladesh. The services fall under the following business
segments:
Electronic Banking
SME Banking
Retail Banking
Corporate Banking
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9
1.1.7 Credit Management of Dutch Bangla Bank Ltd:
---My designated department--- Credit flow of DBBL: Credit Risk
Management is basic to risk management and controlling, as it is
the major risk
factor in most bank business. Therefore, a bank should assess
the degree of risk associated with
each loan and its profitability. Bangladesh bank has undertaken
a project to install a core risk
management system in every bank. DBBL Bank Ltd has also
installed the same system in respect
to asset liability management, foreign exchange management,
internal control & compliance, anti
money laundering. The bank prudently controls asset allocation
through limiting exposure to
industry sector & setting client limit. Moreover, the bank
approved a new organization structure
to accommodate core risk management perspective. In this
connection prior assessment of and
follow up on a loan transaction constitute essential ingredients
of the credit risk control process.
An in-depth analysis of the borrower financial conditions,
expected usage of funds, ability to
repay, willingness to repay and sources of repayment all
together constitute step one in the risk
control processes. The overall success in credit management
depends on the banks credit policy,
portfolio of credit, monitoring, supervision and follow-up of
the loan and advance.
The organogram for the Credit Division of the Dutch Bngla Bank
(Banani Branch) is given
below:
Figure 1.1.7.a: Corporate Hierarchy of Credit Division, DBBL
Mohammad Shahriar Kabez
(Head of credit division)
MD.Anwarul Alam (Associate)
Shuhash Chowdhury (Associate)
Bulbul Ahmed (Associate)
I work Here !!!
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10
Types of loans and advances offered by DBBL:
The making of loan and advance is always profitable to a bank.
As the bank mobilizes savings
from the general people in the form of deposit, the most
important task of it is to disburse the
said deposit as loan or advance to the mass people for the
development of commercial, industrial
who are in need of fund for investment. Like other business
firm, the main purpose of the
commercial bank is to make profit. The profitability of the
banks depends on the efficient
manner and avenues in which the resources are employed. DBBL has
made so far efficient use of
the deposit and has the classified rates under control. The Bank
disburses loan in different form.
It varies in purpose wise, mode wise and sector wide. The
varieties used by DBBL are briefly
described below with the common terms and condition and
performance in each mode.
Classification of Advance: Commercial & Industrial
Credit:
Corporate Credit Scheme. Retail Credit Scheme
Corporate Credit Scheme:
The bank is entrusted with the responsibility of providing
short, medium and long term loans and other financial assistance
for promotion of industrial sectors. There are 3 types of corporate
credit scheme:
Cash Credit
Over Draft
Secured Over draft
Retail Credit Scheme:
The bank also provides retail loan to individual customer. There
are different types of retail loan
which helps customer to fulfill their dream. Like car loan,
educational loan, travel loan etc
Lending Policies of Dutch Bangla Bank Ltd:
A loan policy gives loan officers, relationship managers and the
Banks management specific
guidelines in making individual loan decisions and in shaping
the Banks overall loan portfolio.
One of most important ways a Bank can make sure its loans meet
regulatory standard and are
profitable is to establish a written loan policy.
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11
Dutch Bangla Bank Ltd. also has a good loan policy and the most
important elements of the
policy arc stated below:
A goal statement for the Banks loan portfolio (in terms of
types, maturities, sizes, and
quality of loans).
Specification of the lending authority given to each loan
officer and loan committee
(measuring the maximum amount and types of loan that each person
and committee can
approve.)
Lines of responsibility in making assignments and reporting
information within the loan
department.
Operating procedures for soliciting, reviewing, evaluating, and
making decisions on
customer loan applications.
The required documentation that is to accompany each loan
application and what must be
kept in the Banks credit files (required financial statements,
security agreements etc.)
Lines of authority within the bank regarding who is responsible
for maintaining and
reviewing the Banks credit files.
Guidelines for taking, evaluating and perfecting loan
collateral.
A presentation of policies and procedures for setting loan
interest rates and fees and the
terms for repayment of loans.
A statement of quality standards applicable to all loans.
A statement of the preferred upper limit for total loans
outstanding (i.e. the maximum
ratio to total loans to total assets allowed.)
A description of the Banks principal trade area, from which most
loans should come.
A discussion of the preferred procedures for detecting,
analyzing and working out
problem loan situations.
A written loan policy statement carries a number of advantages
for the bank adopting it. It
communicates to employees working in the loan department what
procedures they must follow
and what their responsibilities are. It helps the Bank moves
forward a loan portfolio that can
successfully blend multiple objectives such as promoting the
banks profitability, controlling its
exposure and satisfying regulatory requirements.
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12
Lending Procedure of Dutch Bangla Bank Ltd:
The lending procedure starts with building up relationship with
customer through account
opening. The stages of credit approval are done both at the
branches and at the corporate office
level. The various stages of credit approval are described
sequentially
Step-1
A loan procedure starts with a loan application from a client
who must have an account with the
Bank. At first it starts from the branch level. Branch receives
application from client for a loan
facility. In the application client mention what type of credit
facility he/she wants from the bank
including his/her personal information and business information.
Branch Manager or the Officer-
in-charge of the credit department conducts the initial
interview with the customer.
Step-2
After receiving the loan application from the client, the bank
sends a letter to Credit Information
Bureau of Bangladesh Bank for obtaining a credit inquiry report
of the customer from there. This
report is called C1B (Credit Information Bureau) report. This
report is usually collected the
credit information of customer. The purpose of this report is to
be informed that whether or not
the borrower has taken loans and advances from any other banks
and if so, what is the status of
those loans and advances i.e. whether those loans are classified
or not.
Step-3
If Bangladesh Bank sends positive CIB report on that particular
borrower and if the Bank thinks
that the prospective borrower will be a good one, then the bank
will scrutinize the documents.
Required documents are:
In case of corporate client, financial documents of the company
for the last three to five
years. If the company is a new one, projected financial data for
the same duration is
required.
Personal net worth of the borrower(s).
In this stage, the bank will require whether the documents are
properly filled up and
duly signed. Credit in charge of the relevant branch is
responsible enquire about the ins
and outs of the customers business through discussing with
him/them.
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13
Step-4
Bank officials of the credit department will inspect the project
for which the loan is applied.
Project existence, its distance from the bank originating the
loan, monitoring cost and
possibilities are examined.
Step-5
Any loan proposal needs to be evaluated on the basis of
financial information provided by the
loan applicant. Financial spread sheet analysis which consists
of a series of quantitative
techniques is employed to analyze the risks associated with a
particular loan and to judge the
financial soundness and worthiness of the borrower. Besides
lending risk analysis is also
undertaken by the bank to measure the borrowers ability to pay
considering various risks
associated the loan. These quantitative techniques supported
with qualitative judgment are the
most important and integral part of the credit approval process
used by DBBL. This is the credit
analysis phase.
Step-6
Obtain legal opinion on the collateral provided by the
applicant, whether those are properly
submitted- regular and up to date or else those documents will
be asked to regularize by the
applicant.
Step-7
The branch starts processing the loan at this stage. Based on
the analyses (credit analysis) done
by the branch, the branch prepares a loan proposal. The proposal
contains following important
and relevant information:
Name of the borrower (s). Nature of credit. Purpose of the
credit. Extent of the credit. Collateral. Margin. Rate of interest.
Repayment schedule Validity
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14
Step-8
If the proposal meets DBBLs lending criteria and is within the
managers discretionary power,
the credit line is approved. The manager and the sponsoring
officer sign the credit line proposal
and issue a sanction letter to the client.
If the value of the credit line is above the branch managers
limit then it is send to head office or
zonal office for final approval with detailed information
regarding the client (s), credit analysis
and security papers.
Step-9
Head office processes the credit proposal and afterwards puts
forward an office notice if the loan
is within the discretionary power of the head office credit
committee or board memorandum if
the loan requires approval from the board of directors.
Step-l0
If the zonal office, credit committee of the head office or the
board as the case may be approves
the credit line, an approval letter is sent to the branch. The
branch then issues a sanction letter to
the borrower with a duplicate copy. The duplicate copy duly
signed by the borrower is returned
to the branch of the bank.
Step-11
After issuing the sanction advice, the bank will collect
necessary charge documents. Charge
documents vary on the basis of types of facility, types of
collateral.
Step-12
Finally loan is disbursed by the branch through a loan account
in the name of the borrower and
monitoring of the loan starts formally.
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15
General Procedure for Loans and Advances:
Figure 1.1.7.b: General Procedure for Loans and Advances
First information sheet (FIS)
First information sheet (FIS) is the prescribed from provided by
the respective branch that
contains basic information of the borrower. It contains
following particulars.
1. Name of the concern with its factory location, office address
and Tel no.
2. Name of the main sponsors with their educational
qualification.
1. Business experience of the sponsors, details of past and
present business, its achievement and failures, name of ill the
concerns wherein the sponsors have involvement.
4. Income tax registration no. With the amount of tax paid for
the last three years.
5. Details of unencumbered assets (movable & immovable)
personally owned by the sponsors.
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16
6. Details of liabilities with other banks and financial
institutions including securities held there against.
7. Purpose of loan sought from DBBL.
8. Estimated cost of the project & means of finance.
Application for credit line
After receiving the first information sheet from the borrower
Bank official verifies all the
information carefully. He also checks the account maintains by
the borrower with the Bank. If
the official become satisfied then he gives application to the
bank prescribe format supplied by
the bank called Credit for request limit (CRFL).
Credit Sanction & Appraisal Process
Borrowers Credit Worthiness Analysis by DBBL following 6 Cs:
The question that must be dealt with before any other whether or
not the customer can service
the loan that is pay out the loan when due with a comfortable
margin of error. This usually
involves a detailed study of six aspects of the loan
application: character, capacity, cash,
collateral, conditions and control. All must be satisfied for
the loan to be a good one from the
lenders (DBBL) point of view.
Character: The loan officer must be convinced that the customer
has a well defined
purpose for requesting credit and a serious intention to pay.
Responsibility,
truthfulness, clean past record, true purpose and honest
intention to repay the loan
make up what a loan officer calls character.
Capacity: The customer requesting credit must have the authority
to request such
and the legal standing to sign a binding loan agreement.
Cash: The borrower should have the ability to generate enough
cash flow to repay
the loan. This cash flow can be generated from sales or income
from the sales or
income, from the sale of liquidation of assets or funds raised
through debt or equity
securities.
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17
Collateral: The borrower must possess adequate net worth or
enough quality assets
to provide adequate support for the loan. The value of the
collateral security must
cover the loan exposure.
Conditions: The recent trend of borrowers line of work or
industry must be taken
into considerations by the lender.
Control: The lender should be careful about whether changes in
law and
regulations could adversely affect the borrower and whether loan
request meets the
Banks and regulatory authorities standards for loan quality.
Collecting CIB Report from Bangladesh Bank
After receiving the application for credit line, Bank sends a
letter to Bangladesh Bank for
obtaining a report from there. This report is called CIB (Credit
Information Bureau) report.
Basically branch seeks this report from the head office for all
kinds of loans. The purpose of this
report is to being informed that whether the borrower the
borrower has taken loan from any other
bank; if yes, then whether the party has any overdue amount or
not.
Making Credit proposal (CP)
Branch then has to find the right borrower by considering the
following 6 Cs. These are
character, capital, capacity, cash, collateral, condition
(economic). If the branch thinks that the
project is feasible then he will prepare a Proposal. Bank
prepares the proposal in a specific from
called credit proposal. Significance the proposal branch sends
it to head office for approval.
Credit assessment
A thorough credit and risk assessment should be conducted prior
to the granting of loans, 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, and is recommended by Branch
Credit Committee (BCC). 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 banks Lending Guidelines and
should conduct due diligence on
new borrowers, principals and guarantors.
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18
Credit Applications should summarize the results of the RMs risk
assessment and include as a
minimum, the following details:
Amount and type of loan(s) proposed
Purpose of loans
Loan structure (Tenor, Covenants, Repayment Schedule,
Interest)
Security arrangements
In addition, the following risk areas are analyzed:
Borrower analysis
Industry analysis
Supplier/ Buyer analysis
Historical financial analysis
Projected financial performance
Account conduct
Adherence to lending guidelines
Mitigating factors
Loan structure
Security
Risk Grading
All Banks should adopt a credit risk grading system. The system
should define the risk profile of
borrowers to ensure that account management, structure and
pricing are commensurate with the
risk involved. Risk grading is a key measurement of a Banks
asset quality, and as such, it is
essential that grading is a robust process. All facilities
should be assigned a risk grade. Where
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19
deterioration in risk is noted, the Risk Grade assigned to a
borrower and its facilities should be
immediately changed. Borrower Risk Grades should be clearly
stated on Credit Applications.
Project Appraisal
It is the pre-investment analysis done by the officer before
approval of the project. Project
appraisal in the banking sector is needed for the following
reasons:
1. To justify the soundness of an investment
2. To ensure repayment of bank finance
3. To achieve organizational goals
4. To recommend if the project is not designed properly
Head Office Approval
The respective officer of Head Office appraises the project by
preparing a summary named Top
Sheet or Executive Summary. Then he sends it to the Head Office
Credit Committee (HOCC)
for the approval of the loan. The Head Office Credit Committee
(HOCC) considers the proposal
and takes decision whether to approve the loan or not. If the
loan is approved by the HOC C, the
HO sends the approval to the concerned branch with some
conditions. These are like.
Drawing will not exceed the amount of bill receivables. The tern
over in the account during the tenure of the limit should not be
less than four
times of the credit limit. All other terms and conditions, as
per policy and practice of the bank for such advance to
safeguard the bankers interest shall also be applicable for this
sanction also. Branch shall not exceed the sanctioned limit.
Required charge documents with duly stamped should be obtained.
Drawing shall be allowed only after completion of mortgage
formalities and other
security arrangement.
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20
Sanction letter
After getting the approval from the HO, the branch issues the
sanction letter to the borrower. The
borrower receives the letter and returns a copy of this letter
duly signed by him as a token of
having understood and acceptance of the terms and conditions
above.
Documentation of loans and advances
In spite of the fact that banker lends credit to a borrower
after inquiring about the character,
capacity and capital of the borrower, he must obtain proper
documents executed from the
borrower to protect him against willful defaults. Moreover, when
money is lent against some
security of some assets, the document must be executed in order
to give the banker a legal and
binding charge against those assets. Documents contain the
precise terms of granting loans and
they serve as important evidence in the law courts if the
circumstances so desire. That is why all
approval procedure and proper documentation shall be completed
before the disbursement of the
facilities. The documents for loans and advances can be
classified into two categories, namely
Charge documents & Security documents
Disbursement
After verifying all the documents the branch disburses the loan
to the borrower. A loan
repayment schedule is also prepared by the bank and given to the
borrower.
Follow-up
After the disbursement of the loan bank officials time to time
monitor the loan by physical observation of the activities of the
party. It is done in the following manner.
Constant supervision
Working capital assessment
Stock report analysis
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21
Diagrammatically the whole loan appraisal and approval process
is:
Figure 1.1.7.c: Loan appraisal and approval process
Request for credit from the client to a branch
Credit application from filled up by the customer &
collection of document
Scrutinizing the document
Analyzing the information
Sanctioning the credit
Preparing the proposal
The proposal; goes to the head office through other necessary
steps
The proposal; goes to the head office through other necessary
steps
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22
Loan classifications
Classifications Scale
1. Unclassified: Repayment is regular
2. Substandard: Repayment is irregular or stopped but has
reasonable prospect of improvement.
1. Doubtful Debt: Unlikely to be repaid but special collection
efforts may result in partial recovery.
4. Bad/loss: Very little chance of recovery.
Credit Monitoring
Monitoring is a process of taking case of loan cases starts from
the selection of the borrower and
remains live throughout the life of a loan.
To minimize credit losses, monitoring procedures and systems
should be in places that provide
an early indication of the deteriorating financial health of a
borrower. At a minimum, systems
should be in place to report the following exceptions to
relevant executives in CRM and RM
team:
Past due principal or interest payments, past due trade bills,
account excesses, and breach
of loan covenants;
Loan terms and conditions are monitored, financial statements
are received on a regular
basis, and any covenant breaches or exceptions are referred to
CRM and the RM team
for timely follow-up.
Timely corrective action is taken to address findings of any
internal, external or regulator
inspection/audit.
All borrower relationships/loan facilities are reviewed and
approved through the submission of a
Credit Application at least annually.
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23
Credit Risk Grading
Manual of Bangladesh Bank was circulated by Bangladesh Bank vide
BRPD Circular No. 18
dated December 11, 2005 on Implementation of Credit Risk Grading
Manual which is primarily
in use for assessing the credit risk grading before a bank lend
to its borrowing clients.
Well-managed credit risk grading systems promote bank safety and
soundness by facilitating
informed decision-making. Grading systems measure credit risk
and differentiate individual
credits and groups of credits by the risk they pose. This allows
bank management and examiners
to monitor changes and trends in risk levels. The process also
allows bank management to
manage risk to optimize returns.
The following step-wise activities outline the detail process
for arriving at credit risk grading.
Step I : Identify all the Principal Risk Components Step II :
Allocate weight ages to
Principal Risk Components
Step III : Establish the Key Parameters
Step IV: Assign weight ages to each of the key parameters.
Step V: Input data to arrive at the score on the key
parameters.
Step VI: Arrive at the Credit Risk Grading based on total score
obtained.
(Source: CREDIT RISK GRADING MANUAL of Bangladesh Bank)
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24
PRINCIPAL RISK COMPONENTS:
KEY PARAMETERS: WEIGHT:
Financial Risk
Leverage
Liquidity
Profitability
Coverage
15%
15%
15%
5%
50%
Business/Industry
Risk
Size of Business
Age of Business
Business Outlook
Industry growth
Market Competition
Entry/Exit Barriers
5%
3%
3%
3%
2%
2%
18%
Management Risk
Experience
Succession
Team work
5%
4%
3%
12%
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25
Security Risk
Security coverage
Collateral coverage
Support
4%
4%
2%
10%
Relationship Risk
Account conduct
Utilization of limit
Compliance of covenants
Personal deposit
5%
2%
2%
1%
10%
(Source: CREDIT RISK GRADING MANUAL of Bangladesh Bank)
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26
The following is the proposed Credit Risk Grade matrix based on
the total score obtained by an applicant.
(Source: CREDIT RISK GRADING MANUAL of Bangladesh Bank)
-
Part 2: My Roles & Responsibilities
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27
My Roles & Responsibilities
2.1 General Banking department:
I started my internship in General banking department. General
Banking department generally deals with five sections. However, my
work was limited to Account opening section, Bills and clearing
section and Local Remittance section. I had been given access to
unique software, called Flexcube. I would be required to log in
with username and password, and then search for specific clients. .
A view of the software platform is availed in the appendix for a
better understanding.
The truly online core banking software, Flexcube has been
running since 2004 in DBBL.
Meantime, the number of customers, accounts, ATMs, Point of
Sales (POS) terminals and
cards has increased enormously. To ensure better customer
service, the bank is upgrading
its core banking software from its present version to Flexcube
Universal Banking
Solution (UBS). In parallel, the whole setup of hardware is
being upgraded to cope with
the increased volume of transactions from different delivery
channels. The core team
formed in this regard is working day-night in configuring &
testing of the new system
which is expected to go live soon.
(Source: Report on Automation of Dutch Bangla Bank)
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28
2.2 Credit Division:
During my internship, I spend around two months in credit
division. During this period, my specific responsibilities were as
follows:
Creating Spread and updating previous spreads:
In case for a new client, whose financial records has not
previously been entered into the system, I would be required to
create new spread for specific clients based on the company
financials provided.
Entering reported figures:
Sometime I assist them to verify their old reports as well as
completed those by entering the PIN code, passport and National ID
of their clients. I prepared some spread sheet of their loan
classification, SOD account information and etc.
Business Credit Application (BCA):
Business Credit Application (BCA) is a document that allows a
business to apply for credit privileges with a company. The
information the business provides in a business credit application
allows for an investigation into its credit worthiness.
Dutch Bangla Banks BCA are designed to facilitate better
understanding of customers risk assessment and needs identification
for both Relationship Manager (RMs) and the approvers.
I used to assist them to fill up their BCA form. During my
internship period, banks internal audit was on, so I helped them to
fill up their incomplete forms
Figure 2.2: Business Credit Application Form of DBBL.
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29
Factory visit report:
Factory visit is part of the process in evaluating clients
operational activities and granting credit approval. A general
template is used to record information upon a visit to a clients
factory. I have worked on such template to record information based
on the notes taken by an associate of local corporate, while
gathering additional information from the clients company
websites.
2.3 Other activities
Writing business letters to clients
Using spreads to create database of clients
Use of spread sheet system to prepare labels of a large list of
clients
Organizing and updating local corporate database and previous
reports.
2.4 Experience:
During the period of my internship, my responsibilities were
diverse in nature. At first, I was assigned to learn different
phases of work. Then, I start working in different sections.
Through this internship, I got a chance to be a part of our
corporate sector.
As I spent most of my time in credit division, I want to share
one of my personal observations One day I was working beside, Mr.
Shariar kabez, the head of credit department, two clients came in.
The way they were taking, it indicates that they have a sound
relationship with this bank. One of them is a guarantor of a loan.
The borrower of that loan was not repaying, so bank was claiming
that guarantor. Guarantor was worried about his record and asking
bank to claim the borrower and get that car back (it was a car
loan). As borrower is a son of a politician, bank was failed to
reach him.
So in this case, it shows that clients past record and rating
have a major influence in our banking sector and the unrest
situation of our politics is affecting our economy.
-
Part 3: Research
Evaluation of Credit Assessment & Risk grading management of
Dutch Bangla Bank Ltd.
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30
3.1 Introduction
The increased number of bankruptcy cases worldwide, both
corporate and personal, is the main reason for the renewed interest
in credit risk management. A bad loan situation often arises from a
combination of factors, amongst which the major one is the absence
of an adequate system to classify loans properly and to identify
problem loans promptly so as to minimize the potential defaults and
consequent losses. More defaults mean more missed loan payments and
a reduction in profitability for banks. Poor management of credit
risk is considered to be the major cause of banks bad performance
and often the reason for their bankruptcy.
3.2 Statement of the Problem
Credit risk rating systems are becoming an increasingly
important element of commercial banks measurement and management of
credit risk. Such an importance has in fact been highlighted in the
proposed Credit Risk Grading Manual of Bangladesh Bank was
circulated by Bangladesh Bank vide BRPD Circular No. 18 dated
December 11, 2005,that includes the internal rating approach to
credit risk as one of its cornerstones. This paper attempts to
investigate the extent to which the credit rating systems are used
in DBBL based on a recent survey.
3.3 Purpose of the Study
The report is based on my critical observation while working in
the loans and advancement division of DBBL. The report reveals the
various types of loan scheme and the criterion to get the loan and
the risk grading system.
This report will not only help the management of the bank, but
also the stakeholders on a whole. Different financial institutions
can be motivated to consider the study conducted in this report, in
order to improve the various offerings of the transaction banking
services for clients.
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31
3.4 OBJECTIVES OF THE STUDY
I. Broad/General Objective of the report are:
To achieve a wide knowledge of the various types of loan scheme,
credit assessment procedure and risk grading system of DBBL
bank.
II. Specific Objectives of the report are:
To examine the knowledge level of clients regarding the services
of credit division. To
investigate employees views regarding the quality and standard
of the services offered by
credit division.
To identify the gaps between the services and solutions that
clients want from this
segment and those which are actually being provided by credit
division.
To suggest ways of improving the services and solutions offered
by credit division to
accommodate the rapidly growing client base of Dutch Bangla
Bank.
3.5 Literature Review
Banks manage a wide range of assets, liabilities, and equity
capital that support their operations and activities. Proper risk
management is therefore a vital and integral part of effective bank
operation. Widely cited risks include credit risk, interest risk,
liquidity risk and operational risk. All these risks are derived
from banks most fundamental and traditional roles of lending and
borrowing. Among those risks, credit risk, which is associated with
the potential variability of the stream of cash flows from an
asset, is one of the most crucial ones, as it is often appointed as
the cause of a bank failure. To perfect its credit risk assessment,
monitoring and management, banks use a variety of methods and
tools. In the past few years, banks have been adopting and
improving credit scoring system so as to evaluate certain types of
loans more objectively, accurately and efficiently. Recently, the
industry has started implementing credit rating as a mechanism to
better manage its credit risk and to improve its overall portfolio
performance.
Credit risk rating is a summary indicator of risk for banks
individual credit exposures and is generally assigned at the time
of each underwriting or credit approval and reassessed during the
credit review process. It functions as the barometer for the banks
to measure their credit risk exposure to each individual customer,
either in isolation or as part of their loan portfolio. The rating
allows banks to measure the relevant default probabilities at
different rating levels more accurately. It helps banks to reduce
their risk exposure and to improve their profitability by
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32
reducing the number of potential default loans as well as
minimizing the cost associated with bad debt recovery.
Although the major objective of credit rating is to determine
the ability and willingness of a borrower to pay at the agreed
terms, the rating does a bit more than just classifying the
borrowers into pass and fail categories. The most important
benefits for banks in using the rating system to assess their loans
include:
Credit Risk Rating System in the Banking Sector
Identify and decline potential risky applicants Reduce losses
due to defaults Price the loan properly Increase liquidity Maximize
the profit Improve monitoring process Reduce monitoring cost
Minimize administrative costs with debt collection Help banks to
achieve their objectives Allow allocation of resources where they
are more productive Avoid loan concentration
Treacy and Carey (2000) suggest that in designing a credit
rating system, a bank should consider numerous factors, including
cost, efficiency of information gathering, consistency of rating
produced, staff incentives, nature of a banks business, and uses to
be made of the internal ratings. They notice that the proportion of
grades used to distinguish among relatively low-risk credits versus
the proportion used to distinguish among riskier pass credits tend
to differ with the business mix of a bank. A rating system with
more rating categories is better than a system with just a few
categories.
Finer distinctions of risk, especially among riskier assets, can
enhance a banks ability to analyze its portfolio risk exposure.
However, an internal rating system with larger number of grades is
costly to operate because of the extra work required to distinguish
finer degrees of risk.
When assigning a loan applicant to a particular grade, Crouhy et
al. (2001) suggest that banks should analyze three different
categories of variables quantitative, qualitative and legal. The
quantitative analysis concentrates mainly on financial analysis and
is often based on a firms financial reports. The four main
quantitative factors used in the assessment model include net
income, total operating income, total equity capital and total
asset values. These factors allow the banks to calculate a variety
of ratios including return on assets (ROA), return on equity (ROE)
and assets utilisation (AU), etc. Once computed, these ratios would
be compared with the Credit Risk Rating System in the Banking
Sector industry standard. In addition to the information disclosed
in the financial statements, the rating also includes information
about the quality of
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33
collateral and the third party support. For certain type of
loans like overseas loans or loans for customer in import/export
business, country risk is also another important factor to take
into account.
3.6 CONCEPTUAL FRAMEWORK
Hypothesis:
There is a major influence of reliability and responsiveness of
a client on credit sanction, because the loan officer must be
convinced that the customer has a well defined purpose for
requesting credit and a serious intention to pay. As well as
accessibility, assurance factor of the client and credit monitoring
policy of the bank have major impact on credit risk.
Credit Sanction Credit Risk
Dependent Variable
Reliability Responsiveness Accessibility Assurance Factor Credit
Monitoring
Independent Variable
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34
3.7 METHODOLOGY
3.7.1 APPROACH
My objective was to find out specific correlations between the
independent and dependent variables associated in this research
subject matter. Therefore, my objective was to look at the
relationship between various services provided by Credit department
as well as proper and prior analysis of credit proposals of the
same sector.
For the purpose of my research, I initially designed a
descriptive- correlational study to assess whether there is any
correlation among the variables. This method would be most
effective as I am trying to find out the extent of the associations
between the variables, whether any exists, as well as their
statistical significance on my overall research. However, due to
time constraints and imitational length of the project, only
qualitative study has been made over the findings from this
research.
The research has been carried out over a one period of time
through questionnaires answered by the employees using the
conventional method of personal interview.
Further information used to prepare this report has been
collected from both primary and secondary sources. The primary
sources have provided the report with reliable data and information
relating to Local clients and the banks operations. On the other
hand, the secondary sources have been an indispensable source of
information regarding the historical background of the bank, its
functions, and descriptions of its various departments and
products.
i. PRIMARY SOURCES
Data collected from the employees by personal interview
conducted through questionnaires.
Informal discussion with the banks staff, especially the credit
division managers of the corporate segment.
Relevant data from the banks reports, presentations and other
documents.
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35
ii. SECONDARY SOURCES
Annual reports of the Dutch Bangla Bank. Various product and
service brochures. Intranet Site of the Dutch Bangla Bank. Official
local website of the Dutch Bangla Bank. Various web researches.
3.7.2 SAMPLING
i. POPULATION
The population targeted for this research was mainly the
employees of the bank.
ii. SAMPLE UNITS
The sampling unit in case of this research consisted of the
employees taken from the population of the bank.
iii. SAMPLING FRAME
The sampling frame usually contains a list of elements from
which the sample is drawn. The survey has been conducted among
different levels of employees representing industries like manager,
senior officer, officer etc. Also, all levels of managers have been
considered starting from associate to associate directors of this
segment.
iv. SAMPLING DESIGN
The sampling frame usually contains a list of elements from
which the sample is drawn. The survey had been conducted among
different levels of of employees representing industries like
manager, senior officer, officer etc.
v. SAMPLE SIZE
The sample size consisted of 20 respondents who are the
employees of the bank. Employees may not reveal information through
online survey due to confidentiality concerns. Also, because of
time constraint it will not be possible to go to every employee and
take the survey. For this research, those employees will be chosen
who has maximum possibilities of answering the survey questions.
So, keeping limitations in mind, a sample size of 20 has been
chosen from the banana branch of Dutch bangla bank.
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36
3.7.3 DATA COLLECTION METHODS
Employees are usually less in number at the same time corporate
clients may not reveal information through online survey due to
confidentiality concerns. The questions were prepared in such a way
keeping their confidentiality concerns in mind. Also, because of
time constraint it was not possible to go to every employee and
take the survey. Therefore, data for this report was collected
through structured questionnaires from employees, who were asked by
personal interview with the help of the respective relationship
managers of the credit division. Also, informal discussions with
the relationship managers of the segment provided invaluable data
for the report. Published statistics relating to the bank and Local
clients was also used in this report.
3.7.4 DATA ANALYSIS
Analysis can be done for both qualitative and quantitative data.
Due to time constraints and many other limitations, only
qualitative research has been done to limit the research to a
reduced length as required by the internship program in the
university. To analyze the data collected in the survey through
questionnaires, analysis was conducted mainly through the use of
Microsoft Excel.
3.8 LIMITATIONS OF THE STUDY
The survey was limited to the local clients of the wholesale
banking division only.
Lack of comprehension and responsiveness of the clients was a
major problem in the collection of data.
Large-scale research was not possible due to constraints and
restrictions posed by the bank as well as the university.
Confidentiality of data acted as a barrier during the study, as
banks have confidential data related to its operations and clients
which they did not want to reveal.
Time constraint was also one of the factors that curtailed the
scope of the study. Rush banking hours and hectic schedules of the
banking staff was another obstacle to the
scope of the study. The Mangers of the concerned department were
busy meeting their targets and it was very difficult for me to get
some practical ideas regarding their ideas, expectations and
opportunities regarding my topic.
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37
3.9 QUALITATIVE ANALYSIS
Qualitative questions were relatively less in the questionnaire
that has been prepared for the
credit officers. Through questionnaire respondents had a chance
to express their views openly
about credit assessment and credit rating policies.
Unfortunately, not many respondents had clear
views about the qualitative questions and only few responses
were fit to be recorded. Also, some
responses were found to be repetitive and therefore only some
responses were suitable to be
presented as part of the analysis.
Which credit reporting agency does your bank use?
Credit Rating Information and Services Ltd (CRISL)
Credit Rating Agency of Bangladesh Ltd (CRAB)
National Credit Ratings Ltd
Emerging Credit Rating Ltd
Most of the officers responded with CRAB as credit rating agency
for the bank. Few were
skipped this question as they were not sure about the
agency.
0123456789
10
CRISL CRAB National CreditRating Ltd
EmergingCredit Rating
Ltd
No Response
Credit Rating Agency of Bangladesh (CRAB) Limited has assigned
A1(Pronounced Single A One) rating in the Long Term and ST-2 in the
Short Term to Dutch-Bangla Bank Limited in view of the performance
of the Bank for the last business Year. (Source: Rating Report
-Dutch Bangla Bank Limited)
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38
Did the Bank update its credit rating for the last financial
year within six months from the date of close of the financial
year?
Yes
No
Not Always.
Credit Rating report of a bank is an important tool for the
borrower. To do a sound practice, bank
should update their important data on time. According to the
response bank is concern about
updating their credit rating but sometime, due to pressure of
other work, they fail to do that.
0
2
4
6
8
10
12
Yes No Not Always
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39
Did the Bank fully secure itself against all guarantees issued
for the conditions mentioned in the Regulation of Bangladesh
Bank?
Yes
No
Not Always.
The borrower must possess adequate net worth or enough quality
assets to provide adequate
support for the loan. The value of the collateral security must
cover the loan exposure. The recent
trend of borrowers line of work or industry must be taken into
considerations by the Bank.
0
2
4
6
8
10
12
14
16
Yes No Not Always
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40
If bank uses a credit rating score that results in an adverse
effect on qualification or rating of the applicant, do you advise
the applicant?
Yes, in all cases Yes, in some cases No, not at all Not
applicable
The Credit Risk Grading Manual released by Bangladesh Bank
earlier was applicable only in
case of lending to commercial clients. Now its mandatory for all
borrowers. So having a sound
credit rating is important in business culture. Bank always
updates their data, so if they find any
downward indication about their clients they notify them.
0
1
2
3
4
5
6
7
8
9
Yea, inall case Yes, in some case No, not at all Not
applicable
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41
Does factory visits are made before approved the loan?
Yes
No
Not Always.
Factory visit is part of the process in evaluating clients
operational activities and granting credit
approval. According to their response bank does a factory visit
most of the time, especially in
case of a new business project. But some time, if the client has
a good past record and a sound
relationship with bank, they skipped this segment.
0
1
2
3
4
5
6
7
8
9
10
Yes No Not Always
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42
Does the officers well aware of different business type?
Yes
No
Not Always.
The loan officer must be convinced that the customer has a well
defined purpose for requesting
credit and a serious intention to pay. To clarify clients
project, loan officer should have a sound
knowledge about that project. But according to their response,
officers are not well aware of all
type of projects.
0
1
2
3
4
5
6
7
8
9
Yes No Not Always
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43
3.10 Findings:
Bases on observation and interpretation I found some positive
and negative side in DBBL. Those are given below:
Bank Follow the overall credit assessment and risk grading
process according to
Bangladesh Bank at maximum case.
Loan and the advances are vital to finance the projects. An
appropriate credit
distribution system and monitoring will ultimately lead to the
profit maximizing of
banks. It is evident from that the size of DBBL loans and
advances are increasing over
the years. It indicates mire earning for the bank. It shows a
positive growth rate.
DBBL has a positive growth rate in Net profit.
PROBLEM IDENTIFICATIONS:
The Bank does not go through back ground investigation all
parties.
Some time the loan documentation is not fairly done.
Some time the document verification is done after loan
sanction.
The SME loan section is very poor because they focused on
corporate loan.
3.11 RECOMMENDATIONS
The Bank can organize more training program and workshop to make
the employees
more efficient in their sector.
The Bank has to establish a strong Credit Manual.
The Bank has to go through back ground investigation of all
partys.
All the loan documentations have to done honestly.
All the document verifications have to done before loan
sanction.
The Bank has to construct a long term strong investment
policy.
The Loan and Advance section has to make strong and the
employees have to be devoted
to the Bank.
The Bank has to give emphasis the SME loan section.
The Bank should introduce more loan section.
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44
3.12 Conclusion Dutch-Bangla Bank Limited is one of the most
potential Banks in the banking sector. It has a large portfolio
with huge assets to meet up its liabilities and management of this
bank is equipped with the export bankers and managers in all level
of management. So it is not an easy job to find out the drawbacks
of this branch. It has been observed that DBBL started its banking
services with a view to minimize the customers needs by offering
different products and services which are easy and affordable for
all level of customers. To that extent, DBBL always emphasizes its
customer services, product development, resource management, branch
networking and the contribution to the economic development of the
country. The bank also provides social services through DBBF as
their social responsibility. The success of a bank depends on the
quality of the services it offers. All the commercial banks,
therefore, try to provide quality services with competitive
interest rates. DBBL is not an exception. Life line package has
been developed with the same purpose. Although, the comparative
analysis shows that DBBL is in better position, but there are some
obstacles it faces to sustain the position. However, the continuous
improvement of the services will certainly place the bank in the
best position in one decade.
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PART 4: References
Books
Cooper, Donald R. Schindler, Palmer. S. (2009) Business Research
Methods (9th Ed). McGraw Hill.
Journals and Reports
Internal Credit Risk Rating Systems in the Macao Banking
Sector.
http://www.amcm.gov.mo/publication/quarterly/Jan2007/!%20InternalCredit_en.pdf%20
(20070214)
A Loan Assessment System for Centenary Rural Development
Bank.
http://dspace.mak.ac.ug/bitstream/123456789/617/3/nassali-josephine-cit-masters-
report.pdf
Focus group, 2007. Credit Risk Management Industry Best
Practices. Available at:
http://www.bangladesh-bank.org/mediaroom/corerisks/creditrisk.pdf
Crouhy, M., D. Galai, and R. Mark (2001), Prototype Risk Rating
System, Journal
of Banking and Finance, No. 25, 47-95.
Treacy, W. F. and S. M. Carey (2000), Credit Risk Rating System
at Large U.S.
Banks, Journal of Banking and Finance, No. 24, 167-201.
Rating Report of Dutch Bangla Bank Limited
Report on automation of DBBL.
Guidelines for Credit Management of Bangladesh Bank 1996.
Credit Management Policy Order: 2008 2009
Websites:
http://www.dutchbanglabank.com http://www.bangladesh-bank.org
http://www.e-mortgages.com.au/credit-assessment/default.aspx
www.thefinancialexpress-bd.com
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Part 5: Appendixes Questions (Used For Qualitative Analysis) 1.
Did the Bank get itself credit rated by a credit rating agency,
which is on the approved by Bangladesh Bank? # Yes # No # Not
Always. 2. Did the Bank update its credit rating for the last
financial year within six months from the date of close of the
financial year? # Yes # No # Not Always. 3. Did the Bank submit the
credit rating report complete in all respects to the Bangladesh
Bank within seven days of its receipt from credit rating agency? #
Yes # No # Not Always. 4. Did the Bank make public the credit
rating report within seven days of its receipt from the credit
rating agency? # Yes # No # Not Always. 5. Did the Bank disclose
prominently its credit rating in its published annual and quarterly
financial statements? # Yes # No # Not Always. 6. Did the Bank
fully secure itself against all guarantees issued for the
conditions mentioned in the Regulation of Bangladesh Bank? # Yes #
No # Not Always. 7. In Banks view, is the credit rating score of an
applicant a valid predictor about future credit loss experience? #
Yes # No # Not Always.
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8. Which credit reporting agency does your company use?
Credit Rating Information and Services Ltd (CRISL) Credit Rating
Agency of Bangladesh Ltd (CRAB) National Credit Ratings Ltd
Emerging Credit Rating Ltd
9. What type of Credit rating score does Bank use?
A credit score provided by a credit reporting agency. A third
party report. Credit information or history only, no credit score
provided by a credit reporting
agency. Others.
10. How long has bank been using any form of credit rating score
in the evaluation of personal property risks?
3 years or less 4 to 10 years More than 10 years
11. When there is more than one applicant, which credit rating
score does bank use in the qualification of new business if the
scores are different?
Highest CIB score
Lowest CIB score
Do not use
Other:
12. Does your company use CIB scores as a factor in deciding
whether or not to underwrite or renew a personal property insurance
policy?
Yes No Do not use
13. How is the consent obtained? Select all that apply.
Verbally On-line application On the paper application Companys
own specific consent document Do not obtain consent Other:
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14. If bank uses a credit rating score that results in an
adverse effect on qualification or rating of the applicant, do you
advise the applicant?
Yes, in all cases Yes, in some cases No, not at all Not
applicable
15. Does bank provide credit agency information to the applicant
so that the applicant can verify the information?
Yes Yes, upon request No Not applicable
16. If an applicant has credit information corrected or changed
by the credit agency and informs you, will bank make rating
changes?
The changes will be made as of the most recent effective date
The changes will be made as of the date we are notified The changes
will be made at the next effective date The changes will be made
when the next credit rating score is obtained No changes will be
made
17. How often is the credit rating score updated?
More than once a year Annually Every two or more years Only on
request Never
18. When your company accesses a CIB score, does its inquiry
have an impact on the applicant/policyholders credit rating?
Yes, hard hit No, soft hit Not at all Do not know Not
applicable
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19. Is a credit rating score shared with other insurers?
Yes, on a request basis only Yes, only within the group of
affiliated companies No
20. Does factory visits are made before approved the loan? # Yes
# No # Not Always. 21. Does the officers well aware of different
business type? # Yes # No # Not Always.
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Figure: Flexcube
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List of the employees
Md. Mahbubul Alam
Deputy Manager
Md. Shariar kabez Head of Credit Division
Md. Anwar Alam Associate officer
Shuhas Chowdhury Associate officer
Bulbul Ahmed Associate officer
Md. Mahbubur Rahman Executive officer
Mrs. Tania Haq Associate officer
Md. Jashim uddin Associate officer
Tanvir Alam Associate officer
Mizanur Rahman Associate officer
Aminur Rahman Officer
Manun al Hasan Officer
Kamrul Chowdhury
Officer
Saim Chowdhury Officer
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BORROWER / CLIENT ELIGIBILITY FORM