Basic knowledge of Loans & Advances-01 1) Credit- is the confidence of the lender on the ability and willingness of the

borrower to repay the debt as per schedule of repayment. 2) Categories of Loans and Advances : All types of credit facilities can be broadly classified into two groupsA. Funded credit, B. Non funded Credit. A. Funded credit a. Loans i) Demand Loan; ii) Term Loan (Short, Medium and Long) b. Cash Credit (CC)/ Overdraft (OD) i) CC (Pledge) ii) CC (Hypothecation) c. Bill discounted and purchased i) Discount-Allowing advances by discounting usance bills ii) Purchase- Financing against sight/demand bills. B. Non Funded credit a. Letters of credit (LC) b. Bank Guarantee i) Performance Guarantee ii) Bid Guarantee. All loans and advances will be grouped into four (4) categories for the purpose of classification, namely(a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d) Short-term Agricultural & Micro- Credit. Compiled byFarhadur Reza, BBA(Finance & Banking), MBA(CU), LL.B, PGD(CS), DAIBB Senior Officer & Credit In-charge, Bank Asia Ltd. Kamal Bazar Branch, Chittagong

a) Continuous Loan: The loan accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as Continuous Loan. Examples are: Cash Credit, Overdraft, etc. b) Demand Loan: The loans that become repayable on demand by the bank will be treated as Demand Loan. If any contingent or any other liabilities are turned to forced loan (i.e. without any prior approval as regular loan) those too will be treated as Demand Loan. Such as: Forced Loan against Imported Merchandise, Payment against Document, Foreign Bill Purchased, and Inland Bill Purchased, etc. c) Fixed Term Loan: The loans, which are repayable within a specific time period under a specific repayment schedule, will be treated as Fixed Term Loan. d) Short-term Agricultural & Micro-Credit : Short-term Agricultural Credit will include the short-term credits as listed under the Annual Credit Programme issued by the Agricultural Credit and Financial Inclusion Department (ACFID) of Bangladesh Bank. Credits in the agricultural sector repayable within 12 (twelve) months will also be included herein. Shortterm Micro-Credit will include any micro-credits not exceeding an amount determined by the ACFID of Bangladesh Bank from time to time and repayable within 12 (twelve) months, be those termed in any names such as Non-agricultural credit, Self-reliant Credit, Weaver's Credit or Bank's individual project credit. Other different categories of loans: i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) xii) xiii) Transport Loan Consumer Loan House Finance Auto Loan SME Loan Agri Loan Micro-Credit Consortium Loan Syndicated Loan Lease financing Hire purchase Import fianance (LTR, LIM) Export finance (Packing credit, back to back LC)

Compiled byFarhadur Reza, BBA(Finance & Banking), MBA(CU), LL.B, PGD(CS), DAIBB Senior Officer & Credit In-charge, Bank Asia Ltd. Kamal Bazar Branch, Chittagong

3) Principles of Lending- Banks are required to follow certain basic principles of lending. a. Safety- security and repaying capacity, b. Liquidity- ability of an asset to convert in to cash without loss, c. Profitability- brings addequate return for the bank, d. Purpose- shoud be productive, e. Spread- Diversification of advance. Some other models which may be followed at the time of lendingThe 5 Cs of Credit - Character- Borrower's Integrity, Honesty and Intention to repay the loan money, - Capacity- Borrower's business ability, particularly profit making report, - Collateral- Borroer's ability to produce additional securities, - Conditions- It is general business condition, and -Capital- Financial strength to cover a business risk. The 5 Ps of Credit Person , Purpose, Product, Place, and Profit.

The 5 Ms of Credit Man, Money, Materials, Market, and Management.

The 5 Rs of Credit Responsibility, Reliability, Respectability, Resources, and Returns.

Compiled byFarhadur Reza, BBA(Finance & Banking), MBA(CU), LL.B, PGD(CS), DAIBB Senior Officer & Credit In-charge, Bank Asia Ltd. Kamal Bazar Branch, Chittagong

4) Loan Classification: Loan Classifiation is the act of grouping of loans and advances according to their status based on given criteria. Objective of loan classification: i) Find out net-worth of a bank, ii) Help for assessing financial soundness of a bank, iii) Help for determining required provision and the amount of interest suspense, iv) Put the bank on sound footing in order to develop sound banking practice in Bangladesh. As per laon classification criteria loans fall under the follwing status. a) Unclassified; i) Standard, ii) SMA (Special Mention Account), b) Classified; i) SS (Sub-standard), ii) DF (Doubt Full), iii) BL (Bad & Loss). 5)Basis for Loan Classification: a) Objective Criteria: Past Due/Over Due, SMA, SS, DF, BL on the basis of overdue period. b) Qualitative Judgement:If any uncertainty or doubt arises in respect of recovery of any Continuous Loan, Demand Loan or Fixed Term Loan, the same will have to be classified on the basis of qualitative judgement be it classifiable or not on the basis of objective criteria. If any situational changes occur in the stipulations in terms of which the loan was extended or if the capital of the borrower is impaired due to adverse conditions or if the value of the collateral decreases or if the recovery of the loan becomes uncertain due to any other unfavourable situation, the loan will have to be classified on the basis of qualitative judgment .

Compiled byFarhadur Reza, BBA(Finance & Banking), MBA(CU), LL.B, PGD(CS), DAIBB Senior Officer & Credit In-charge, Bank Asia Ltd. Kamal Bazar Branch, Chittagong