Prime Bank Credit Operation Process Of Prime Bank Ltd Chapter 1: Introduction 1.1 Back ground of the study Banking Industry is one of the most promising industries of our country. The importance of the sector revealed through its contribution in the economic growth of the country. This sector accelerates economic growth through mobilizing funds from surplus unit to the deficit unit. Banking Industry is moving towards rapid changes due to technological innovation and diversified needs of its customers. Banks deal with the most important factor of the economy i.e. Money. It flows funds from surplus unit to deficit unit and through this it facilitated the efficient allocation of the resources as well as accelerated economic growth. This sector is moving towards new dimension as it is changing fast due to competition, deregulation, financial, reforms. As the pace of globalization competition in banking sector is increasing very fast. Banks are becoming more customers oriented and offer High tech customized products to its target market to hold the market .Our central bank always keep monitoring banks performances. Individual banks also need to assess their own performance to satisfy the parties those are related to its growth. For Shareholders. For depositor. For Bangladesh Bank. 1
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Prime Bank Limited
Credit Operation Process Of Prime Bank Ltd
Chapter 1: Introduction1.1 Back ground of the study Banking Industry is one of the most promising industries of our country. The importance
of the sector revealed through its contribution in the economic growth of the country.
This sector accelerates economic growth through mobilizing funds from surplus unit to
the deficit unit. Banking Industry is moving towards rapid changes due to technological
innovation and diversified needs of its customers.
Banks deal with the most important factor of the economy i.e. Money. It flows funds
from surplus unit to deficit unit and through this it facilitated the efficient allocation of
the resources as well as accelerated economic growth. This sector is moving towards new
dimension as it is changing fast due to competition, deregulation, financial, reforms.
As the pace of globalization competition in banking sector is increasing very fast. Banks
are becoming more customers oriented and offer High tech customized products to its
target market to hold the market .Our central bank always keep monitoring banks
performances. Individual banks also need to assess their own performance to satisfy the
parties those are related to its growth.
For Shareholders.
For depositor.
For Bangladesh Bank.
For its own Assessment to view the future growth and profited.
1.2 Origin of the Report
This report is an outcome of twelve weeks’ Internship Program, a part of BBA
program of BRAC University. The topic of the report is “Credit Operations
Process of Prime Bank Limited.” Actually this is a feedback, which the Bank
accepts from the students who join in an organization after the completion of
theoretical part of the BBA program. And this report is prepared to fulfill the
finishing requirement of the BBA program.
As we know that the internship is an agreement between a University and an
organization that offers an opportunity for a student to undertake a temporary
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work assignment, which enables the student to have realistic exposure to
organizational conditions. My supervisor Mrs. Syeda Shaharbanu Shahbazi Ahmed Lecturer, BRAC Business School BRAC University authorized me to prepare
the report.
1.3 Objective Of The studyThe primary objective of this report is to use the theoretical concepts, gained in the
classroom situations, in analyzing real life scenarios. This is also a partial requirement of
the BBA program. The total report is based on the different credit operations
system of the Prime Bank Limited. Moreover an in-depth real life experience of
the banking sector in terms of Credit division. . In case of this report, the objectives
are:
Observing and understanding the activities of the different departments of the host
organization: Prime Bank Limited (PBL)
To know the enterprise selection criteria to provide different loan
To know the study’s and conditions of different loans
To know the expectations of customers of Prime Bank Ltd
To know the disbursement and recovery procedures of different loans
Prepare a Recommendation for developing an ideal platform for a proper Credit
Operation Process
1.4 Scope of the Study
The report is basically divided into two parts:
The Organization Part
The Project Part
The organization part of the report focuses upon the organizational structure and the
financial services offered by PBL. The study also concentrates upon the actual lending
activities of the company, its exposure to the various sectors and its performance.
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The project part of the report basically focuses on the Credit policy of Prime Bank Ltd. I
have also tried to focus the different types of credit facilities, documentation and the
procedure of the loan.
1.5 Sources of dataIn conducting the study, data and information have been collected from different sources.
All these data were collected from the secondary sources and very few from primary
sources. The sources of data include the following:
Primary Sources are as follows
Personal observation
Interview of managers and employees of the different (General Banking,
Credit and Foreign Exchange) departments of the bank
Desk work in different section/division
Secondary Sources are as follows
Annual report of Prime Bank Limited
Credit Manuals, Different Banking Circulars
Consultation of related books and publications
Vouchers, leaflets, loan files, of the bank
Files, balance sheet, Employee Training Guide, Loan Documents and various
documents of Prime Bank Limited
1.6 Methodology of The study
The total internship program is based on the credit scheme practice of Prime
Bank Limited. This report was written through extensive and meaningful group
discussions with the concerned persons of the Prime Bank Limited. The report is
Descriptive in nature. Data used in this report have been collected from both primary and
secondary sources. The study is a result of the discussion with my academic supervisor.
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1.7 Limitations of The study
The report is not free from limitations . Finally I want to talk about my limitations
that I had to face during the completion of the report. On the way of preparing of this
report, I have faced following problems that may be termed as the limitation of the study.
Time is the major obstacle here. I get only three months to cover a vast
area like credit operation of a bank; much information was overlooked
Employees especially the credit division remains too busy. It is tough to
have a break from their tight schedule, even though they are willing to
provide time
Limited service hour
Secrecy or confidentiality is a crucial matter in this organization. As an
intern it was not possible to reach those secret topics
It was difficult to find out the gap between rules and regulations and real
life practice. So, I went under a huge stress to find out those matters
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Chapter 2: Organization profile
2.1 Background of Prime Bank LtdDuring the booming years of the banking industry of Bangladesh a group of
highly successful local entrepreneurs conceived an idea of floating a commercial
bank with different outlook. As pre their views the idea was competence,
excellence and consistent delivery of reliable service with superior value
products. Consequently, Prime Bank Ltd. was created and commencement of
business started on 17 - April 1995. The founders are well reputed tycoons of
Bangladesh in the field of trade and commerce and their stake ranges from
diversified business sectors of the country.
So far as a full phased commercial bank, Prime Bank Ltd. is being managed by a
team of professional team with dedication and long experience in banking sector.
Prime Bank Ltd. constantly focuses on understanding and predicting customer
needs and tends to be very customer oriented. As the banking scenario undergoes
changes so is the bank and it repositions itself in the changed market condition to
adapt even after the ever changeable field.
The Bank offers almost all kinds of Commercial Corporate and Personal Banking
services covering all segments of society within the framework of Banking
Company Act and rules and regulations laid down by our central bank.
Diversification of products and services include Corporate Banking, Retail
Banking and Consumer Banking right from industry to Telecommunication,
RMG, FMCG and so on.
It has already made significant progress within a very short period of its
existence. The bank has been graded as a top class bank in the country through
internationally accepted CAMEL rating. The bank has already occupied an
enviable position among its competitors after achieving success in all areas of
business operations so far.
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Prime Bank Ltd. has consistently turned over good returns on Assets and Capital.
Until the year 2007, the bank has achieved an operating profit of Tk. 3257
million and its capital funds stood at Tk 6382 million. Out of this, Tk. 2659.21
million represents reserves and retained earnings and Tk. 2275 million consists
of paid up capital by shareholders. Even after the business environment and
default culture, quantum of classified loan in the bank is very insignificant and
stood at less than 1.35%. The bank’s current capital adequacy ratio of 11.50% is
in the market.
Since the opening of the Bank, it has attached more importance in technology
integration. To retain competitive edge, investment in technology is always a top
agenda and under constant focus. Keeping the network within a reasonable limit,
its strategy is to serve the customers through capacity building across multi
delivery channels. Prime Bank is better placed and poised to take its customers
through fast changing times and enable them compete more effectively and
efficiently. The Bank’s past performance gives an indication of the proper
development and implication of its strength.
Finally, Prime Bank Ltd. has already made significant progress within a very
short period of its existence. The bank has been graded as a top class bank in the
country through internationally accepted CAMEL (Capital, Asset, Management,
Earnings and Liquidity) rating. The bank has already occupied an enviable
position among its competitors after achieving success in all areas of business
operation.
2.2 Company VisionEvery Company has their own vision. By fixing vision they can set their future growth.
Prime Bank Ltd has its own vision to be leader in the banking industry.
To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital
adequacy, asset quality, sound management and profitability having strong liquidity.
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2.3 Company MissionTo build Prime Bank limited into an efficient, market driven, customer focused institution
with good corporate governance structure. Continuous improvement in business policies,
procedure and efficiency through integration of technology at all levels.
Brief Profile of Prime Bank Limited
1. Date of Incorporation : 12th February, 1995
2. Date of Inauguration of Operation : 17th April, 1995
3. Name of the Chairperson of the board : Mr. Ajam J Chowdhury
4. Name of the Managing director : Mr. M. Ehsanul Haque
5. Number of Branches : 71
6. Number of Employees : 1400
7. Publicly Traded Company : Share quoted daily in DSE & CSE
8. Credit Card : Member of Master Card
9. Banking Operation System : Both Conventional and Islamic
Sylhet Islamic Banking Branch Court RoadBeani Bazar Tajpur Upashar BishwanathSreemangalSubid Bazar Bare Lekha
Network of
Branch
Prime Bank Limited
Credit Operation Process Of Prime Bank Ltd
2.6 A Brief of Prime Bank Limited, Satmasjid Road BranchAmong the Seventy one Branches of Prime Bank, Satmasjid Road Branch is one of the
most reputed and respected Branches in all aspects. From the very beginning, this branch
is contributing a lot to the bank. A brief of Prime Bank Limited, Satmasjid Road Branch
is given below:
Manager: Md. Ehsan Habib, Senior Vice President
Manager (Operation): Md. Kamrul Islam, Assistant Vice President
Credit in Charge: Md. Nehal Hossain, Senior Executive Vice President
Foreign Exchange in Charge: Md. Nehal Hossain, Senior Executive Vice President
General Banking in Charge: Mr. Shaheen Alam Chowdhury
Total number of employees: 24
Prime Bank Satmasjid Road Branch has three main departments, which are -
General Banking Department
Credit Department
Foreign Exchange Department
2.7 Business ActivitiesPrime Bank Limited provides a full range of products and services to its customers, some
of which are mentioned below with a brief overview of the major business activities.
Consumer Finance
There are branches and finance centers under this division with a qualitative workforce of
employees. Some of the services provided by this division are unsecured personal loans,
credit cards, and vehicle related lease etc.
Personal Banking
There are branches with highly qualified workforce provide various kinds of loans,
various types of accounts, cheques, card money etc.
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Source: Branch Control Division
Figure 1: Branch Network of PBL
Prime Bank Limited
Credit Operation Process Of Prime Bank Ltd
Islamic Banking
Prime Bank Ltd. works under the correspondence with Bangladesh Bank regarding
operation of Islamic Banking Branches through a Subsidiary.
Corporate Banking
Prime Bank Limited provides a wide range of services to institutional clients,
commercial, merchant and central banks; brokers and dealers; insurance companies;
funds and managers, and others. It provides relationship managers who are close to their
customers and speak local language. This wide network of corporate banking facilities
includes transaction, introduction, problem solving and renders advice and guidelines on
local trading condition.
International Trade Management
This division is operational throughout the group and PBL’s core strength is trade finance
and services. With an experience, Prime Bank has developed knowledge of trade finance,
which is world class. Principle services to importers include imports letter of credit,
import bills for collection and back-to-back letters of credit facilities. Services provide to
exporters include export letters of credit, direct export bills, bonds, and guarantees.
Cash Management
Prime Bank recognizes the importance of cash management to corporate and financial
institutional customers, and offers a comprehensive range of services and liquidity
management.
Treasury
Treasury operations had been consideration as an important avenue for income
generation purpose. The treasury division publishes daily and weekly currency
newsletters, which provide analysis of currency trends and related issues. Prime Bank is
one of the first local banks in Bangladesh to integrate treasury dealings of local money
market and foreign currency under one Treasury umbrella. Prime Bank's Dealing Room
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is connected with Automated Reuters Terminal facility, thus enabling the bank to provide
forward/future facilities to its corporate clients at a very competitive rate.
Electronic Banking
Electronic Banking provides various types of support through a wide range of operating
systems, sweeping transactions accession with the provisions of reporting features or
other special functions.
Foreign Exchange Business
Over the years, foreign trade operations of the bank played a crucial role in the overall
business development of the bank. The bank has established relationship with as many as
110 new foreign correspondents abroad thereby raising the total number of
correspondents to 350. The bank has also entered into remittance arrangements with
several banks and exchange houses and expects to handle increased volume of remittance
business over the near future.
Online Branch Banking
The bank has set up a Wide Area Network (WAN) across the country to provide online
branch banking facility to its valued clients. Under this scheme, clients of any branch
shall be able to do banking transaction at other branches of the bank.
Under this system a client will be able to do following type of transactions:
Cash withdrawal from his/her account at any branch of the bank.
Cash deposit in his/her account at any branch of the bank irrespective of the
location.
Cash deposit in other’s account at any branch of the bank irrespective of the
location.
Transfer of money from his/her account with any branch of the bank.
Swift
Prime Bank Limited has become member of SWIFT (Society for Worldwide Inter-bank
Financial Telecommunication) in 1999. SWIFT is a member-owned co-operative system,
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which provides a fast and accurate communication network for financial transactions
such as Letters of Credit, Fund Transfer etc. By becoming a member of SWIFT, the bank
has opened up possibilities for uninterrupted connectivity with over 5,700 user
institutions in 150 countries around the world.
Information Technology in Banking Operation
Prime Bank Limited adopted automation in banking operation from the first day of its
operation. The main objective of this automation is to provide efficient and prompt
services to the bank's clients. At present, all the branches of the bank are computerized.
At branch level, the bank is using server-based multi-user software under UNIX
operating system to provide best security of automation.
Profitability and Shareholder Satisfaction
Prime Bank Ltd. always tried to maintain strong customer relationship is of utmost
importance. By giving quality service, PBL ensures higher profitability. Even though the
capital market of the country has been suffering over the last few years, the good
performance of Prime Bank made sure that the banks share price remained in a
respectable position. Thus, they achieve greater shareholders satisfaction.
2.8 Products and ServicesPrime Bank Limited offers various kinds of deposit products and loan schemes. The bank
also has highly qualified professional staff members who have the capability to manage
and meet all the requirements of the bank. Every account is assigned to an account
manager who personally takes care of it and is available for discussion and inquiries,
whether one writes, telephones or calls.
Deposit Products
Contributory Savings Schemes (CSS)
Under this scheme Minimum size of the monthly installment is Tk.500.00 and multiples
of Tk.1000.00. Maximum installment size shall be 25000.00 for five year period. Lump
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sum amount shall be paid after maturity or monthly pension shall be paid for the next 5
years according to size of deposit.
Lackhopati Deposit Scheme
Under this scheme size of the monthly installments are Tk.250.00, Tk.500.00,
Tk1285.00, Tk.2400.00 depositor will receive Tk.1,00,000.00 after a number of period
depending on installment size .Higher the installment size lower will be the maturity
period .
Prime Millionaire Scheme
This scheme is similar as Lackhopati deposit scheme only the installment amounts is
larger and at maturity depositor will get 10, 00,000.00.
Education Savings Scheme (ESS)
Under this scheme parents can save for their children’s education by paying a certain
amount of monthly installment and Lump sum amount shall be paid after maturity.
Monthly Benefit Deposit Scheme (MBDS)
Under this scheme customer can deposit a fixed amount of money for five years .The
amount has to be 100,000 or multiple of 100,000 he / she will receive 900 per month as
interest on every lac during those five years.
Double Benefit Deposit Scheme (DBS)
Under this scheme a customer can keep a fixed amount of money for six year end of the
maturity period the amount will become double .The amount has to be multiple of 25000.
Fixed Deposit Receipt Scheme (FDR)
Under this scheme customer can devote a fixed amount of money for one month, three
months, six months or twelve months for interest rate of 7.5%, 11% or 11.5%.
Current Account
Current Account is a non interest bearing checkable deposit (Demand Deposit) which
allows the owner of the bank accounts to write checks to third parties.
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Savings account
Savings Account is an interest bearing checkable deposit (Negotiable order of
withdrawal) which allows the owner of the bank accounts to write checks to third parties.
Loan and Advances ProductsLoan and advances have primarily been divided into two major groups:
Fixed term
These are the loans made by the Bank with fixed repayment schedules. Fixed tern loans
are categorized into three based upon its tenure which is defined as follows:
Short term : Up to 12 months
Medium term : More than 12 and up to 36 months
Long Term : More than 36 month
Continuing Loans
These are the loans having no fixed repayment schedule, but have an expiry date at which
it is renewable on satisfactory performance of the customer. Furthermore, all categories
of loans are accommodated under the following prime sectors:
i. Agriculture: Credit facilities to the customers of doing agro business falls under
this category.
ii. Term Loan to Large & Medium Scale Industry: This category of advances
accommodate the medium and long term financing for capital formation of new
Industries or for an existing units who are engaged in manufacturing of goods and
services.
iii. Term Loans to Small & Cottage Industries: These are the medium and long term
loans allowed to small & cottage manufacturing industries. No short term or
continuous credits will be included in this category.
iv. Working Capital: Loans allowed to the manufacturing units to meet their working
capital requirements, irrespective of their size - big, medium or small, fall under
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this category. These are usually continuous credits and as such fall under the head
"Cash Credit"
v. Export Credit: Credit facilities allowed to facilitate export of all items against
Letter of Credit and/or confirmed export orders fall under this category. It is
accommodated under the heads "Export Cash Credit (ECC)", Packing Credit
(PC), Foreign Documentary Bill Purchased (FDBP) etc.
vi. Commercial Lending: Short term Loans and continuous credits allowed for
commercial purposes other than exports fall under this category. It includes
import financing for local trade, service establishment etc. No medium and long
term loans are accommodated here. This category of advance is allowed in the
form of (i) Loan against Imported Merchandise (LIM), (ii) Loan against Trust
Receipt (LTR), (iii) Payment against Documents (PAD), (iv) Secured Overdraft
(SOD), (v) Cash Credit etc. for commercial purposes.
Types of Credit FacilitiesDepending on the various nature of financing, all the credit facilities have been brought
under two major groups: (a) Funded Credit and (b) Non-funded Credit. Under non-
funded credit, there are basically two major products namely Letter of Credit and Letter
of Guarantee.
Under Funded Credit, there are the following products:
Loan (General)
Short, Medium & Long term loans allowed to individual/firm/industries for a specific
purpose but for a definite period and generally repayable by installments fall under this
type. These are mainly allowed to accommodate financing under the categories (I) Large
& Medium Scale Industry and (ii) Small & Cottage Industry.
Housing Loan (Commercial)
Loans allowed to individual/enterprises for construction of house for commercial
purpose only fall under this type. The amount is repayable by monthly/quarterly
installments within a specified period.
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Home Loan
Loans allowed to individuals for purchase of apartment or construction of house for
residential purpose fall under this type. The amount is repayable by monthly installments
within a specified period.
House Building Loan (Staff)
Loans allowed to the employees of PBL for purchase of apartment/construction of house
shall be known as House Building Loan (Staff) or HBL (Staff).
Lease Financing
Lease Financing is one of the most convenient sources of acquiring capital machinery
and equipment whereby a customer is given the opportunity to have an exclusive right to
use an asset usually for an agreed period of time against payment of rental.
Consumer Credit Scheme (CCS):
It is a special credit scheme of the Bank to finance purchase of consumer durable by the
fixed income group to raise their standard of living. The loans are allowed on soft terms
against personal guarantee and deposit of specified percentage of equity by the
customers. The loan is repayable by monthly installments within a fixed period.
SOD (Financial Obligation)
SOD (Financial Obligation) is allowed to individuals/firms against financial obligations
(FDR, MBDS, and Scheme Deposits of PBL or similar products of other banks). This is a
continuous loan having usual maturity period of 1 (one) year and renewable for further
periods at maturity.
SOD (General)
SOD (General) is allowed to individuals/firms for miscellaneous purpose. This is a
continuous loan having usual maturity period of 1 (one) year and renewable for further,
periods at maturity.
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SOD (Work Order)
Advances allowed against assignment of work order for execution of contractual works
falls under this type. This advance is generally allowed for a definite period and specific
purpose. It falls under the category "Others".
SOD (Export)
Advance allowed for purchasing foreign currency for payment of Back to Back (BTB)
L/C liability where the exports do not materialize before due the date of import payment.
This is an advance for temporary period and categorized "Export Finance".
PAD
Payment made by the Bank against lodgment of shipping documents of goods imported
through L/C falls under this type. It is an interim advance connected with import and is
generally liquidated against payments usually made by the customer for retirement of the
documents towards release of imported consignment from the customs authority.
LIM
This is funded credit facility allowed for retirement of shipping documents and release of
goods imported through L/C taking effective control over the goods by pledge in go
downs under Bank's lock & key. This is a temporary advance connected with import
which is known as post-import finance and falls under the category "Commercial
Lending".
LTR
Advance allowed for retirement of shipping documents and release of goods imported
through L/C falls under this type. The goods are handed over to the importer on trust with
the arrangement that sale proceeds will be deposited to liquidate the loan account within
the specific time.
ECC
Funded credit facility allowed to a customer for export of goods falls under this type and
is categorized as "Export Cash Credit". The advances must be liquidated out of export
proceeds within 180 days.
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Packing Credit (P.C.)
Advance allowed to a customer against bills under BTB L/C and/or firm contract for
processing/packing of goods to be exported falls under this type and is categorized as
"Export Credit". Packing Credit must be adjusted from proceeds of the relevant exports
within 180 days.
FBP
Payment made to a customer through Purchase or Foreign Currency Cheques/Drafts falls
under this type. This temporary advance is adjustable from the proceeds of the
cheque/draft.
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2.9 Performance
From the very beginning of its journey, PBL is growing immensely. Its capital base is as
solid as its profit is high. Not only these two, is almost every aspect of this bank very
strong in the context of our country. The following table will give a clear idea about the
strength of PBL and its continuous growth.
Performance at a glance
Taka in Million
Particulars 2003 2004 2005 2006 2007
Income Statement Interest Income 2159 2641 3446 5199 7170Interest Expense 1408 1616 2271 3698 5267Net Interest Income 751 1025 1175 1500 1903Non-interest Income 841 946 1232 1732 2913Non-interest Expense 591 824 886 1101 1559Net Non-interest Income 250 121 346 631 1354Profit before provision and tax 1001 1146 1520 2131 3257Provision for loans and assets 232 82 320 390 910Profit after provision before tax 770 1064 1201 1741 2347Tax including deferred tax 394 452 633 689 946Profit after tax 375 612 568 1052 1401Balance Sheet Authorized Capital 1000 1000 4000 4000 4000Paid-up Capital 700 1000 1400 1750 2275Total Shareholder's equity 1732 2240 2808 3860 5273Deposits 20483 28069 36022 54724 70512Long-term liabilities 7052 7371 11406 16877 15267Loans and advances 16492 23220 31916 45010 57683Investments 2750 3084 3940 7844 12698Property, Plant and Equipment 256 322 372 412 660Earning Assets 19335 27131 36727 55458 72798
Net current assets583 (1299) 31 5286 1338
Total assets24249 32362 41506 60899 79588
Current ratio 0.96 1.06 1.00 0.88 0.97Debt equity ratio 8% 7% 7% 7% 7%Other Business
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Import 25441 36747 40303 52639 70617Export 16490 19502 28882 41801 51316Remittance 3063 2140 3688 15050 15905Guarantee Business 4248 4085 5303 5386 7033Inland letter of credit 3729 4267 5405 10174 11943Capital MeasuresTotal risk weighted assets 16455 23050 31890 44324 55485Core capital (Tier-I) 1782 2240 2808 3860 5273Supplementary capital (Tier-II) 176 236 369 549 1109Total Capital 1958 2476 3177 4409 6382Tier-I capital ratio 10.83 9.72 8.80 8.71 9.50Tier-II capital ratio 1.07% 1.02 1.16 1.24 2.00Total capital ratio 11.90% 10.74 9.96 9.95 11.50Credit Quality Non performing loans (NPLs) 326.53 352.73 308.21 367.15 777% of NPLs to total loans and advances 1.98% 1.52% 0.96% 0.82% 1.35%Provision for unclassified loans 171.73% 231.73 364.80 544.80 895Provision for classified loans 249.44 174 127.00 308.52 478Share Information Market price per share (Taka) 374.25 879.50 681.50 528.75 924No. of shares outstanding 7 10 14 17.50 22.75No. of shareholders at actual 1993 2620 4467 5262 7368Earning per share (Taka) 37.55 43.71 40.59 60.11 61.57Dividend 62.86% 40.00% 25.00% 30% 35%Cash 20.00% 0.00% 0.00% 0.00% 10%Bonus 42.86% 40.00% 25.00% 30% 25%Effective dividend ratio 67.70% 47.06% 29.17% 33% 40%Market capitalization 2619.75 8795.00 9541.00 9253.13 21021Net assets per share (Taka) 233.12 223.98 200.57 220.57% 232Price earning ratio (times) 9.97 20.12 16.79 8.80% 15.00Operating Performance RatioNet interest margin on average earning assets 4.36% 4.41% 3.68% 3.23% 2.97%
Net non-interest margin on average earning assets 1.45% 0.52% 1.08% 1.37% 2.11%
Earning base in assets (average) 79.02% 82.08% 86.45% 90.02% 91.29%Cost income raito 37.11% 41.83% 36.82% 34.07% 32.37%Credit deposit raito 80.52% 80.72% 88.60% 82.25% 81.81%Cost of funds on average deposits 7.62% 6.66% 7.09% 8.15% 8.41%Yield on average advance 14.80% 13.30% 12.50% 13.52% 13.96%Return on average assets 1.72% 2.16% 1.54% 2.05% 1.99%Return on average equity 22.70% 30.43% 22.51% 31.55% 30.68%Other information No of Branches 30 36 41 50 61
may be insisted upon. Disbursement should be made only after completion of
documentation formalities and fulfillment of arrangements by the client to undertake
the contract. The progress of work under contract is reviewed periodically.
Non-Funded Business
Non funded credit facility to a customer refers to a bank’s commitment to a third
party on behalf of the customer. The commitment itself constitutes facility but does
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not involve cash outflow from the bank. The bank’s commitment essentially states
that in the event of occurrence / non occurrence of a particular event, within a
particular date, due to a particular reason or reasons, a specific sum of money shall be
paid by the bank to the third party upon claim in a particular manner. Though these
types of facilities are primarily none funded in nature but at times it may turn into
funded facility. As such liabilities against these types of credit facilities are termed as
‘contingent liability’ and do not affect the balance sheet of the bank at the time of
commitment but contain the possibility. The non funded facilities are:
Letter of Credit
A banker’s documentary credit is an instrument or letter issued by a bank on behalf of
and for the account of the buyer of the merchandise. By this instrument the bank
undertakes that the bill(s) of exchange of the beneficiary (the seller of the
merchandise) drawn on the buyer, or on the issuing bank, or on another bank
designated in the instrument, strictly according to the conditions stipulated in the
instrument, will be duly honored by acceptance and /or payment depending upon the
issuance of the bill(s) of exchange in question.
Guarantee
In banking, it is an irrevocable obligation of a bank to pay a certain sum of money in
the event of non-performance of a contract by a third party. The basis of guarantee is
always a contractual relationship between principal debtor (account holder) and
creditor (beneficiary), which is either a contract that has been definitely concluded or
a relationship in its pre-contracted as is the case with the tender guarantee. This
relationship is referred to as the principal or underlying relationship or contract. The
contract of guarantee is independent of this underlying relationship.
3.8 Exception to loan policy
On occasions it may be necessary to deviate from the established norms to finance a
credit on its merits without unduly undermining the Bank's interest. If the branch itself is
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satisfied with the merit, these proposals along with supporting documents should be sent
to the Head Office for approval.
Documentation
3.9 Documentation against AdvancesDocument is the written statement of facts or evidence in regard to a particular
transaction, which on placement may bind the parties answerable and liable to the
court of law.
3.10 Importance of DocumentationDocumentation formalities against loans and advances should be properly completed
prior to extension of the facility to safeguard the Bank's interest. Several kinds of
covenants are important. In some covenants, the borrower agrees to do things that help
maintain its business in proper order and thereby help protect the loan. An example
would be a covenant to maintain insurance or to keep property in good condition. Other
covenants are promises by the borrower not to do certain things that might jeopardize the
loan.
Loan agreements also contain provisions that make it an event of default if a borrower
fails to meet certain financial tests such as demonstrating a certain ratio of total liabilities
to tangible net worth, a certain ratio of current ratio of current assets to current liabilities,
a minimum level of tangible net worth, or a minimum level of working capital. Financial
tests relating to cash flow are becoming more common and are encouraged. Finally it can
be said that, complete and correct documentation enables the Banker to take legal
recourse against the borrower in case of non-realization of dues.
3.11 Purpose of Documentation
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Every agreement to extend credit should be evidenced in writing. That written agreement
should spell out the mechanics of the transaction, such as interest rate and repayment
terms, and should also give the bank the right to demand immediate repayment in full on
an event of default. Events of default should include the filing of any bankruptcy or
insolvency proceeding, failure to make a payment to the bank when due, default under
other credit agreements (so that other lenders have a right to declare their credit due and
payable on demand) as well as breaches of warranties covenants in the bank’ s
agreements.
3.12 Types of DocumentationDocuments related to securing loans and advances are classified into the following 2
(Two) categories:
Charge documents are preformatted and printed required to create charge on
securities against loans and advances and the documents are provided by the
Bank to the client for execution.
Legal documents are legal papers provided by the client certifying the legal
status of the borrower, borrowing power, title to goods and property; legal
deeds and power of attorney related to creation of charge on securities.
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46
Documentation
Charge Document Legal Document
Demand Promissory note. Letter of Guarantee Borrowing Resolutions Letter of hypothecation Power of Attorney Letter of Arrangement Letter of Counter Guarantee. Letter of Continuity Letter of Revival Letter of Trust Receipt Letter of Lien Letter of Indemnity Letter of disclaimer Credit sanctions advice accepted by
the borrower.
Memorandum and Articles of Association (Limited Company).
power and execution of security documents (Limited Company).
Resolution of the partners for availing of credit facility and for execution of security documents.
Notarized irrevocable power of attorney.i. To sell hypothecated stock in trade /
machinery / equipment.ii. To receive payments against bills receivables
/ other receivables. For mortgage of property.
1. Original title deed.2. Parcha / Khatian.
3 Non - Encumbrance Certificate.4. Mutation certificate.
5. Rent Receipt.6. City Corporation / Municipality Tax payment
receipt.7. Valuation certificate.8. Power of Attorney (if necessary).9. Clearance from the Lawyer of the Bank (Legal
vetting). 10. Memorandum of deposit of title deed (For Equitable mortgage). 11. Registered mortgage deed (For Registered / Legal mortgage). 12. Certified copy of original title deed(in case of new purchase) 13. Original money receipt duly endorsed in favor of the bank (in case of new purchase).
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Table: Documentation Types
Charge Documents
a) Demand Promissory Note
It is an unconditional written promise of the borrower made to the Bank to repay
debt(s) on demand or at a fixed or determinable future date along with interest at a
stated rate. The demand promissory note must be obtained while extending any type
of credit facilities.
b) Borrowing Resolutions
This is a certified copy of a resolution adopted by the Board of Directors of a
corporate body authorizing designated officers to borrow and pledge, hypothecate,
mortgage, etc. the assets of the corporate body for the purpose of securing the loan/
advance granted to them in accordance with the borrowing power laid down in the
Memorandum and Articles of Association of the organization.
c) Letter of hypothecation
The borrowers agree to Hypothecate to the bank goods and merchandise or any other
securities in consideration of credit facilities granted to them. They give the Bank the
right to sell the securities without notice to them and adjust their outstanding and
other expenses from the sale proceeds.
d) Power of Attorney
This document authorities the bank to sign or endorse documents on behalf of the
party executing the power. If it is given by a corporate body it must be accompanied
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by a corresponding copy of a resolution of the board of Directors authorizing the
execution.
e) Letter of Arrangement
The borrowers confirms the execution of charge / other documents and also
acknowledges the bank’s right to cancel the credit lines allowed at anytime with or
without notice and promises to repay on demand all outstanding including interest and
other charges.
f) Letter of Revival
This letter refers to and constitutes as an integral part of the loan documentation
executed by the borrowers including the promissory notes. The letter is obtained in
order to preclude any question of law of limitation.
g) Trust Receipt
Two different types of trust receipts will be in use to cover the following area of
credit lines:
Letter of trust receipt (For Release of shipping Documents)
This is executed by the borrowers to release shipping documents for taking delivery
of merchandise which is hypothecated to the bank. The Borrowers agree to take
delivery of merchandise as the Bank’s agents and acknowledges that the ban remains
owner of the goods and they will be holding the goods on behalf of the bank, as
Trustees until complete repayment of the debts to the bank.
Letter of Trust Receipt (For Pre-shipment Financing)
This is executed by the borrowers for availing pre-shipment finance by creating lien
on the original letter of credit. The borrower also undertakes that the credit facilities
will be utilized to purchase / process the merchandise for shipment as per terms of the
credit.
h) Counter Guarantee
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In consideration of the bank issuing guarantees / indemnities from time to time, the
borrower agrees to keep the bank indemnified from all liabilities, costs and legal
actions that may arise from the guarantee.
Procedure of Sanction a loan
3.13 Lending to consumers
Home loans, car loans, credit cards, and other types of consumer credit constitute a
significant part of the lending business.
Because there are so many transactions and the amounts are relatively small in each case,
the amount of time that can be spent on an individual decision is limited. For many types
of consumer lending, it has been found that a limited number of key items of information
allow the development of a credit score that can be instrumental in approving or declining
individual credit applications.
Most applications can be quickly approved or declined on the basis of the score and a
normal credit bureau report, with the judgment of experienced credit officers coming into
play in a relatively limited number of cases. Statistical analysis of the portfolio allows
good prediction from these credit scores on delinquency and loss rates. Sometimes it is
possible to supplement historic experience by running pilot tests on new products or new
scoring methods.
Special care is required to ensure full compliance with consumer protection and
nondiscrimination rules. As with business loans, the character of the borrower is of prime
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importance. A bank should not make loans to individuals in the face of evidence that
integrity is lacking.
Many consumer loans are collateralized by a security interest in a house, a car, or other
personal property. Sensible consumer lending requires taking into account the value of
the collateral compared with the value of the loan and also the likely volatility of the
value of the collateral. For example, the value of a house is affected by changes in
interest rates and the economy of the area where the house is located as well as the
physical characteristics of the house itself. The percent of cost advanced against the
collateral is important for another reason. The more the borrower’s own money is at
stake; the less likely the borrower is to walk away from an obligation.
One of the important distinctions in consumer lending concerns the business that comes
to the bank directly through the branch system or other means, often from existing
customers, and the business that comes in an indirect manner, often through people who
are brokers or dealers. In the case of the indirect business, attention needs to be given to
the incentives of brokers or dealers, since they may know more about the personal
characteristics of the consumer than the loan officer does. Sometimes recourse to the
broker or dealer can be obtained, but more often, the bank must depend on the
sophistication of its scoring system to compensate for the fact that the interest of the
person referring the loan is to get the sale made rather than to ensure that the bank makes
a good loan. The bank is safer, particularly as to possible fraud, if it has direct contact
with the borrower.
It is inevitable that with a large volume of loans, some borrowers will fail to pay as
agreed. A good collection process is, therefore, especially important. A good collection
process identifies problems early, sometimes aided by statistical performance scoring on
the behavior of individual loan, and acts promptly to get in touch with delinquent
borrowers to arrange for prompt payment or debt relief for those who need it. Technology
such as computerized telephone and record-keeping systems can be especially helpful.
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Tracking the performance of various consumer credit products is of special importance
because if delinquencies start growing, more recourse may need to be allocated to the
collection process. A bank may also want to change the criteria by which it grants credit
or the terms of the credit or even eliminate a product. Times of high growth require
special care because the new loans placed on the books tend to mask a growing
delinquency rate. Accordingly, special techniques are used to estimate what delinquency
rates would be without the growth.
3.14 Procedure of Sanction a loan
It is very important for a bank to proper utilize its cash flow that the financial institution
takes from its clients in the form of deposits. The bank takes the money in the form of
long term-deposits, short term deposits, double benefit deposit and other scheme. Since
bank has no investment of its own the profitability of the bank depends on loan sanction. .
While recommending advances, Managers should always bear in mind the fact that the
forced sale value of the security offered to secure an advance will be sufficient to cover
the outstanding. Now a days Bank industries become very competitive. Every bank offers
flexible loan rate for the loan takers. Generally the loan PBL offers to its clients is
divided into two categories: Retail Loan and CCS loan (Consumer Credit Scheme).
3.14.1 Application for Advance and its Evaluation
Application for a loan should be made by the intending borrower in writing normally in
the prescribed form stating interalia the purpose of the loan, the quantum of the loan
needed, the repayment program and the securities offered. To get the credit facility from
the PBL the interested client must approach to the authority through prescribed form.
Before processing of the advance proposal the dealing Officer/Manager should ascertain
the detailed information of applicant’s occupation/business and his assets and liabilities,
collect market report about him and assess his overall credit worthiness in order to be
reasonably sure that the borrower will conduct the loan account satisfactorily. The
borrowers in their applications for any credit facility should clearly indicate the purpose
for which such credit are required and it will be the responsibility of the dealing officer to
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satisfy himself that the facilities are required genuinely . Speculative deals and plans
which are not easy to implement should not be entertained. Besides the purpose for which
a facility is required and the borrower’s capacity to repay, his character, standing and
integrity are always the basic considerations for an advance. Borrowers who are not
known to be sincere in honoring their commitments or who indulge in over trading and
make commitments beyond their means usually prove troublesome for the Bank and
advance given to such parties, regardless of the purpose and the collateral security are
likely to turn into difficult cases.
If the officer is satisfied with the client and his/her ability to repay the loan then the
client’s proposal has taken to the branch credit committee for approval. In this stage the
client is required to submit latest one year bank statement, presence of two guarantors,
Balance sheet attested by Charter Accountant in case of business loan, service certificate
etc. Even though the applicant does not maintain any financial statement, to get the
loan they must fulfill the criteria. The applicants also have to show the value of his/her
own fixed/variable asset. After all the documentation if the branch Manager and thereof
higher authority is satisfied then he asked the loan division to process the loan request.
3.14.2 Credit Reports
The authorized loan officer send a letter to the Credit Information Bureau which requests
information on the borrower called CIB report. All officers dealing with loans and
advances should obtain Credit Investigation Report from Head Office C.I.B / C.I.B of
Bangladesh Bank. Credit proposal should invariably be accompanied by a Credit Report
in the prescribed form separately for the borrowers and guarantors, if any. Such reports,
however, will not be necessary in the case of temporary or short term clean overdraft and
advances against readily marketable securities such as Government Promissory Notes,
Savings Certificates and other Government Papers or Life Insurance Polices and Deposit
Receipts of our own or any other banks. Basically it has been done to find out the
previous record of the borrower. Normally no credit report will be necessary, for opening
Letter of Credit with 100% margin and for negotiation of export documents against Letter
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of Credit opened by a first class foreign Bank or correspondents of other banks. In the
case of Packing Credits against firm contracts a credit report on the foreign buyer should
invariably be collected.
Based on the investigation Officer’s report, report of CIB and his own
discussions with the applicants, the dealing officer will prepare credit report covering on
the Constitution of the firm, the prospective borrower's net worth which should be
calculated by taking into account his assets and liabilities . In case of proprietorship firms
which do not systematically maintain books of accounts, enquiries should me made with
his bankers, if necessary. The reports also consider the companies the applicant’s past
dealings with the Bank, if any.
3.14.3 Recommendation Letter to Head Office
If there is nothing found like if the borrower does not have any existing loan or has name
in default list etc. If the report found satisfactory then the loan officer send
recommendation letter for approval loan to the Head Office. The recommendation letter
contains loan detail, customer’s particulars, guarantor’s particular’s, customer’s bank A/C
performance that means customer’s debit turnover, credit turnover record. The letter also
includes customer’s liability position, monthly cash flow statement and ration analysis.
Managers will be personally responsible for ensuring that credit reports submitted to
Head Office are the result of thorough and proper enquiries. It will, therefore, be essential
for the Managers to obtain independent confirmation of all the information collected and
submitted by their officials and they are not to rely solely on the information of their
dealing Officers when advancing Bank’s money. After getting the recommendation letter
the Retail Division of Head Office also verify the loan applicant and documentation. If
the found everything fulfill their criteria then they send the approval for sanction of loan
favoring the client. Reports will be furnished to the Head Office on all borrowers
and co-obligates. Opinions will normally be typed in duplicate. One copy will be
forwarded to the Head Office and one copy should be retained by the Manager. If the
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party reported on is also having dealings with our other branches, copies of the relative
opinion sheets, should also be sent to the concerned branches of the Bank.
3.14.4 Process of Sanctioned Letter
With the sanction letter the Retail Banking Division department also stated the terms and
conditions which must be followed by the respective parties. They determine the service
charge (1% on loan amount plus 15% vat) & amount of risk fund (.5% in case of Home
loan % 1% in case of other categories). The Head Office gives specific instruction to the
branch manager regarding how they will disburse the loan and mode of repayment. In
case of mode of disbursement the office may ask the loan division to issue a pay order or
transfer to the loan A/C etc. The sanction letter then must be communicated by the loan
applicant in a separate sanction advice and such terms and conditions must be accepted
duly signed by the party in the duplicate copy of the sanction letter. With the acceptation
of sanction letter the clients agree to obtain the documents and securities as per indication
given in enclosed certificate of documentation in and additional document(s), if required
as per opinion of the bank’s panel lawyer to protect bank’s interest. Next, the loan
division of the branch send a copy of ‘Certificate of Documentation’ along with a copy of
‘Legal opinion plus Law year’s Satisfaction Certificate’ immediately to Credit
Administration Unit on completion of documentation and other formalities seeking
approval for disbursement of the facility. The loan division can only disburse after
obtaining the disbursement authorization from Credit Administrative Unit, Head Office.
Before disbursement, a declaration to be obtained from the customer to the effect that no
Director/ Sponsor of Prime Bank Ltd. or any of his family Member/Dependent has got
any direct or indirect interest in his business. An undertaking to be obtained from the
customer to the effect that he has no liabilities with any other bank(s) in his name or in
the name of his/her blood relative concern excepting the liabilities if any declared in the
loan application. After all these formalities the loan is ready to disburse. Client will
procure the specified articles from dealer / agent / shops acceptable to bank.
3.14.5 Disbursement Procedure
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After sanctioned of the loan both the client and loan division started disbursement
procedure. The officer stores documents to the safe custody and registered in the safe-
in-safe-out register. To get the loan to work, the customer’s need to submit all
papers / Cash memos etc. related to the procurement of the goods. The possession of
the goods will be in the name of bank and client itself ensuring ownership of the
goods. Like: if someone purchase a flat with the loan facility of the bank the
possession of the flat will remain as “favoring Mr.X a client of Prime Bank Ltd.
Satmasjid Road Branch”. Wherever applicable, the ownership shall be transferred in
the of the client after full adjustment of Bank’s dues. During the process of
disbursement, the client shall have to bear all the expenses of license, Registration,
Insurance etc. of the articles wherever necessary. The insurance will be with the Bank
mortgage clause. The premiums shall be paid by the borrower by debt to his account.
The client shall have to bear the cost of Repair & maintenance of the acquired
articles.
3.14.6 Credit Monitoring Process
Credit monitoring process starts immediately after disbursement of the facility. The
customers start repayment the loan from the next month. Simultaneously, Branch
relationship Officer starts monitoring the loan on site basis. If the officer finds any
deviation to the terms and conditions of the loan or borrower’s wealth, he/she sends
an Early Alert Report to the Corporate Banking Division. An Early Alert Account is
the one that has risks or potential weakness requires monitoring, supervision or close
attention of the management. After having the Early Alert Report, Credit
Administrative Division monitors the loan on an off-site basis and thereby reports the
Credit Risk Management Division to take necessary action. On the other hand, if any
clients fail to pay three monthly installments simultaneously, the Relationship officers
reminds the clients through phone calls, reminds later or visit in person where
necessary.
3.14.7 Mode of Recovery
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To remove the financial burden bank’s recovered the loan amount along with interest
through monthly installment. Generally these amounts are round figure and during the
determination of the installment amount bank consider the payment ability of the
client. The entire loan amount shall be paid into equal monthly installment throughout
the loan period. Any excess or shortage has adjusted with last installment. Dues shall
be recoverable in the following manners:
a) In equal monthly installments.
b) The monthly installment shall be payable by the 8 th of every month, but the
first installment shall be payable by the 8 th of the subsequent month of
disbursement.
c) Through deduction from the monthly salary of the client wherever
applicable, by his employer. In this regard the concerned employee shall
authorize irrevocably his employer to deduct the said amount from his
monthly salary. The client can only revoke this authority with the
concurrence of the bank.
If the customer fails to repay three monthly installments, bank reserves the right to
cancel or call back the entire outstanding loan liability of the concerned account
irrespective of the validity of the account and bank can also take initiative for legal
action under Artha Rin Adalot Ain Act-2003.
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Procedure of Sanction Loan:
57
Appraisal Interviewing the client’s CIB Preparing the credit proposal Landed property valuation
Pre-disbursement Issuing Sanction letter Acceptance from the client Completion of all documentation formalities
as per Head Office.
Disbursement Loan Input Voucher
Monitoring Ensure adjustment as per repayment Communicate with the clients. Physical visit. Obtain various reports regarding client’s
business.
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Flowchart 2: Processing of Credit
3.15 SecuritySecurity accepted against credit facilities shall be properly valued and shall be effected in
accordance with the laws of the country in which the security is held. An appropriate
margin of security will be taken to reflect such factors as the disposal costs or potential
price movements of the underlying assets.
3.16 Collateral Loan SanctionPrime Bank Ltd. Sanctioned loan against different monthly deposit scheme and Fixed
Deposit. This type of loan is called Collateral Loan. But the deposit scheme must be
more than two years of old and the deposited amount must exceed tk.50000. To get
the loan the consumer has to lien the deposit scheme/ FDR to the bank. The maximum
amount sanctioned in the category must not exceed 80% of the total deposited amount
up to date. There is a Credit Committee exists in branch called Branch Credit
Committee (BCC). This Credit Committee could provide loan up to 50 (fifty) Lac
against collateral loan. In this case they don’t need to get sanction from Head Office.
Under this policy they receive FDR / Sanchayapatra / Wage earner certificates / Share
certificates and lien this to stop the payment.
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Repayment Installment realizes from the clients.
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59
Loan request letter received from the client
Prepared the credit proposal under BCC
Received FDR/Wage earner certificate/Share certificates
Completed the lien formalities
Sanction letter prepared
Disburse the loan
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Flow Chart 3: The Process of Cash back loan:
Security
3.17 Security against AdvancesSecurity is a Cover against loans and advances. It ensures recovery of loans and
advances. Though now-a-days greater emphases are put on the purpose of the loan
rather than securities, nevertheless the securities play an extremely important role to
take a decision.
3.18 Types of SecurityThe types of securities offered vary from place to place. In metropolitan cities, it may
be Govt. bonds / share / assignment of Book debt / Bills receivable etc. whereas, in
the industrial area raw materials & finished goods etc. may be offered as securities.
Again agricultural produce is the principal securities in the agricultural centers.
Further, a bank also accepts moveable & immovable properties, life insurance policy
etc. as securities.
Securities are classified into three broad categories:
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Collateral Securities
Guarantee
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Flow Chart 4: Types of Securities
Collateral Securities
The tangible securities pledged / assigned by the borrower to the bank and
additionally held by the bank to secure a loan are called Collateral Securities. In case
of advances against pledge / hypothecation of goods, bank may insist on immovable
properties as collateral. A good collateral security must be-tangible, transferable /
negotiable, easily marketable, price stability, and durability (not perishable), ascertain
ability of market value.
Guarantee
At times when the personal security of the borrower is not considered sufficient or
when the risk involved is a border line case and the borrower is not in a position to
offer sufficient collateral to the loan, the bank may ask for a guarantee of a third party
whose financial ability and credit standing is acceptable to the bank. A guarantee is an
undertaking given to the bank by a third party, called the guarantor to be answerable
to the bank for the debt of the borrower upon his default in repayment of the loan. It
should be remembered that such security for the loan depends on the continued
solvency of the guarantor. To safeguard the bank’s interest a continuing guarantee in
the bank’s standard form should be obtained.
Margin
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Margin
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The difference between the market value / asset valued of the goods, merchandise and
produces pledged / hypothecated to secure a loan / advances and the amount of the
loan / advance (normally the drawing power) is known as MARGIN. The margin to
be retained for each type of loan / advances will be in accordance with instructions
issued from time to time by Bangladesh bank / Head office of the bank. In case where
minimum margin is specified, the percentage may be increased according to market
conditions, salability / durability / storage capacity and inspection facility of the
goods.
3.19 Classified LoansA classified loan or commitment is one which is classified as substandard, Doubtful
or Loss as per policy of loan classification set by Bangladesh Bank or Head Office of
the bank.
Loan Classification means to categorize the debt information in a systematic manner.
But in true sense it is defined in terms of degree of risk associated with these loans.
The objectives/importance of loan classification are:
To find out Net Worth of a bank;
To assess financial soundness of a bank;
To calculate the required provision and the amount of interest suspense;
Strengthen credit discipline;
To improve loan recovery position and
To put the bank on sound footing in order to develop sound banking practice in
Bangladesh.
Position of classified loans and advances and other assets should be placed before the
Board of directors of the bank.
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The following are the broad definitions of the classified categories: however
instruction issued by Bangladesh bank / Head Office of the bank regarding basis of
loan classification and provisioning should be followed:
Flow Chart 5: Classified Loans
Substandard
A well defined weakness is present in loans f this category, which could affect the
ability of the borrower to repay. This is clearly a troubled situation, for one reason or
another, which requires immediate and intensive effort to correct and reduce the
possibility of loss.
Doubtful
A serious doubt must exist that full repayment will not be forthcoming but the exact
amount of the loss cannot be ascertained at the time of classification.
Loss
Advances, or portions of advances, which are determined to be uncollectible, based
on presently known factors.
3.20 Legal Action
Legal proceedings are lengthy and consuming and as such every effort must be made
to settle a defaulter’s outstanding out of court. However, if situation compels the bank
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Classified Loans
SUBSTANDARD DOUBTFULLOSS
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to take legal action for recovery of stuck up loans and advances; the same should be
done with prior approval of Head office. All legal process should be conducted by the
bank’s legal retainer, if necessary in consultation with Bank’s legal adviser.
Importance of Credit AnalysisCredit department of any bank is very much important. “A bank will collapse or not” this
important matter depends upon the performance of the bank’s credit department
Responsibilities of the credit department of PBL are huge. They have to go through a lot
of scrutiny factors. They have to use the deposit collected by the bank in a proper way by
giving loans to maintain the liquidity. A huge part of the revenue is generated from the
interest received from the loans and advances again if they give so many loans then
liquidity of the bank may decrease and risk will also increase in the market.
But ultimately this is the truth that if banks don’t give loan to their clients their revenue
generation will be slow and ultimately the bank will be collapsed. So bank must give
loans and advances to the business and the personnel.
Now the question arises that how effectively they can do it. They must have to take care
that the loan they are giving to the clients. Some questions must arise when Prime Bank
Ltd. gives loan to clients.
Is the client capable enough to repay the loan and interest?
How it will be measured?
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On what basis the bank will give the loan to the client?
If the loan is default how the Bank will recover it?
To get the answer of these questions and maintain the credit activities properly there is no
alternative of Credit Risk Analysis. Analyzing the risk associated with the loan gives a
clear idea about the quality of the loan.
Credit AnalysisCredit analysis is concerned with two things: judging the creditworthiness of the credit
taker and designing an appropriate structure for the credit.
Creditworthiness. Creditworthiness is a function of capacity to repay and willingness to
repay. There are not unrelated, since many people’s willingness to pay is a function to
how much it hurts.
The first step in analysis is to understand the environment in which the company
operates. Political, economic, technological and sociological trends can all have an
impact on the borrower’s business. After understanding this broader environment, the
loan officer must then understand the borrower’s industry, including such issues as
relative bargaining power between purchasers and suppliers, barriers to entry, substitute
products, and cyclicality. The availability of multiple sources of supply and the
company’s Labor relations are very important factors. The impact of international factors
such as changes in foreign exchange rates must not be neglected. Regulatory, legal, and
other factors must also be taken into account.
A Company’s financial capacity to repay a loan depends on producing a sufficient excess
of revenues over expenses year after year. Particular attention must be paid to the
company’s income statement and the trends not only in taka but also in percentages. A
Company with a profit margin that is narrowing every year is a company that may
eventually have difficulty. In conducting financial analysis a spread of at least three (and
preferably five) years of financial statements is required. The account officer should
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consider quality of earnings, that is the conservatism or aggressiveness of the borrower’s
accounting practices and the volatility of revenues and expenses. Trends and comparisons
with similar companies are very important. Unusual accounting practices should be
disclosed in the credit memorandum.
Structure. The loan should be structured appropriately for its purpose of repayment If a
company is borrowing to finance accounts receivable that are payable in 30 days, the loan
should generally be paid on receipt of the receivables. If the loan is for building a new
plant, the source of repayment may be the added revenues or expense savings by that
plant over a period of years, and accordingly, a loan of 5 or even 10 years may be
appropriate.
When extending credit for more than a year, it is generally advisable to have the credit
paid in periodic installments spread more or less equally over the life of the loan, rather
than in a single repayment at the end. Loan officers however need to be a cautious in
evaluating collateral because it may decline in value and there may be difficulties in
liquidating it. Loan officers need to be especially cautious regarding collateral that is
likely to decline in value at the same time that a borrower’s cash flow is also declining.
For example, a loan to a shipping company secured by ships suffers from the problem
that if the shipping industry does badly, the borrower’s cash flow will suffer. At the same
time, the price at which ships can be sold will decline.
Sometimes a loan is made on the strength of the guarantee of the owner of the borrowing
entity or some other party with an interest in the success of the borrower. Guarantees
strength a lenders position and should be taken wherever possible and collateralized
wherever possible. However, loan officers need to be realistic about the fact that
guarantors often resist paying when the day of reckoning comes.
Not least important in considering the structure of a credit is the price: what payment the
bank gets in return for the liquidity it provides and the risk it takes. Banking is a
competitive business, but it is also business that offers significant value.
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Chapter 4: Job Description
4.1 Description of My JobWith the vision to be the most efficient financial institution of the country Prime Bank
Ltd. It is now considered as one of the largest banking and financial services organization
in Bangladesh. It has made its place as the fastest growing bank. It was a great
opportunity for me to work in this renowned organization. I had the opportunity to
complete my internship from Prime Bank Ltd. As PBL has 71 branches, I was assigned
to perform my internship at Satmasjid Road branch. While working with different
sections banking, I got the opportunity to observe various principles and procedures
followed in banks for financial operation and control. I was able to grasp an elementary
knowledge on quite a few aspects of its operation. On completion of a period of three
month in the internship, I decided to start compilation of a report on my works, side by
side with my routine job assignments. Duration of my internship was from 22 January to
Aril 21, 2009. In PBL Bank, there are several departments. I had the opportunity to work
at two departments which are General banking department and credit division.
Accordingly, at first I was assigned to work in credit division (CD) department then in
General banking (GB) department. I worked for CD for eight weeks then I moved to
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General banking Division for the rest. The work experience gave me a good idea of the
overall banking system of Bangladesh and taught me the professionalism at work place.
4.2 Specific Responsibilities As I worked in credit division (CD) department then in General banking department
(GB). My specific responsibilities are describing below:
4.3 Credit DepartmentA department in the bank that evaluates the financial status of credit applicant it also
confirms that the applicant is capable of lending money from the bank or not. There are
some criteria by which a bank can accept or reject the application for sanction the
loan/advance proposal. The job description of this department is broadly discussed later
part. My specific job responsibilities are given below:
Provides Credit application form and Charge Documents
When a client approaches for the credit my supervisor at first interviewed him/her. If my
supervisor is satisfied then he requested me to provide the clients a credit form and
charge Documents thereby with the information I then fill up the credit application form
and sign the charge documents by the client.
Stamping
To get the legal facility in future bank must stamped the entire legal document like Letter
of hypothecation, Letter of guarantee etc. As an intern my duty was to stamp those
documents.
Make a file for applicant
It takes at least a month to process the whole loan applicant and thereby issuance
sanctioned letter where applicable. Before that the loan division must keep the record of
all the documents relevant with the process of loan. My duty was to open a loan file with
account number on behalf of the loan officer.
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Safe in Safe out register maintain
I maintain the safe in and safe out register. Here, what the customers has done for taking
loan like how many cheques the client has signed, the details of charge documents,
disbursement date, client’s name, loan account number is written here. When the loan is
closed then the client sign on it.
Making office note and Sanction Advice
I make office note and sanction advice. This two are nearly same thing. Here everything
is written about the loan like the terms and conditions of the loan, client’s name, address,
Sanction advice is two copied. One copy is signed by the client which is kept by the
bank, another copy is given to the client. Office note is one copy. It is kept to the bank.
Data Entry for preparing CIB report After every three months CIB Report is sent to the Bangladesh Bank. For preparing CIB
Report at first borrower’s list is made and then matrix. For these different data is needed.
I gave data entry for preparing it.
Prepare CRG, FSS & Proposal
CRG means Credit Risk Grading and FSS means Financial Spread Sheet. When a client
comes for taking loan then his or her risk is measured for giving loan. Otherwise bank’s
risk increases. For it at first bank prepare financial spread Sheet then prepare Credit Risk
Grading and at last prepare a proposal. After that the client risk is measured. If the
client’s risk is high then the bank becomes conscious to provide the loan.
Preparing Defaulter List
Since my work period was in June when all the banks prepare half early and early annual
closing, I also helped my supervisor to make the defaulter list. Defaulter list is very
sensitive in such a way that it has been send directly not only the Hear Office but also to
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the Bangladesh Bank. Any mistake can damage the reputation of the client as well as the
reputation of the branch.
4.4 General Banking Department Account opening
As an intern at first I was taught how to deal with clients who are interested to open an
account. To open an account at first properly a form provided by the bank has to be
fulfilled. There are two types of account form categorized as savings account and current
account. To open an account client must have an introducer. In this bank introducer
means a person or organization who is currently maintaining an account with this bank.
The transaction of the account must at least three month. If the client’s have no introducer
in that sense Prime Bank’s own direct sales executive act as their introducer For personal
account valid personal identification document is required. For organization relevant
document is required. Like -for business organization trade license is required. To open a
savings account a person/persons must be adult and mentally sound. For Organizations
and institutions one or more authorized person from that organization will handle the
account. Person(s) will be selected by that respective organization/institution. My job was
to monitor the fulfillment of those conditions. After fulfill the required procedure if at
least two authorized officer satisfied and signed then an account is opened. An account
number and customer id is given.
Cheque book issue
Issuing cheques book was another work I was assigned for while working for GB
department. When a client opens an account then he/she gets a cheque book for
withdrawing money. For getting cheque book a client has to fill up the cheque requisition
slip. After filling up the cheque requisition slip, the client gave it to me. Then at first I
verify the signature from the authorized officer, when it is verified then I prepare the
cheque book. For preparing the cheque book I would match the series number of cheeque
book with the previous number. Then I write down the name and fall the account number
on the cheque book. After that the officer (Mrs. Lata or Mrs Masuma) put their initials on
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every leaves of the cheque book. At last I would write it on the cheque book register.
Then the client put his/her signature on the register.
Account close
For account close at first the client has to fill up an application form requesting to close
the account. After verification and authorization the account will be closed. The client
must surrender the cheque book at that time. My task was to help the clients to go
through the whole process.
Receive Clearing Cheques
I receive all the clearing cheques. For receiving it at first I would match the cheque
number, bank’s name branch name and amount with which is written in the deposit slip
by the client. Then if it is Prime Bank cheque then I use Transfer seal and if it is clearing
cheque then I use received for collection seal on the client’s copy. Then at last the officer
sign on the client’s copy. Then I send the cheques to the clearing officer.
Maintaining Incoming and Outgoing Register
Everyday lots of documents come to the branch. I receive those. Then I would mark it by
the operational manager and give an entry on the incoming register. If any document
sends to another bank or organization then those come to me and I give entry on the
outgoing register and fall a disperse number.
Issue Bank Solvency Certificate
For various reason clients sometimes need bank solvency certificate. I provide the
solvency certificate to the clients. When operational manager approved the application
form my job was to issue the certificate in the pad of PBL and collect signatures form the
operational manager.
Informing Clients about their balance and providing them statement
Some clients come to know their balance everyday. Then I would inform them about
their balance and some wants to collect statement. Then I gave them a form and help
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them to fill up the form. From the form I can know the client’s name, account type,
account number and the duration of the statement. Then I verify the signature from the
authorized officer. After that I provide them the statements according to their
requirements.
Pay order (PO) Issue
If the clients want to send money inside the Dhaka then he/she can do pay order. To do a
PO a client has to fill a prescribed pay order form which is given by the bank and deposit
the pay order amount and the necessary commission and vat to the cash. The clients can
deposit the money by cash or he/she can place a cheque. After that the client will come to
me with that prescribed pay order form. I will prepare a Pay order when it is authorized
by the cash officer. For preparing it I will write a PO from the pay order block and sign
the pay order by the P.A (Power Of Attorney) holders. For issuing pay order I have to
maintain a register When the Pay order is received by the client then he or she has to sign
in the particular area.
Demand Draft (DD) issue and responding
If the clients want to send money outside the Dhaka then he/she can do Demand Draft.
To do a demand draft a client has to fill a prescribed demand draft form which is given by
the bank and deposit the demand draft amount and the necessary commission and vat to
the cash. The clients can deposit the money by cash or he/she can place a cheque. After
that the client will come to me with that prescribed demand draft form. I will prepare a
DD when it is authorized by the cash officer. For preparing it I will write a demand draft
from the DD blocks then I write it down on the register and make a voucher and sign the
DD and Vouchers by two P.A (Power Of Attorney) holders. If we issue DD then we are
the originating branch, if another branch issue DD and we respond that then we will be
responding branch. For DD responding I will maintain register.
Issuing a pay slip
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For paying miscellaneous expenses bank issues pay slip. It is same as Pay Order. For
issuing a pay slip at first I got the voucher. Then I write it down on the pay slip block and
register giving the beneficiary name, amount, date and reason of expenses.
4.5 Card Division I worked on the card division for 1week, in absence of Sharmin Rahman, Principal
Officer who leads the responsibility of the card division.
Issuing of New ATM Card
At first all the Application form of ATM Card came to me those are filled by the clients.
Then I gave entry their name, address and account number. Then I would take a hard
copy of that and sign it by the operation manager. Then it is sent to the head office.
Within 10 days the cards came to the office and then I sorted them out and finally
distribute.
Sorting and Distribution
When the cards came then I sorted them out. The pin code paper is sent with the card.
The card holder name and card number is written on the pin code paper. I match that and
attach them with a pin and sorted them out alphabetically. It means that whose name
starts with ‘A’ I keep them in the A box, whose name starts with ‘M’, I keep them on the
M box. It is done because of finding out the card easily and least possible time. When the
clients come and ask for his/her card then I ask his/her name. If the client’s name is Talha
Mahmud, then I would go for the T box and search the card. I have to maintain a register.
After getting the card I would ask the client’s address that is written on the pin code
paper. If it is matched with the pin code paper, then I distributes the card to the client
after taking his/her signature on the register where the client’s account number is written.
Before giving the card I would also match the account number of the client. Because
same name clients can remain.
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Chapter 5: Comparison
5.1 Comparison with Other Bank
Dhaka Bank Ltd. Southeast Bank Ltd. Dutch Bangla Bank Ltd. Mercantile Bank Ltd. Export and Import Bank Ltd. Eastern Bank Ltd.
Comparison of Profit of Different Banks Main Office (source Manager’s conference 2008)Area 2007 2008 GrowthDhaka Bank 47.11 54.45 16Southeast Bank 42.01 43.85 4Exim Bank 40.35 43.66 8Mercantile Bank 42.40 52.00 23Dutch Bangla Bank 34.01 36.39 7Prime Bank 33.46 42.29 26
Deposits VS Advances of Different Banks-2008 (Source Manager’s conference 2008)
Deposit Advance GAP-2008 of Different Banks (source Manager’s conference 2008)
Banks Crore Taka
DBL 956SEB 731DBL 1293
DBBL 1271EXIM 139MBL 793EBL 260
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956
731
1293
1271
139
793
260
0 200 400 600 800 1000 1200 1400
DBL
SEB
PBL
DBBL
EXIM
MBL
EBL
Deposits Advances Gap 2008
CRORE TAKA
Profit 2008 of Different Banks (Source Manager’s conference 2008)
Banks Crore Taka
DBL 205SEB 294
EXIM 205PBL 351EBL 190MBL 157DBBL 151
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205
294
205
351
190157 151
0
50
100
150
200
250
300
350
400
DBL SEB EXIM PBL EBL MBL DBBL
Profit 2008
Crore Taka
Import 2008 Of Different Banks (Source Manager’s conference 2008)
Banks Crore Taka
DBL 4950EXIM 6140PBL 7062MBL 4038EBL 3782SEB 3847
DBBL 3567
6140
7062
4038 3782 3847 3567
4950
0
1000
2000
3000
4000
5000
6000
7000
8000
EXIM PBL MBL EBL SEB DBBL DBL
Import 2008
Crore Taka
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Export 2008 Of Different Banks (Source Manager’s conference 2008)
Banks Crore Taka
EXIM 5579DBL 3108
DBBL 3406MBL 3267PBL 5132SEB 2877EBL 3357
5579
31083406 3267
5132
28773357
0
1000
2000
3000
4000
5000
6000
EXIM DBL DBBL MBL PBL SEB EBL
Export 2008
Crore Taka
Rate of Return on Advance 2008 of Different Banks (Source Manager’s conference 2008)
Banks Crore Taka
DBBL 3406DBL 3108EBL 3322
EXIM 5579MBL 3267PBL 5132SEB 2877
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34063108 3322
5579
3267
5132
2877
0
1000
2000
3000
4000
5000
6000
DBBL DBL EBL EXIM MBL PBL SEB
Rate of Return on Advance 2008
Rate(%)
Cost of Deposits 2008 of Different banks (Source Manager’s conference 2008)
Banks Crore taka
DBBL 3406DBL 3108
EXIM 5579MBL 3267PBL 5132SEB 2877
3406 3108
5579
3267
5132
2877
0
1000
2000
3000
4000
5000
6000
DBBL DBL EXIM MBL PBL SEB
Cost of Deposits 2008
Rate(%)t
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Chapter 6: SWOT Analysis Strength
o Prime bank Ltd has been stood first in CAMELS Ratings.
o One of the premier private sector banks in Bangladesh.
o A good number of experienced bankers in its management.
o PBL has good number of branches.
o Better customer service has been proved than other private sector banks.
o Prime bank has already established a favorable reputation in the banking industry
of the country.
o PBL has an interactive corporate culture.
Weakness
o Lack of modern information technology being practiced.
o Newer in the personal loan market.
o Low remuneration package.
Opportunities
o People are interested in getting personal loan with lower interest rate.
o New branches will be opened in different part of Bangladesh.
o New employees (fresh graduates and experienced) are recruited every year.
o Personal loan market is the most happening market in banking sector.
o In this competitive environment BBL must expand its product line to enhance its
sustainable competitive advantage.
Threats
o A loan default culture is still a major drawback for making advance/loan.
o New banks are coming up with new ideas, products and services.
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o The contemporary banks of PBL such as Dhaka bank, Eastern Bank and Dutch
bangla Bank are its major rivals.
Recommendations
As I have gone through some departments, I have come up with some points, which can
improve the efficiency as well as quality of the work. The points are as below;
Setting proper planning for each and every work as well as for the whole
department.
Increase the remuneration package for the employee.
Reduce the service charge for account and other service charge.
Designing jobs on priority basis.
Assigning necessary manpower for every job.
Proper Credit Planning and Management.
Borrower Selection carefully.
Follow Five Cs in Borrower Selection.
Appropriate Financial Analysis of Borrower’s Business.
Monitor the loan sanction process carefully.
Proper maintenance of files and necessary files and documents on daily basis.
Proper managerial observation and cooperation.
Avoiding duplication through accuracy and efficiency.
Developing motivational program and training program.
Ensure that every one working in Software knows it properly and giving them
personal ID.
And most of all change of managerial attitude and view point.
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ConclusionThis report is an effort to reflect a clear idea about the strategies, activities and
difference performances of Prime Bank Ltd. regarding its commercial activities with a
special reference to Credit management or Business. The researcher was assigned it in
the Satmasjid Road Branch of Prime Bank Limited (PBL) as an intern. I present this
report on the basis of the knowledge and experience gained during the internship
period of twelve weeks. Throughout the report my objective is to seek and find out
the main reasons of this prosperity / success of Prime Bank Limited. Lending is a
heart of a commercial Bank. It has two types of loans and advances. Both of
them are profitable assets for a bank to competitive in the market. But the
condition is that loan or advances must have the quality and quantity. It is
therefore, indispensable for a Bank to have a well thought policy for executive to
perform its lending operation. This report contains the overall policy and various
stages of Credit Operation and Credit Management.
To identify the success of any organization it is required to give keen sight in each
section of the work place. In any Bank there are three sectors these are general
banking, credit section and foreign exchange. Of them the most important sector is
credit and the main task is credit operation and credit management. The global
success or failure of the Bank as a whole depends on it. Also with this general
banking has got special importance, because without sufficient deposits no bank will
be able to sanction the credit facility to its various clients and earning profits. General
banking consists of customer services and deposits collection and credit section
consists of utilizing this huge amount of deposits properly. Credit section has gone
several frequent steps. Theses are: Credit Planning, Borrower Selection, Financial
Analysis of Borrower’s Business, Scoring, Sanction of Credit, Monitoring,
Classification, and Provision. With other things the main important part of credit
operation is borrower selection. There are five important factors to select the
borrower. These are known ad five Cs. These are Capital, Character, Collateral,
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Capacity, and condition of the borrower. The financial viability of the customer has
got significant importance. That’s why different techniques are used to justify the
borrower’s financial position.
Prime Bank is an emerging bank. The bank has only completed a decade of banking
services. At the initial stage of business, every institution has to go through the
difficult path of survival. To achieve the confidence of the customers, the bank must
execute some improvements in its marketing and operational areas – Prime Bank Ltd
should try to win customers faith by providing them efficient and dependable
services, credit facility and updating with user friendly modern technologies. The
bank should redesign all sorts of banking procedures to be more user-friendly,
attractive and impressive.
Prime Bank limited started with a vision to be the most efficient financial
intermediary in the country and it believes that the day is not far off when it will reach
its desired goal. Prime Bank Limited looks forward to a new horizon with a
distinctive mission to become a highly competitive modern and transparent institution
comparable to any of its kind at home and abroad.
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BibliographyBibliography1.Ahmed Nasiruddin. (1989), Banking And Finance Compendium: 1st edn. Standard Printing and Packages: Dhaka
2.Hill, Charles, W. & Jones, Gareth, R. (2007), Strategic Management: An Integrated Approach. 7th edn. Houghton Mifflin Company: Boston
3. Karajewski, Lee, J. & Ritzman, Larry, P... (2005), Operations Management: Process and Value Chain. 7th edn. Pearson Education Inc.: India
4. Wheelen, Thomas, L. & Hunger, J., David.(1995), Strategic Management and Business Policy. 5th edn. Addison-Wesley Publishing Company Inc: United States of America
5. Credit Rating Information and Services Limited. Retrieved August 5, 2008, from CRISL Official Web site: http://www.crislbd.org/
6. Star Business News. (2008). Prime Bank Launches Training Programme7. Prospectus of Prime Bank Ltd.8. Leaflet, Booklet and department published documents.9. Bangladesh Institute of Bank Management. “Appraisal of Customers Services of Scheduled Banks of Bangladesh”. Bank Parikrama, 2005.10. Report on “Banker – Customer Relationship”, of National Bank Training Institute. 11. Ahmed, Fariuquddin. “Nationalized Commercial Banks in Bangladesh – An analysis of their Operational and Functional Performance”. Bank PariKrama, Vol. XV & XVI (1990-91).12. InternetWebsite –www.prime-bank.comOther Reference
Brochures of products of Prime Bank LtdAnnual Report 2005-2009, Prime Bank Ltd