EXIM Bank

Loan Disbursement & Credit Risk Grading on EIXM BANK

INTRODUCTION

Banking is essentially a business dealing organization with money and credit like all other business activates. Banks are profit-oriented organization. EXIM Bank is a lending bank in loans and advances and it grant loans in various sectors especially in industry, trade and commerce

OBJECTIVES OF THE REPORT

• The objectives of the study are as follows:• To know about the financial performance of

EXIM bank.• To know about the loan disbursement process

of Exim bank.• To know about the client ratings process of

Exim bank.• To know about the loan repayment process of

Exim bank.

SCOPE

My study area comprises information regarding types of loan ,interest rate ,recovery systems and credit risk grading on EXIM bank in 2013 ( till June).

METHODOLOGY OF THE STUDYSecondary data: To provide the report properly some information has been collected from the officials of EXIM Bank Ltd. And Internet Browsing is also one source of external Secondary data

HISTORICAL BACKGROUND OF THE EXIM BANK

• EXIM Bank- Export Import Bank of Bangladesh Ltd. was named at first as BEXIM Bank. BEXIM stands for Bengal Export Import of Bangladesh. This new commercial Bank was opened in August 03, 1999 with some new innovative visions in customer services.

OVERVIEW OF THE BANK

• Exim bank is only one export import bank in our country. It was established in 1999.

• EXIM Bank is using the T24 Islamic Banking Solution of Temenos which is already a recognized world leader in banking software technology with over 700 installations in over 125 countries, and more than 40 installations for Islamic Banking.

• International Award –“–“ International Diamond Prize for Excellence in Quality" award and "World Finance" award.

• Achievements- “First private sector bank to open exchange house in UK’’

PRESENT SITUATION OF EXIM BANK LTD

• Authorized Capital: The authorized capital of the bank at present remained at Tk. 20000 million .

• Paid up capital: Tk. 10,515 million.• Reserve fund: Reserve fund Tk.3, 954.5million.• Face Value: Tk. 10• Profit/ (Loss) after tax: Tk. 2157,631,285.• Retained Earnings: Tk. 1,367,293,534.• Total Liabilities: Tk. 150,447,727,800.• NAV per share: Tk. 15.83( 2011 adjusted )• EPS (As per prospectus): Tk.2.05( 2011 adjusted )• Cash: 26,80,760,985• Assets: 167,056,626,119• Investments : 118,219,992,997

TYPES OF LOANS

A. Continuous loan:1. C.C pledged :where goods financed loan is kept under lock’s key of bank go down. Goods will be released by the bank authority of their getting the value2.C.C (Hypothecation):bank sanction loan to client to purchase goods and service. Title of good’s remaining to clientB. Demand loan:1 .Lim (loan against imported merchandise) :This loan is provided for very short term say 10 to 15 days. This loan is related to foreign exchange business. When document is received and make payment to foreign buyer.

2. MIB (imported Bill):when goods are received from foreign buyer; bank make payment against the goods. Goods are kept in safe custody to bank and subsequently released after getting the value3.T.R (trust receipt): here loan is provided against imported goods. Loan is generally provided go days. Basis difference between MIB and TR is that in MIB goods are kept and TR is that in MIB goods are kept at Bank’s custody’s in TR goods are lying under customer’s custody. C. Term loan:generally loan is sanction for long time. Say 5 to 15 years and payment system is on installment basis

INTEREST RATE:

• Generally interest rate of all types of loan is 18% except agriculture and SME where its stands at 13%.

RECOVERY SYSTEMSAfter disbursement of loan proper monitoring and follow up is made through direct communication, telephone and letter, Remainder is given if clients fail to repay the loan in timely. When a loan goes on bad and loss Bank will on court case in ORTHO RIN ADALOT money suit and N.I.A Act and recover the money after selling the mortgage property

CREDIT RISK GRADING SCORE:

Number Grading Short Score

1 Superior SUP Fully cash secured, secured by government

2 Good GD 85+

3 acceptable ACCPT 75-84

4 Marginal/ watchlist MG/WL 65-74

5 Special mention SM 55-64

6 Substandard SS 45-54

7 doubtful DF 35-44

8 Bad / loss BL <35

CRG:

Criteria weight

Parameter score Actual

Parameter

Score

obtained

A financial Risk 50%        

1.Leverage: (15%)

Debt equity ratio (*)- times

Total liabilities to tangible net worth

All calculations should be based on

Annula financial statements of the

Borrower ( audited preferred)

Less than 0.25 x

0.26*to 0.35 x

0.36 * to 0.50x

0.51 * to 0.75x

0.76 *to 1.25 x

1.26 * to 2.00 x

2.01 *to 2.50 x

2.51 * to 2.75 x

More than 2.75 x

15

14

13

12

11

10

8

7

0

1.32 10

2.Liquidity (15%)

Current ratio (*) – times

Current assets to current liabilities

Greater than 2.74 x

2.50*to 2.74x

2.00*to 2.49x

1.50*to 1.99x

1.10*to 1.49x

0.99*to 1.09x

0.80* to 0.89x

0.74* to 0.79x

Less than 0.79x

15

14

13

12

11

10

8

7

0

1.03 10

3.Profitability: (15%)

Operating profit margin (%)

(operating profit/ sales * 100

Greater than 25%

20% to 24%

15% to 19%

10% to 14%

&% to ( %

4% to 6%

1% to 3%

less than 1%

15

14

13

12

10

9

7

0

20.00%

14

4.Coverage: (5%)

Interest coverage ratio (*) –times

Earnings before interest & tax ( EBIT)

Interest ondebt

More than 2.oox

More than 1.51*less than 2.00x

More1.25 *less than 1.5 x

More than 1.00*less than1.24x

Less than 1.00x

5

4

3

2

0

1.87

4

Total score – financial risk  

50   38

Source : secondary ( Exim Bank)

3.3

B. Business /industry risk 18%

1.Size of business ( in BDT crore)

The size of the borrower’s business

Measured by the most recent year’s

total sales. Preferably audited numbers.

>60.00

30.00 – 59.99

10.00 -29.99

5.00 – 9.99

2.50 -4.99

<2.50

5

4

3

2

1

0

3.33

1

2.Age of business

The number of the years the borrower

Engaged in the line of business

>10 years

>5 -10 years

<2 years

3

2

1

0

18 3

3.Business outlook

Critical assessment of medium term

Prospects of industry, market share

And economic factors

Favorable

Stable

Slightly uncertain

Cause for concern

3

2

1

0

Stable 2

4. Industry growth Strong (10% +)

Good (>5% -10%)

Moderate (1%-5%)

No growth (<1%)

3

2

1

0

Moderate(1% -5%) 1

5. market competition Dominant player Moderately competitive

Highly competitive

2

1

0

Moderately competitive

1

6. entry /exit barriers Difficult

Average

Easy

2

1

0

Average 1

Total score –business / industry   18   8

c. Management risk 12%        

1.Experience

Quality of management based on total

of years of experience of the senior

management in the industry

More than 10 years in the related

5-10 years in the related line of

1-5 years in the related line of

No experience

5

3

2

0

More than 10 years in the related line

5

2. second line / succession Ready succession

Succession within 1-2years

Succession within 2-3 years

Succession in question

4

3

2

0

Ready succession

5

Ready succession

Succession within 1-2years

Succession within 2-3 years

Succession in question

4

3

2

0

Ready succession 5

Very good

Moderate

Poor

Regular conflict

3

2

1

0

Moderate 2

  12   11

D. security risk 10%

1.security ( primary ) Fully pledged

Facilities/substantially cash covered/reg. mortg. for HBL

Registered hypothecation (1st charge/1stparipassu charge)

2nd charge /inferior charge

Simply hypothecation/negative lien on assets

No security

4

3

2

1

0

Registered hypothecation(1st charge /1stparipassu charge

2.collateral coverage ( property location )

Registered mortgage on municipal

Corporation Prime area property

Registered mortgage on

Pourashava/ semi-urban area

Property

Equitable mortgage or no

Property but plant and machinery

As collateral

Negative lien on collateral

No collateral

4

3

2

1

0

Registered mortgage on municipal Corporation Prime area property

E. relationship risk 10%      

1. account conduct More than 3 years accounts with faultless record

Less than 3 years accounts with faultless record

Accounting having satisfactory

Dealing with some late payments

Frequent past dues & irregular

Dealing in account

5

4

2

0

More than 3 years accounts with faultless record

2.Utilization of limit

(actual /projection0

More than 60%

40% -60%

Less than 40%

2

1

0

65.00%

3.support ( Guarantee) Personal guarantee with high net worth or strong corporate

Guarantee

Personal guarantees or corporate

Guarantees or corporate

Guarantee with average financial

Strength

No support / guarantee

2

1

0

Personal guarantee with high net worth or strong corporate

Guarantee

2

Total score – security Risk

  10   9

1. compliance of covenants/ condition

Full compliance

Some non-compliance

No compliance

2

1

0

Full compliance 2

3.Compliance of covenants/ conditions

Full compliance

Some non- compliance

No compliance

2

1

0

Full compliance

2

4.personal deposits Personal accounts of the key

Business sponsors / principals are

Maintained in the bank, with

Significant deposits

No depository relationship

1

0

Personal accounts of the key Business sponsors / principals are Maintained in the bank, with Significant deposits

1

Total score–relationship risk   10   10

Grand total – All Risk   100   76

CONCLUSION& RECOMMENDATIONS

• Exim bank should increase their loan products to compete in the market.

• Exim bank should decrease interest rate on loans to attract customer’s attention to take loan.

• Exim bank should provide more small loans in corporate branch, so that they can attract small investors.

• Exim bank should develop their loan policy.• Exim bank should improve their credit risk grading

systems.

Thank you…