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Letter of Endorsement

This is to certify that Ashikur Rahman is a student of Master of Business Administration (MBA) program,
ID: 13141201006, 29th Intake, Department of Finance Bangladesh University of Business & Technology
(BUBT), has successfully completed his Internship Program entitled Credit Management of Sonali
Bank Limited. A study on Pabna Branch under my supervision as the partial fulfillment for the award of
Master of Business Administration (MBA) degree. He has done his job according to my supervision and
guidance. He has tried his best to do this successfully. I think this program will help him in the future to
build up his career. I wish him success and prosperity.

-------------------------Md. Amin Mia


Lecturer
Department of Finance
Bangladesh University of Business & Technology (BUBT).

PREFACE
Proper education is required for the harmonious development of body, mind and soul. It is believed that
without practical training and simultaneous academic study, proper education is hard to achieve. To
acquire a complete knowledge in any subject or a specific area, a person needs practical knowledge along
with theoretical knowledge.
Internship program is a partial fulfillment of the requirements for the degree of Master of Business
Administration (MBA). It is a matter of practical experience indeed. Practical experiences surely spread
the knowledge of a student. For this very specific reason internship program has a special significance. So
it is necessary to experience practical application of the theoretical knowledge. Otherwise the core
objective of education will not be achieved successfully.
With great pleasure I had the chance to complete my internship program on Credit Management of
Sonali Bank Limited, Pabna Branch. Under the direct supervision of my honorable teacher Md. Amin
Mia, Lecturer, Department of Finance, Bangladesh University of Business & Technology (BUBT). His
constructive advices and suggestions helped me a lot to successfully complete this internship program. I
am therefore very grateful to him. I also thank the officers of Sonali Bank Limited, Pabna Branch for their
help and suggestions. I have tried my level best to collect and accumulate various effective data that
guided me to prepare an informative report.

Since it is natural that people make mistakes, this report is not beyond that too. So there might have some
unintentional mistakes for which I express my sincere regret. Finally, I wish the better success of
everyone who are interested to read, use or further study on the report.

Ashikur Rahman
MBA Program, 29th Intake
ID: 13141201006
Department of Finance
Bangladesh University of Business & Technology (BUBT).

Letter of Transmittal
To
Md. Amin Mia
Lecturer
Department of Finance
Bangladesh University of Business & Technology (BUBT).
Subject : Submission of internship report on Credit management of Sonali Bank Limited,Pabna branch,
Pabna.

Dear sir,
I am truly pleased to submit my internship report on Credit Management of Sonali Bank Limited, Pabna
branch. I have gathered what I consider to be the most complete information available. This report gave
me the prospect to have a brief knowledge about Credit Management of Sonali Bank limited . I tried my
best to incorporate all the information that I have collected during the internship period.
I wish the report would fulfill your expectation and standard. I must mention here that, I am extremely
grateful to you for your valuable supervision, tireless effort and continuous attention in preparing this
report.
I, sincerely hope that you will be satisfied with this report. If you any query, I will be pleased to answer
that. I hope and pray that you would be gracious enough to accord approval to this report.

SincerelyAshikur Rahman
MBA program,29th Intake
ID No: 131412301006
Department of Finance
Bangladesh University of Business & Technology (BUBT).

ACKNOLEDGEMENT

This is my pleasure that I could successfully complete my internship report by the grace of almighty
Allah. I want to convey my heartfelt respect and cordial thanks to Md. Amin Mia lecturer, Dept. of
Finance, Bangladesh University of Business & Technology (BUBT) for his encouragement, guidance,
advices and valuable supervision. I am very lucky for getting the opportunity to prepare this report under
his supervision and guidance. Without his introduction, it was impossible for me to complete this report
successfully.

I am also articulate my heartiest appreciation to Mrs. Gulshan Ara (AGM) Assistant General Manager of
Pabna branch, Sonali Bank Limited, Pabna. I am also thank the officers of Sonali Bank Limited, Pabna
Branch for their help and suggestions. To complete this internship successfully, I anticipated my
instructors deep aspiration and assist. I have tried my level best to collect and accumulate various
effective data that guided me to prepare an informative report.

The report in your hand is a product of a month long queries and involves many peoples considerate
attention to it. Without their kind helping the preparation of this report would not be possible. So I must
pay gratitude to them.

Table of contents
SL.
Chapter ONE

Particulars
1.1 Introduction of the Report
1.2 Background of the Report
1.3 Significance of the Report
1.4 Scope of the Report
1.5 Objectives of the Report
1.6 Methodology of the Report
1.7 Limitation of the Report

Chapter TWO

An Overview Of Sonali Bank Limited


2.1 History of Sonali Bank
2.2 Vision of Sonali Bank
2.3 Mission of Sonali Bank
2.4 Organizational Hierarchy
2.5 Organizational Structure of Sonali Bank
2.6 Main objective of Sonali Bank
2.7 Services provided by Sonali Bank
2.8 Principle activities of Sonali Bank
2.9 Five years Comparative Financial and Operational
Performance Of SBL at a Glance

Page
No.

Chapter THREE

Theoretical Background of Sonali Bank


Investment, Credit, Pay order, Demand Draft, SOD, CC,
Primary Security, Collateral Security, Lease, Loan, Income
Statement, Balance Sheet.

Chapter FOUR

Credit System of Sonali Bank Limited


4.1 Credit
4.2 Factors Related with Credit
4.3 Importance of Credit
4.4 Credit Management
4.5 Credit Policy of SBL
4.6 Modes of Credit
4.7 Credit Principles
4.8 Principles of sound Lending
4.9 The Cs of good and Bad Loan in Credit Management
4.10 Status of Loans
4.11 General procedure of sanctioning loan
4.12 Programs for Loan Recovery
4.13 Recovery Patterns of Loan and Advances
4.14 Problems in Loan Recovery
4.15 Strategies for Recovery

Chapter FIVE

Analysis of Sonali Bank Limited

5.1 Total Deposit of SBL


5.2 Year wise Loans & Advances
5.3 Credit to Deposit Ratio
5.4 Industry wise Loans & Advances
5.5 Geographical area basis distribution of loans and
advances for year 2012

Abbreviations

A/C-Account
B/L-Bill of Lending
BB- Bangladesh Bank
CC-Cash Credit
DD-Demand Draft
DPN- Demand Promissory Note
FC-Foreign Currency
FDD- Foreign Demand Draft
FDR-Fixed Deposit Receipt

1.1.

Introduction of the Report:

Now a day, education is not just limited to books and classrooms. In today s world, education is
the took to understand the real world and apply knowledge for the betterment of the society as
economy. From education, the theoretical knowledge is obtained from course of study, which is
only the half way of the subject matter. Practical knowledge has no alternative.. The perfect
coordination between theory and practice is of paramount importance in the context of the
modern business world in order to resolve the dichotomy between these to areas. Therefore an
opportunity is offered by dept. of finance, university of BUBT, for its potential business
graduates to get three month practical experience, which is known, is as internship Program.
For the competition of this internship program, the author of the study was placed in a bank
namely, Somali Bank limited for a period of three month (28 th august,2015 to 28th
November,2015).

1.2.

Background of the report:

Economy history shows that development has started has started everywhere with the banking
system and its contribution towards financial development of country is highest in the initial
stage. As a mandatory requirement of Master of business Administration (MBA) program, I was

assigned to do my internship in Sonali Bank Limited for a period of three month. From practical
knowledge , we will be able to know real world situations and start a career with some practical
experience. This report Credit management of sonali bank limited| has been prepared to fulfill
the partial requirement of MBA program as a mean of internship Program..While preparing this
report, I had a great opportunity to have an in depth knowledge of the banking activities of sonali
bank.

Page-1
Credit Management of Sonali Bank Limited

1.3 Significance of the Report:


Education will be the most effective when theory and practice blends. Theoretical knowledge
gets its perfection which practical application. In addition, the internship is designed to bridge
the gap between the theoretical knowledge and real application. We all know that three is no
alternative of practical knowledge, which is more beneficial than theoretical aspects. The prime
reason of this study is to become familiar with the practical business world and to attain
practical knowledge about the overall Banking and Corporate world, which is so much essential
for each student to meet the extreme growing challenge in job market.
Sonali Bank Limited is a state-owned leading commercial bank in Bangladesh. It is the largest
bank of the country.

1.4 Scope of the report:


The report title is An Overview of Credit Management by Sonali Bank Limited. This report is
based on study carried out on Credit management of Sonali Bank Limited using both qualitative

and quantitative methods. The aim of the study is to find out the credit control system performed
by Sonali Bank Ltd.
The scope of this report is limited to the overall description of the company, its services and its
financial performance analysis. The scope of the study is limited to credit management,
functions, and performances. The report will mainly focus on SBLs credit offer and is control
and management.

Page-2
Credit Management of Sonali Bank Limited

1.5 Objectives of the report:


The purposes of this report relates with the internship. The internship objective is to gather
practical knowledge and experiencing the corporate working environment. To this regard this
report is contemplating the knowledge and experience accumulated from internship program.
The objectives behind the construction of this report are :

To know the practical implication of credit management.


To have an in depth knowledge of Credit management procedure of Sonali Bank Limited.
To justify how a bank effectively employ procedures to judge creditworthiness of

prospective and existing borrower.


To differentiate between practical and theoretical learning.
To observe the performance of the bank over a certain time period .

1.6 Methodology of the Report:

As the Topic of the report was Credit management, so I needed to collect information

regarding the credit control procedure.


Data was collected from both primary and secondary sources.
The details of these sources are highlighted below.

1.6.1 Primary Sources:

Customer database and historical data of delinquent customers.


Interviews with the approval officers.
Page-3

Credit Management of Sonali Bank Limited

1.6.2 Secondary Sources:

Internal Sources
SBLs Annual Report
External Sources
Different books and periodicals related to the banking sector
Newspapers
Website information

1.6.3 Data collecting instruments:

Interview
During the investigative research, in-depth interviews were conducted with managers,
approval officers and supervisor. Information was composed personally by discussing
with the employees of the bank and supervisor.
After gathering data, I sorted out the data according to priority and necessity.

1.5 Limitations of the study :

As, SBL is a government bank, it follows strict rules while providing information. Again
it is also not a listed company in the bourses, so collection of annual report and necessary
papers were difficult.
DU campus branch has very little exposure regarding the credit, which caused me to go
in Head office very often.

Website of the bank is inadequately constructed and lack many updated data regarding
the policy and regulations.
The annual report of year 2011 is yet to publish, so the analysis not adequately updated.
Again recent information cannot be included.
As per Banks compliance, as an intern I was unable to obtain requisite experiences of
different departments.
Details of many aspects of the services of Sonali Bank Limited have been skipped in this
report due to various constraints, including time and space, security reason

Page-4
Credit Management of Sonali Bank Limited

Chapter-2

Organization Overview

2.1

History of Sonali Bank

2.2

Vision of Sonali Bank

2.3

Mission of Sonali Bank

2.4

Organizational Hieararchy

2.5

Organization Structure of Sonali Bank

2.6

Main objective of Sonali Bank

2.7

Services provided by Sonali Bank

2.8

2.9

Principle activities of Sonali Bank

SBL at a Glance

2.1 History of Sonali Bank Limited :


Sonali Bank was established in 1972 under the Bangladesh Banks (Nationalisation) Order,
through the amalgamation and nationalisation of the branches of National Bank of Pakistan,
Bank of Bhowalpur and Premier Bank branches located in East Pakistan until the 1971
Bangladesh Liberation War. When it was established, Sonali Bank had a paid up capital of 30

million taka. In 2001, its authorised and paid up capital were Tk 10 billion and Tk 3.272 billion
respectively. Presently, its authorised and paid up capital is Tk 10 billion and Tk 9 billion
respectively The bank's reserve funds were Tk 60 million in 1979 and Tk 2.050 billion on 30
June 2000. Sonali Bank has a total of 1207 branches. Out of them, 343 are located in urban areas,
862 in rural areas, and 2 are located overseas.[6] It also operates the Sonali Exchange Company
Inc. in USA and Sonali Bank (UK) Ltd., United Kingdom, to facilitate foreign exchange
remittances. Sonali Bank UK remits up to 14 destinations across Bangladesh directly, these
include

Dhaka,

Chittagong,

Sylhet,

Maulvibazar,

Beanibazar,

Balaganj,

Biswanath,

Jagannathpur, Sunamganj, Golapganj, Nabigonj, Habigonj, Kulaura or Tajpur. There are


currently three branches in the UK, one located in Brick Lane, London, another in Small Heath;
Birmingham and in Manchester.
The bank has been converted to a Public Limited Company with 100% ownership of the government and
started functioning as Sonali Bank Limited from November 15, 2007 taking over all assets, liabilities and
business of Sonali Bank. After corporatization, the management of the bank has been given required
autonomy to make the bank competitive & to run its business effectively.
Sonali Bank Limited is governed by a Board of Directors consisting of 11 (Eleven) members. The Bank
is headed by the Managing Director & CEO, who is a well-known Banker and a reputed professional.
The corporate head quarter of the bank is located at Motijheel, Dhaka, Bangladesh, the main commercial
center of the capital.

Credit

Management

of

Sonali

Page-5

2.2 Vision of Sonali Bank :


Socially committed leading banking institution with global presence.

2.3 Mission of Sonali Bank :

Bank

Limited

Dedicated to extend a whole range of quality products that support divergent needs of people aiming at
enriching their lives, creating value for the stakeholders and contributing towards socio-economic
development of the country.

2.4 Organizational Hierarchy :


Sl.
No.

Name of Directors

Position

Mr. Fazle Kabi

Chairman

Mr. Ranjit kumar Chakaborty

Director

Mr. Md. Nazibar Rahman

Director

Mr. Shekhar Dutta

Director

Mrs. Selima Ahmad

Director

Mr. Md. Mahboob Hossain

Director

Mr. Md. Shaheb Ali Mridha

Director

Mr. kazi Tarikul Islam

Director

Mr. Md. Enamul Haque


Choudhury

Director

10

Mr. A.K.M Rezaur Rahman

Director

11

Mr. Pradip Kumar Dutta

Managing Director &


CEO

Table 2.1: Organizational Hierarchy

Credit

Management

of

Sonali

Page-6

2.5 Organizational structure of Sonali Bank :

Bank

Limited

Table 2.2: Organizational structure of Sonali Bank

Credit
Page-7

Management

of

Sonali

Bank

Limited

2.7 Services provided by Sonali Bank :

Sonali Bank Limited offers multiple special services with its network of branches throughout the
country in addition to its normal banking operations.

Collection:

Gas bills.

Electricity bills.

Telephone bills.

Water/Sewerage bills.

Municipal holding Tax.

Passport fees, visa fees and Travel tax.

Customs & Excise duties.

Source tax and VAT.

Jakat fund.

Hajj deposit.

Land development tax.

Payment:

Pension of employees of Government


and other Corporate Bodies.

Bangladesh Bank employees pension.

Army pension.

British pension.

Students' stipend/scholarship.

Govt. & Non-Govt. Teachers' salary.

Food procurement bill on behalf of the


Govt.

Credit

Management

of

Sonali

Page-8

Social Services:

Old age allowances.

Widows, divorcees and destitute women allowances.

Freedom Fighters' allowances.

Rehabilitation allowances for acid survival women.

Bank

Limited

Maternal allowances for poor women.

Disability allowances.

Sale & Encashment/Purchase:

Savings Certificates.

ICB Unit Certificates.

Prize Bonds.

Wage Earner's Development Bonds.

US Dollar Premium & Investment Bond.

Lottery tickets of different Semi-Govt. and Autonomous Bodies.

Sanchaypatra.

Public Service Commission's application form.

Judicial Service Commission's application form.

Exchange of soiled / torn notes.

Misc. Services:

Bank a/c information of tax payee client according to demand of NBR.

Local Governance Support Project.

Enlist of Non Government Insurance company

Credit

Management

of

Sonali

Bank

Limited

Page-9

2.8 Principle activities of Sonali Bank :


Sonali Bank Limited is a state-owned leading commercial bank in Bangladesh. It is the largest
bank of the country.The of the Bank is to actively participate in the socio-economic
development of the nation by opening a commercially sound Banking system. It provides credit
to deserving borrowers and at the same time, protects depositors interest.
Deposits:
Sonali Bank mobilized total deposit of BDT tk. 819,472,541,302 Crore as of June 30, 2015.
As compared to BDT tk 778,042,688,301 Crore as of December 31, 2014. Comparative
interest rates deposit mobilization efforts of the bank and confidence reposed by the customer in
the bank contributed to the notable growth in deposit. The bank evolved a number of attractive
deposit schemes to care to the requirement of small and medium services.

Type

As on 30-06-2015

Current and others account deposits

176,038,587,406

162,529,378,799

11,891,852,500

12,676,341,550

Savings Bank Deposit

202,240,798,379

189,696,005,800

Fixed Deposit

429,301,303,017

Bills payable

819,472,541,302

Total

As on31-12-2014

413,140,962,152
778,042,688,301

Table 2.3: Total deposit of Sonali Bank on June 30th ,2015

Credit Management of Sonali Bank Limited

Page-10

Loan and Advances :


The main focus of Sonali Bank credit line/program is financing business, Trade and industrial activities
through an effective delivery system. Sonali Bank offers credit to almost all sectors of commercial
activities having productive purpose. The loan portfolio of the bank encompasses a wide range of credit
programs covering about 200 items. Credit is also offered to 15(fifteen) thrust sectors, as earmarked by
the govt. at a reduced interest rate to develop frontier industries. Credit facilities are manufactures,
corporate bodies, etc. Following the guidelines of Bangladesh Bank, credit facilities have been extended
to productive and priority sectors. The outstanding loan & advance of the bank is Tk. 231,166 million on
31st December, 2008. Loan & Advances for the year 2000 to 20o8 are given below:

Year
2000
2001
2002
2003
2004

Total Loans & advances (Tk. in million)


133,281
141,993
156,113
155,197
168,283

227,010

2005

241,029

2006

206,348

2007

231,166

2008

Table 2.4: Total Loans & Advances of Sonali Bank on 31th December , 2008.
Investment :
To earn profit, the Bank prudently invests its fund to different sectors .The investment portfolio of the
Bank is comprised of treasury bill, other bonds, Debenture, share etc. The Bank earns a handsome profit
from this investment portfolio. Year wise investment of the Bank is Shown in the following table :
Year
2000

Total Investments (Tk. in million)


44,225

2001
2002
2003
2004
2005
2006
2007
2008

33,405
43,867
45,490
58,896
43,636
39,978
88,891
95,093

Table 2.5: Total Investment of Sonali Bank on 31th December 2008.


SME(Small & Medium Enterprise) Loan

Sonali Bank Limited emphasizes highest priority on SME financing for eliminating poverty by
increasing SME loan flow at economically underdeveloped area and peoples. Setting up priority
base SME credit Policy for Women and underprivileged entrepreneurs, Sonali bank working for
the improvement of their socio-economic condition.
Lending Policy:
1) Loan Limit:
BDT 50,000/-(Fifty thousand) to BDT 1,50,00,000/-(One Crore Fifty Lacs)

2) Criteria of Borrower:

Bangladeshi Citizen minimum 18 (eighteen) years old;

Loan defaulter, Bank-rupt, Mentally wreaked person cannot apply for


loan;

Women Entrepreneurs highly encourage to apply.

3) Nature of Project/Enterprise:

Proprietorship Enterprise;

Registered Partnership Enterprise;

Private Limited Company;

Joint Venture Company except Public Limited Company.

4) Security:

The collateral security free loan limit for male entrepreneurs is upto
Tk. 5 lac.

The collateral security free loan limit for women entrepreneurs is upto
Tk. 10 lac.

5) Period:

Project/Term Loan: Maximum 5 years (project period may flexible


according to Project nature)

Working capital/Trading Loan : 1 year, renewable at the end of period.

6) Loan: Equity Ratio:

Project/Term Loan: 70:30

Working capital/Trading Loan : 75:25

7) Repayment procedure:

Project/Term Loan: monthly/quarterly basis repayable within loan


period.

Working capital/Trading Loan: Daily basis or fully repayment within

loan period.

Net Profit :
Year
2005
2006
2007
2008
2009

Profit(in tk)
208038723
(36275634028)
2311114502
973580120
1536766608

Table2.6: Net profit of Sonali Bank on 31st December 2009

Portfolio wise Investment of Sonali Bank :


As on December 31, 2012:

(Taka in Crore)

Description

Government

Public

Private

Total

Treasury Bills

1598.25

1598.25

Reverse Repo

Treasury Bonds

11390.93

11390.93

Other Bonds

128.06

128.06

Debentures

18.10

5.39

23.49

Shares

17.50

1334.63

1352.13

Shares of SB (UK)LTD.

164.88

164.88

Security Deposit (Kolkata Br.)

0.98

0.98

Sonali Exchange Co. Ltd.

7.58

7.58

Sonali Investment LTD.

200.00

200.00

Sonali Polaris FT Ltd.

2.93

2.93

Prize Bonds

10.76

10.76

Overseas Branches

11.03

11.03

Total

12999.94

35.60

1855.48

14891.02

Table2.7: Portfolio wise Investment of Sonali Bank on 31st December 2012

2.9 Five year Comparative Financial and Operation performance Of SBL at a glance:
(Tk. in crore)
Year
2008

2007

2006

2005

2004

2662.10

1429.02

2313.17

1986.39

1575.84

2500.41

1004.32

2012.59

1590.03

1480.59

161.69

424.70

300.58

396.36

95.25

231.11

97.36

(3627.56)

20.80

15.75

900.00

900.00

500.00

327.22

327.22

1246.95

1196.28

283.13

303.40

283.40

36438.60

32899.72

30230.30

27707.90

25223.39

Total Income

Total Expenses

Total Operating Profit

Net Profit/Net Loss

Paid-up Capital

Reserve Fund

Deposits

Advances
23116.66

20634.76

24102.93

22700.96

16828.30

18283.46

17022.42

17814.40

13957.36

12759.28

16420.80

8881.96

8279.60

12984.31

9153.89

11507

11769

12118

12380

12732

10332

10773

11155

11553

11718

21839

22542

23273

23933

24450

563

562

562

562

490

619

621

621

621

696

1182

1183

1183

1183

1186

Export

Import

No. of Employees:
Officer
Staff
Total

No. of Branches:
Urban
Rural
Total

Table2.11 :SBL at a Glance

Investment:
In finance, the purchase of a financial product or other item of value with an expectation of favorable
future returns. In general, terms, investment means the use money in the hope of making more money.
Credit :
Credit is a contractual agreement, in which a borrower receives something of value now, with the
agreement to repay the lender at some data in the future.
Pay order:
A pay order is a draft issued by one another or on its branch. The purchase of a draft makes to the seller in
local currency at the domestic center while the paying after presentation of the draft by the beneficiary.
There is also risk of loss of the draft.
Demand Draft :
The person intending to remit the money through a pay order has to deposit the money to be remitted with
the commission, which the banker charges for its services.
The amount of commission depended on the amount to be remitted. On issue of the pay-order the remitter
does not remit a party to the instrument (1) drawer branch (2) drawee branch (3) payee . This is treated as
the current liability of the bank as banker on the presentation of the instrument should pay the money.
Secured overdraft-SOD (FO) :
Advance is Granted to a client against financial obligations that is deposited in the bank. A client can get
up to 80% loan of the total deposit value.
Secured Overdraft-SOD (G) :
Granted against the work order of government departments, corporations autonomous bodies and reported
multinational private organization. To arrive at logical decision, the client,s managerial capability, equity
strength, nature of schedule work is to judged.

Cash credit CC (Hypothecation) : The mortgage of movable property for securing loan is called
hypothecation. Hypothecation is a legal transaction whereby goods are made available to the lending
banker as security for a debt without transferring either the property in the goods or either possessing.
Cash Credit-CC (Pledge) : Transfer of possession in the judicial sense of essential in the valid pledge. In
case of pledge, the bank acquire the possession of the goods or a right to hold goods until the repayment
for credit with a special right to sell after due notice to the borrower in the event of non-repayment.
Primary security :
There are the securities taken by the ownership of the items for which banks provides the facility.
Collateral Security :
Collateral security refer to the securities deposited by the third party to secure the advance for the
borrower in narrow sense, it denotes any type of security on which the bank has a personal right of action
on the debtor in respect of the advances.
Lease :
A written agreement under which a property owner allows a tenant to use the property for specified period
of time and rent.
Loan:
An agreement in which a lender gives money or property to a borrower, and the borrower agrees to return
the property or repay the money, usually along with interest, at some future points in time. Usually, there
is a predetermined time for repaying a loan (through modern capital markets have developed many ways
of managing the risk).
Income Statement : An accounting of sales, expenses, and net profit for a given period.
Balance Sheet : A quantitative summary of a company financial condition at a specific point in time,
including assets a company owns and the second part shows all the financing methods (such as liabilities
and shareholders equity) also called statement of condition.

National Bank of Pakistan was the largest commercial bank in the then East Pakistan. After
liberation of Bangladesh in 1971, this bank along with two smaller banks, Premier Bank and
Bank of Bahawalpur were merged into Sonali Bank. The bank was nationalized under
Government order P.O.26, 1972.
This bank was transformed into a Public Limited Company under 100% ownership of
Government and started functioning as Sonali Bank Limited on 15 November, 2007.
Sonali Bank has an authorized capital of BDT 10 billion and has BDT 9 billion of paid up
capital. With 1193 branches including two overseas branches, 3 subsidiaries and 3 representative
offices, Sonali is by far the largest commercial bank of the country.
Since its emerge as a nationalized bank in 1972, it is discharging its duties in building the
economy of the nation and till now its carrying out the social commitment for which it was
entrusted.
General Banking
Sonali Bank provides all general banking services to its clients through its extensive network all
over the country. Savings and Current accounts, money transfer through Demand Draft, Pay
Order, Mail Transfer, and Telegraphic Transfer etc. are regular functions of this bank. In addition
it receives utility bills from consumers.
Deposit Schemes
Sonali Bank offers several deposit schemes for different target groups of people. These are:

Sonali Deposit Scheme (SDS)

Education Deposit Scheme (EDS)

Medicare Deposit Scheme (MDS)

Monthly Earning Scheme (MES)

Marriage Savings Scheme (MSS)

Rural Deposit Scheme (RDS) and

Double Benefit Scheme (DBS)

Credit Schemes
Sonali Bank provides loans under the following programs:

Consumer Credit

Special Small Credit

IT Finance

Loan for Diagnostic Center

Loan scheme for Employment Abroad

Consumer Credit loan is designed to support permanent employees in Government, Semi


Government, Autonomous and recognized bodies to purchase consumer durables for household
use. Rate of interest is quite reasonable and payback is through monthly installments.
Special Small Credit is for teachers and Government employees. Those who like to increase their
income through a small business may avail this opportunity. Rate of interest is easy and pay back
is in monthly installments.
IT Finance Scheme is developed for installation of export oriented IT Firm and for the firm
already exists, needs support to export products. As a thrust sector incumbents enjoy quite a low
interest rate.
Diagnostic Center is another field of interest for Sonali Bank. It logically requires proper
security to get the loan and payback period is one year.

Those who get jobs abroad and need money to pay Air Tickets, legal commissions & service
charges for the agent firm are entitled for the loan from Employment Abroad Scheme. Payback
period is decided at per their job contract.
Rural Credit Scheme
85% of our population lives in rural areas of Bangladesh and 75% earn their living from
agriculture. So without boost up of agriculture our economy wont grow. Sonali Bank very
correctly addresses it through the Rural Credit Scheme. The scheme provides loan under the
following criteria:

Crop Loan

Special Investment Program

Farming & Off Farming program

Krishi Khamar Rin Karmasuchi

Pond Fisheries Credit Program

Fertilizer Dealers Credit Program

Sugarcane Production Loan Program

Social Forestation Program

All these credit programs are very much suitable for our rural people and society and in the mean
time these efforts have started to give result. The results are very encouraging.
Microcredit
Microcredit is internationally accepted tool for poverty alleviation and still we have a lot of
people below the poverty level. So microcredit cant be ignored. Sonali Bank being committed

for people and society has been participating in the field actively since 2003. About 20 projects
under the scheme are in progress.
Industrial Finance
For industrial development of the country Sonali Bank provides long term loan against new
industries and BMRE program of existing industries. Under different schemes it addresses thrust
sector, Garments, Tourism, Hospital, Pharmaceutical, Power Plant and many more.
International Banking
Sonali Bank has developed expertise in international trade and business. Through its widest
network in country and a good number of correspondent banks world wide it extends cooperation
to traders and business man. At the same time it brings in valuable remittance from expatriates
working abroad.
Sonali Bank Limited has many other society oriented fields of activities. SME banking, Hajj
Savings scheme, and Foreign Currency account are so
4.1 Credit
The word credit comes from the Latin word credo meaning I believe. It is a lenders trust in a
persons or firms or companys ability or potential ability and intention to repay. Credit is a contractual
Agreement, in which a borrower receives something of value now, with the agreement to repay the lender
at some date in the future. One of the basic functions of the bank is deposit extraction and credit
extension. Managing credit operations is the crying need for any bank. The objective of the credit
management is to maximize the performing asset and the minimization of the non-performing asset as
well as ensuring the optimal point of loans and advances and their efficient management.
4.2 Factors Related with Credit :
Risk
Time
Interest Rate
Security or Collateral
Operating Expense
Legal Considerations

Inflation
Finance Charge
4.3 Importance of Credit :
Credit plays a vital role in national economy in the following ways

It provides working capital for industrialization


It helps to create employment opportunities
Credit controls almost all kinds of production activities of the country
It brings social equity
Cash generation occurs for its successful performance
Business cycle can run well only by the help of lending system
Economic stabilization
Raise standard of living

4.4 Credit Management :


Credit management is a dynamic field where a certain standard of long-range planning is needed to
allocate the fund in diverse field and to minimize the risk and maximizing the return on the invested fund.
Continuous supervision, monitoring and follow-up are highly required for ensuring the timely repayment
and minimizing the default. Actually, the credit portfolio is not only constituted the banks asset structure
but also a vital factor of the banks success. The overall success in credit management depends on the
banks credit policy, portfolio of credit, monitoring, supervision and follow-up of the loan and advance.
Therefore, while analyzing the credit management of TBL, it is required to analyze its credit policy, credit
procedure and quality of credit portfolio.
4.5 Credit Policy of SBL:
One of the most important ways, a bank can make sure that its loans meet organizational and regulatory
standards and they are profitable. It is important to establish a loan policy. Such a policy gives loan
management a specific guideline in making individual loans decisions and in shaping the banks overall
loan portfolio. In Sonali bank Limited there is perhaps a credit policy but is no credit written policy.
4.6 Modes of credit:
Loan and advance have primarily been divided into major groups:

Continuous loan :
These are the advances having no fixed repayment schedule but have a date at which it is renewable on
satisfactory performance of the clients. Continuous loan mainly includes Cash credit both hypothecation
and pledge and overdraft.
Demand loan:
In opening letter of credit (L/C), the clients have to provide the full L/C amount in foreign exchange to
the bank. To purchase this foreign exchange, bank extends demand loan to the clients at stipulated margin.
No specific repayment date is fixed. However, as soon as the L/C documents arrive, the bank requests the
clients to adjust their loan and to retire the L/C documents. Demand loans mainly include payment
against documents, Loan against imported merchandise (LIM) and Later of trust Receipt.
Term loan :
These are the advances made by the bank with a fixed repayment schedule. Terms loans mainly include
Consumer credit scheme, Lease finance, Hire purchase, and Staff loan. The term loans are
defined as follows:

Short- term loan ; Up to 12 months.


Medium term loan : More than 12 months & up to 36 months.
Long-term loan : More than 36 months.

4.7 Credit principles :


In the feature, Credit principles include the general guidelines of providing credit by branch manager or
credit officer. In Trust bank limited they follow the following guideline while giving loan and advance to
the client.

Credit advancement shall focus on the development and enhancement of customer relationship.
All credit extension must comply with the requirements of banks Memorandum and Article of
Association, Banking Companys Act, Bangladesh Banks instructions, other rules and regulation

as amended from time to time.


Loans and advances shall normally be financed from customers deposit and not out of temporary

funds or borrowing from other banks.


The bank shall provide suitable credit services for the markets in which it operates.

It should be provided to those customers who can make best use of them.
The conduct and administration of the loan portfolio should contribute within defined risk
limitation for achievement of profitable growth and superior return on bank capital. Interest rates
of various lending categories will depend on the level of risk and types of security offered.

4.8 Principles of Sound Lending :


It should be clearly understood that the criteria/principles are not inflexible laws & are given as guidelines
for protecting credit. In a practical competitive world, risk are defined, accepted and credit is often
granted even through a proposal does not strictly with some of the criteria described below:
The basic lending criteria can be considered as eight main headings, as follows :

Principle of Safety
Principle of Liquidity
Principle of purpose
Character and ability of the borrower
Principle of Security
Principle of profitability
Source of repayment
Principle of National Interest

Each of the headings will now be discussed further in the following paragraph:

Principle of Safety:

The First lending principle of sound lending is safety. The very existence of a bank depends upon the
safety of its advances. Safety should not be sacrificed for profitability. So utmost care should be exercised
to ensure that the funds go to the right type of borrower, are utilized in such a way that they remain safe
and repayment comes in the normal course.

Principle of Liquidity :

Liquidity means the availability of Bank funds on short notice. The liquidity of an advance means it
repayment on demand on due date or after a short notice. Therefore, the banks must have to maintain
sufficient liquidity to repay its depositors and trade off between the liquidity and profitability is must.

Principle of purpose:

The bank should not lend money for any purposes for which a borrower may be free from all risks but if
the funds borrower are employed for unproductive. Purpose like marriage ceremony, pleasure trip etc or
speculative activities, the repayment in the normal course will become uncertain. Banks therefore
discourage advances from boarding stocks and refuse advances for speculative activities.

Character and ability of the borrower :

The primary responsibility of the leading banker is know your customer and his business. While
considering the character and ability of a borrower, the following point must be kept in mind.
Do know your customer already?
Was he respectively introduced?
If he was previously customer of another bank, has he come to Trust Bank Ltd. Try to see

previous bank statement?


Have you made the account opening inquiries required by the bank?
What are the business ownership?
What is the customers background and financial track recored ?
Customers honesty & integrity and personal stability?
How has the customer managed his financial circumstances in the past?

The branch manager should have the answer of the above queries and should be to judge his ability to use
the credit facilities to his advantage. Advance should be granted only to those borrowers in whom the
branch manager has full confidence. Integrity of the borrower and his ability to conduct business are of
paramount importance and take precedence over the value of securities offered.

Principle of Security:

The security offered by a borrower for an advance is insurance to the banker. It serves as the safety value
for an unforeseen emergency. So another principle of sound lending is the security of lending. The
security accepted by a banker to cover a bank advance must be adequate, readily marketable, easy to
handle and free from any encumbrance.

Principle of profitability:

Banking is essentially a business, which aims at earning of a good profit. The working funds of a bank are
collected mainly by means of deposit from the public and interest has to be paid on those deposits. Banks

have also to meet their establishment charges and other expenses. Interest earned by a bank on its advance
is the main source of its income. The different between the interest received on advances and the interest
paid on deposits constitute a major portion of the bankers income. Besides foreign exchange business is
also highly remunerative. The bank will not enter into a transaction unless a fair return form it is assured.

Source of repayment:

After the branch manager has ensured that the credit will be a profitable propositioning for the bank, he
should then turn his attention to the cash flow situation of the borrower. The banks credit can be
classified into three main categories as follows:
A very short-term advance will be liquidated by the funds received in the very near future, such
as advances against foreign or local bills or bridge functioning where evidence of credit sanction
from another financial institution is available.
Provision for current assets; this type facility is needed for trading and or manufacturing
activities.
Long-term loans, generally over 5 year; example of such facilities as investment in plant and
machinery, a farm or a shop, generally, a long term is repaid out profit generated by the business.

Principle of national interest :

The development of banking has reached a stage where a banker is required to identify his business with
national policies. Banking Industry has significant role to play in the economic development of a country.
So, the savings of the people, which are mobilized by banks, must be distributed to those sectors, which
require development in the countrys planning program.
4.9 The Cs of Good and Bad Loan in credit management:
The Branch manager of SBL try to judge the possible client based on some criteria. These criteria are
called the Cs of good and bad loans. These Cs are described below:
Character:

The outcome of analyzing the character is to have overall idea about the integrity, experience, and
business sense of the borrower. Two variables; Interaction/interview, and Market research are used to
analyze the character of the borrower.

1.Interaction/ interview : the indicators are:


Prompt and consistent information supply, information given has not been found false
(Willingness to give information).
CIB also reveals business character.
Willingness to give owns stake/equity & collateral to cover.
Tax payer.
2.Market Research:
Information on business is verified.
Dealing with supplier and or customer as supplier is also a kind of lender; the payment character
can also be verified.
Capital:
For identifying the capital invested in the business can be disclosed using the following
indicators: Financial Statements
Receivable, payable, statements to practically assess the business positions.Net worth through
financial statements or from declaration of Assets & Liability statement.
Capacity (Competence):
Capability of the borrower in running the business is highly emphasized in the time of selecting a good
borrower. As the management of the business is the sole authority to run the business that is use the fund
efficiently, effectively and profitability. The indicators help to identify the capacity of the borrower.
Entrepreneurship skills i.e. risk talking attitude shown by equity mobilization.
Management competencies both marketing and products detail, ability to take decision.
Resilience or shock absorption: connection, back up (if first time falls second lines come to help).
Collateral:

Make sure that there is a second way out of a credit, but do not allow that to drive the credit decision.
Cash Flow: Cash flow is the vital factor that is used to identify whether the borrower will have enough
cash to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The relationship manager
tries to identify the annual cash flow from the submitted statements.
Conditions: Understanding the business and economic conditions can and will change after the loan is
made.
Complacency : Do not rely on past history to continue. Stay alert to what can go wrong in any loan.
Communication: Share credit objectives and credit decision making both vertically and laterally within
the bank.
Credit Query: The loans and advance department gets a form filled up by the party seeking a lot of
information.
Loan classification
Monitoring can be done through loan classification. Loan is mainly classified to understand that which
loan account are performing well (regularly interest payment, timely repayment, and timely renewal etc.)
and which are not. In classifying the loan and advance there are two classes in the loan review practiced
in SBL. They are as follows as the table.
Unclassified: The loan account is performing satisfactory in the terms if its installment and no
overdue is occurred.
Classified: The loan account is not performing satisfactory in the terms of installments and overdue
is occurred. These types of loan need close monitoring to stop the deteriorating position.
Substandard: The main criteria for a substandard advance are that despite these technicalities or
irregularities no loss is expected to be arise for the bank. These accounts will require close supervision by
management to ensure that he situation does not deteriorate further.
Doubtful: This classification contains where doubt exists on the fully recovery of the loan or advance but
cannot quantifiable at this stage.
Bad & Loss: A particular loan or advance fall in this class when it seems that this loan or advance is not
collectable or worthless even after all security has been exhausted.

In the following table the criteria

to be fall in classified category are summarized:

Substandard
3 months and above but less

Doubtful
6 month and above but less than

Bad & Loss


Not recover within more than 12

than 6 month.

12 month.

months.

4.11 General procedure of sanctioning loan:


The following procedure is applicable for giving advance to the customer. These are :
a)
b)
c)
d)
e)
f)
g)
h)
i)

Partys application
Filling form
Collecting CIB report From Bangladesh Banks
Processing loan proposal
Project appraisal
Head office approval
Sanction letter
Documentation
Disbursement

Partys application:
At first borrower had to submit an application to the respective branch for loan, where he/she has to
clearly specify the reason for loan. After receiving the application form, the borrower Bank officer
verifies all the information carefully. He also checks the account maintains by the borrower with the bank.
If the official becomes satisfied then he gives form-A (prescribed application form of Bank) to the
prospective borrower.
B. Filling Form:
After satisfying with partys application the applicant, need to fill Form. It is the prescribed form
provides by the respective branch that contains information of the borrower. It contains-Name with its
factory location, Official address and telephone number, details of past and present business, its
achievement and failures, type of loan needed etc.
C. Collecting CIB Report from Bangladesh Bank:

After receiving the application for advance, Trust banks end a letter to Bangladesh Bank for obtaining a
report from there. This report is called CIB (Credit Information Bureau) report. Trust bank generally
seeks this report from the head office for all kinds of investment. The purpose of this report is to being
informed that whether the borrower has taken loan from any other Bank; if yes then whether the party
has any overdue amount or not.
D. Processing loan proposal:
After receiving CIB report from Bangladesh Bank, then respective branch prepare an investment
proposal, which contains terms and conditions of Investment for approval of Head Office. Documents
those are necessary for sending Investment proposal are:
Necessary Documents:
While advancing money, banks create a lot of documents, which are required to be signed by the
borrowers before the disbursement of the loan. Of them some are technically called charge documents.
Necessary steps and documents:
1)
2)
3)
4)

Loan application from duly signed by the customer.


Acceptance of the term and conditions of sanction advice.
Trade license.
In case of Partnership Firm, copy of registered partnership deed duly certified as true copy or a

partnership deed on non-judicial stamp of taka-150 denomination duly notarized.


5) In Case of Limited Company
a. Copy of memorandum and articles of association of the company including certificate of
incorporation duly certified by registered Joint stock Companies (RJSC) and attested by
the managing director and accompanied by an up- to date list of directors.
b. Copy of board resolution of the company for availing credit facilities and authorizing
managing director/chairman/director for execution of documents and operation of the
accounts.
c. An undertaking not to change the management of the company and the memorandum and
article of the company without prior permission.
d. Copy of last audited financial statement up to last 3 years.
e. Personal guarantee of the directors including the chairman and managing director.
f. Certificate of registration of amendment of charges over the fixed and floating assets of
the company duly issued by RJSC in case of repeat loan or change in terms and
conditions of sanction advice regarding loan amount and securities etc.

g. Certificate of registration of charges over the fixed and floating assets of the company
6)
7)
8)
9)

duly issued by RJSC.


Demand promissory notes.
Letter of hypothecation of stocks and goods.
Letter of hypothecation of books debt and receivable.
Letter of hypothecation of plant & machinery and personal letter and gurantee.

Required Docs for Retail (Individual) Loan:

Photograph-2 Copies
Passport/National ID/Driving License
Visiting card/ Company ID
Tin
Trade License(for Businessman)
LOI (For service holder)
Utility Bill( Electricity/WASA/Gas)
Bank statement-last 6 months
Quotation (for Auto or HHD)
Partnership Deed ( For partnership firm)
Company memorandum
Rental/lease/Title deed
Certificate of professional degree
Guarantor
Spouse-photo with signature, Attested by applicant
Eligible photo with signature, Attested by applicant ,visiting card, TIN
Sanction letter with related Bank statement (If Enjoying any Loan)

Required Docs for SME:

Total stock
Total sale for 1 year
Guarantor
Photograph
Visiting card
TIN
Trade license

E. Project Appraisal:
It is the pre-Investment analysis. Project appraisal in the Banking sector is important for the following
reasons:
To achieve organizational goals.

To recommend if the project is not designed properly


To justify the soundness of an investment.
To ensure repayment of Bank finance.
Techniques of Project Appraisal:
An appraisal is a systematic exercise to establish that the proposed project is a viable preposition.
Appraising officer checks the various information submitted by the promoter in first information sheet,
application for investment and Investment proposal.
Sonali bank considers the following aspects in appraising a proposal.

Technical viability
Commercial viability
Financial viability
Economic viability

The Head office (HO) mainly checks the technical, Commercial and financial viability of the project.
For others Ho is dependent on branchs information. However , when the investment size is big, then
the HO verifies the authenticity of information physically.
F. Head Office Approval:
When Head office receive appraisal from the branch then, head Office again appraises the project. If
it seems to be a viable one, the HO sends it to the Board of Directors for the approval of the
investment. The Board of Directors (BOD) considers the proposal and takes decision whether to
approve the investment or not. If the BOD approves the investment, the HO sends the approval to the
concerned branch.
The respective officer of Head office appraises the project by preparing a summary named Top
Sheet or Executive Summary and then he sends it to the Head office Credit Division for the
approval of the Loan. The Head Office Credit Division considers the proposal and takes decision
whether to approve the Investment or not. If the Committee approves the investment, the HO sends
the approval to the concerned branch.
G. Sanction letter:

After getting the approval of the HO, the branch issues sanction letter to the borrower. A

sanction letter contains:


Name of borrower,
Facility allowed
Purpose,
Rate of interest,
Period of the Investment and mode of adjustment,
Security and Other terms and condition.

H. Documentation:
If the borrower accepts the sanction letter, the Documentation starts. Documentation is a written statement
of fact evidencing certain transactions covering the legal aspects duly signed by the authorized persons
having the legal status. The most common documents used by the Sonali bank for sanctioning different
kinds of investment are:

Joint Promissory Note,


Letter of arrangement,
Letter of Disbursement,
Letter of Installment,
Letter of Continuity,
Trust Receipt.
Counter Guarantee,
Stock Report,
Letter of Lien,
Status Report,
Letter of Hypothecation,
Letter of Guarantee,
Documents Relating to Mortgage,

I .Disbursement:
After sanction and completion of all formalities, the respective officer disburses the loan. The officer
writes cheque and provides it to the borrower. For this borrower has to open an account through which
he/she can withdraw the money.
4.12 Programs for Loan Recovery:
When Sonali Bank sanctions loans and advances to its customers, they clearly state the repayment pattern
in the loan agreement. But some credit holders do not pay their credit in due period. The nationalized and
private sector commercial banks have to face this sort problems. This situation is, especially severe in

Sonali Bank. To overcome the problem of overdue loan, the bank need take particular loan recovery
program.
4.13 Recovery patterns of Loan and advances:
Generally Sonali Bank Ltd. Sanctions loans and advances to every sector of an economy. Before going
into details of recovery performance, we have to be familiar with some terms used in recovery
performance:
Disbursement: Highest outstanding balance on any date during the reporting period minus
outstanding balance at the end of the preceding period,
Demand for recovery : overdue at the end of reporting period plus recovery during the reporting
period.
Recovery : Highest outstanding balance on any date during

the reporting period minus

outstanding balance at the end of the recovery period,


Outstanding: outstanding figures in the ledger at the end of the reporting period.
Overdue: demand for recovery minus recovery,
4.14 Problems in Loan Recovery:
There are many reasons for which the loan recovery of the bank is very defective. In most cases,
problems may be raised from sanctioning procedures of loan, investigation of the project and
investigation of the loans etc. that is, the problem in loan recovery proves the outcomes of the default
process in loan disbursement. The main reasons of poor loan recovery are categorized in four board types
as follow:
A.Problems created by economic environment:
The following problems arise from the effect of economic environment:
1. Changing in the management pattern: Changing of management patterns may delay the recovery
of mature loan.
2. Changing in industrial patterns: The nationalized banks sometimes sanction loan to the losing
concern for future improvement of the respective sector, but in most cases they fail to achieve
progress.
3. Operation of open market economy: In our country, mainly industries become sick and also close
their business on account of emerging of open market economy. The cost of the production is

high and the quality of goods is not of required of standard. As a result, they become the losing
concerns and the amount of bad loan increases.
4. Rapid expansion of business: There are many companies, which expand their business rapidly,
but the expansion is for short time. In the end , the amount of classified loan increases.
B. Problems created by the government
The following problems are arisen by the government:
1. External pressure: Sonali Bank Ltd. Has also faced many problems in the loan recovery process as a
part of continuous pressure from various interested groups.
2. Loan to government organization: Sonali Bank Ltd. Is bound to sanction loan to government
organization, though these are losing concern. For this reason, banks faced problems in loan
recovery.
3. Legal problems: Existing rules and regulations are insufficient to cover the legal aspects of loan
recovery. As a result, defaulters can get release easily from all charges against them.
4. Frequent changes in government policies concerning recovery of loan,
C. Problems created by the bank:
The following problems are created by the banks:
1. Lack of analysis of business risk: Before lending, Sonali Bank Ltd. Does not properly analyze the
business risk of the borrowers and the bank cannot forecast whether the business will succeed or
fail. If it fails to run well, the loan becomes classified.
2. Lack of proper valuation of security or mortgage property: In most cases, bank fails to determine
the value of security against the loan. As a result, if the loan becomes classified, the bank cannot
recover its loan through the sale of mortgage.
D. Other general causes of poor loan recovery:
Other general problem of poor loan recovery are given below,
1.
2.
3.
4.
5.
6.

Lack evaluation of technical and economic feasibility of the program.


Delay in disbursement of credit.
Credit is not allowed to actual entrepreneurs.
Lack of proper supervision.
Illiteracy of borrowers.
Negative attitude of borrowers to repay the loan.

7. Sometimes local borrowers are found to be so much compelled to grant them loan without proper
study due to some unexpected reasons. Since these borrowers are capable of getting loan by
exercising their influence, they can also escape the repayment liability.
8. Sometimes borrowers invest their money outside the country. Many borrowers transfer loan money
to abroad where they deposited this money in their own account or spent some other purpose.
There are some specific reasons for loan recovery problems faced continuously by Sonali Bank Ltd. They
are as:
Loans are given under fictitious names and enterprise
Loans are given without sufficient securities
Approval of the loans in excess of the branch managers power
Improper monitoring and supervision of credit
Political misuse if loan programs operated by the public sector banks
Lack of timely action against willful defaulter
Loans are sometimes for economically unsound project.
4.15 Strategies for Recovery:
Recovery of loan can be made in the following three methods:
Persuasive
Voluntarily
Legally
Persuasive Recovery:
The first step in recovery procedure is private communication that creates a mental pressure on borrower
to repay the loan. In this situation bank can provide some advice to the borrower for repaying the loan.
Voluntarily:

In this method, some steps are followed for recovering loan. These are:
a.
b.
c.
d.

Building Task Force


Arranging seminar
Loan Rescheduling policy
Waiver of Interest Rate

Legal Recovery:

When all steps fail to keep an account regular and the borrower does not pay the installment and interests
then the bank take necessary legal steps against the borrower for realization of its dues. In this case,
Artha Rin Adalat Law 2003 plays an important role for collecting the loan.

Findings
As a largest commercial bank and the agent of Bangladesh Bank Sonali Bank has to do various
types of work without thinking about the profit. For this reason we have seen that in some cases
bank has doing loss, but this loss we directly cannot say that bank failing los, this is happening
only for helping the nation.
On the other hand we have seen that the bank profit increasing rate is poor but increasing. The
bank is highly liquid and earns much profit on owners equity. Banks operating efficiency is
good. EPS is increasing double per year and earning spread is also increasing.
So after all we can say that as a nationalized bank commercial bank Sonali Bank Limited is a
bank which is earning better than other nationalized bank.

5.1 Total Deposit of SBL


Year

2005
2006

Total Deposits

2008

2009

2010

27707.90

47,813.41
30230.30

Growth Rate of

2007

32899.72

36438.60

40,615.15

9.85%

17.72%
9.10%

Deposit

8.83%

10.76%

11.46%

Table:5.1: Trend of Deposit


Graphical Presentation:

Deposit(BDT)
60000
50000
40000
Deposit(BDT)
30000
20000
10000
0
2005

2006

2007

2008

2009

Figure-5.1:Total Deposit

2010

Growth Rate of Deposit


20.00%
18.00%
16.00%
14.00%
12.00%

Growth Rate of Deposit

10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2005

2006

2007

2008

2009

2010

Figure5.2:Growth Rate of Deposit


Interpretation: The above graph shows an upward trend in total deposit mobilization of SBL from
2005 to 2009 the total deposit was Tk.40,615.15 Crore but in 2010 its increases to Tk.47,813.41
Crore. However, the Growth rate of deposit increases in2010 compared to that of in 2009.

5.2: Year wise Loans and Advances


Year

2005
2006

2007

2008

2009

Loans and Advances 22,700.96

28,609.81
24,102.93 20,634.76 23,116.66

(in Crore)
Growth Rate of

34.90%

Loans and Advances

2010

25,402.25

6.18%

12.63%
12.03%

12.27%

9.89%

Table:5.2: Trend of Loans and Advances for last six years.

Loan & Advances


35,000.00
30,000.00
25,000.00
Loan & Advances

20,000.00
15,000.00
10,000.00
5,000.00
0.00
2005

2006

2007

2008

2009

2010

Figure5.3: Loans & Advances.

Growth Rate of Loans and Advances


40.00%
35.00%
30.00%
25.00%

Growth Rate of Loans and


Advances

20.00%
15.00%
10.00%
5.00%
0.00%
2005

2006

2007

2008

2009

2010

Figure5.4: Growth Rate of Loans & Advances.

Interpretation: The loans and advances of Sonali Bank Limited are increasing year by year. In
2005 the total loans and advances was Tk. 22,700.96 Crore but it was increased to Tk. 28,609.81
Crore in 2010. It means loans and advances have increased by Tk.5908.85 Crore from 2005 to
2010. Though there is an upward trend in loan and advances, its growth is fluctuating over the
years.

5.3: Credit To Deposit Ratio:


Credit to deposit ratio measures the portion of deposit is in the form of loans and advances.
Credit to Deposit = Total Credit / Total Deposit
Year

2005
2006

2007

2008

2009

Credit to Deposit 81.93%


Ratio

2010
59.84%

79.73%

62.72%

63.46%

62.54%

Credit to Deposit Ratio


90.00%
80.00%
70.00%
60.00%
Credit to Deposit Ratio

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2005

2006

2007

2008

2009

2010

Figure5.5: Credit to Deposit Ratio


Interpretation: From the figure, it has seen that the credit to deposit ratio was decreasing
year by year. But the ratio was lower in 2010 from these six years which was 59.84%. We
know that the greater the credit to deposit ratio increase liquidity risk of the bank.

5.4 Geographical area basis distribution of loans and advances for year 2012:
Serial no.
1
2
3
4

Particulars
Dhaka Division
Chittagong Division
Rajshahi Division
Khulna Division

Tk. In Crore
27785.50
3464.30
1392.18
2546.74

Percentage (%)
73.48%
9.16%
3.68%
6.73%

5
6
7

Sylhet Division
367.90
0.97%
Barisal Division
520.05
1.38%
Rangpur Division
1710.02
4.52%
Table 5.10: Trend of area basis loans and advances

Graphical Presentation:

Geographical area wise credit Distribution for -2012

Dhaka Division
Chittagong Division
Rajshahi Division
Khulna Division
Sylhet Division
Barisal Division
Rangpur Division

Figure5.6: Geographical area basis distribution of loans and advances-2012


Interpretation: The above diagram shows that in 2012 Sonali Bank Limited distribute a
large portion of credit in Dhaka Division SBL distributed 73.48% where bank distributed
9.16% in Chittagong and 6.73% in Khulna. It has been viewed that only .97% of their
geographical credit distribution goes to Sylhet division and 1.38 % goes to Barishal
Division and 3.68% in Rajshahi division. Also distributed 4.52% in Rangpur Division.

5.5 Export Credit:


Year

2005
2006

Credit distribution

2007

2008

2009

17022.42 7938.98

6444.20

82.49%

25.37%

13957.36

7414.29
17814.40

in export (in Crore)


Export Credit as % 61.48%

2010

73.91%

of total credit

25.92%
34.27%

Graphical Presentation:

Credit distribution in Export


20000
18000
16000
14000
12000

Credit distribution in Export

10000
8000
6000
4000
2000
0
2005

2006

2007

2008

2009

2010

Figure 5.7: Credit distribution in Export.

Export credit as a percentage of total credit


90.00%
80.00%
70.00%
60.00%
50.00%

Export credit as a percentage of total credit

40.00%
30.00%
20.00%
10.00%
0.00%
2005

2006

2007

2008

2009

2010

Figure 5.8: Percentage of Credit distribution in Export.


Interpretation: The above graph shows that the credit distribution in export increases year by
year. In 2005, Credit Distribution in export was Tk.13957.36 Crore but in 2010, it was Tk.
7414.29 Crore. That means Credit Distribution in export decreases by taka 6543.07 Crore from
2005 to 2010. The export credit as a percentage of total credit has decreased by 46.88% from
2005 to 2010.

5.6 Import Credit:


Year

2005
2006

2007

2008

2009

2010

Credit distribution

12984.31

16404.29
8279.60

in import (in Crore)


Import Credit as % 57.20%

8881.96

16420.80

9686.42

34.35%

57.34%
43.04%

of total credit

70.88%

38.13%

Graphical Presentation:

Credit distribution in Import


18000
16000
14000
12000

Credit distribution in
Import

10000
8000
6000
4000
2000
0
2005

2006

2007

2008

2009

2010

Figure 5.9: credit distribution in import.

Import Credit as a percentage of total credit


80.00%
70.00%
60.00%
50.00%

Import Credit as a
percentage of total credit

40.00%
30.00%
20.00%
10.00%
0.00%
2005

2006

2007

2008

2009

2010

Figure 5.10:Percentage of credit distribution in import.


Interpretation: The above graph shows that the credit distribution in import increases year by
year. In 2005, Credit Distribution in export was Tk. 12984.31Crore but in 2010, it was Tk.
16404.29 Crore. That means Credit Distribution in import increases by taka 3419.98 Crore from
2005 to 2010. The import credit as a percentage of total credit has decreased by 26.34% from
2005 to 2010.

5.7 Industry-wise Loans and advances:


SL. No. Particulars
1
Rural Credit
2
Micro credit
3
Industrial Credit
4
Agro-based Industrial credit
5
International Trade
6
General Advance & Others
Graphical Presentation:

Taka in Crore
In percentage
2,927.90
7.74%
982.04
2.60%
8,221.52
21.74%
2,344.69
6.20%
14,004.37
37.03%
9,334.19
24.69%

Industry wise Loan & Advances in -2012


Rural Credit
Micro credit
Industrial Credit
Agro-based Industrial
credit
International Trade
General Advance & Others

Figure-5.11: Industry wise Loan & Advances in-2012


Interpretation: The pie graph shows that Sonali Bank Limited uses large portion of fund in
international financing which is37.03% of total credit. The SBL distributed 21.74% in industrial
credit. The SBL provided loan in agro-based industrial credit and Rural credit respectively 6.20%
and 7.74% in 2012. Which is comparatively lower than 2011 SBL has distributed.

5.8Common-size Statement (Balance Sheet)


Current Ratio:
Current Assets
Current Liabilities
Year
2005
2006
2007

Current Assets
11464318193
30842225314
32241852735

Current Liabilities
309692580346
290140094220
335987250854

Current Ratio
0.037018382
0.106301149
0.095961536

2008
2009

30872166917
42110002834

964931926622
406211694002

0.03199414
0.103665166

Figure -5.12: Current Ratio


Interpretation: The current ratio of Sonali Bank limited has increased from year 2005 to 2006
but from year 2007 the current ratio is decreasing. Again in year 2009 ratio is increased. That
means it has average liquidity position. The firm can able to pay its current obligations.
5.9 Cash Ratio:
Cash+ Marketable Securities

Current Liabilities

Figure -5.13: Cash ratio


Interpretation: The cash ratios of Sonali Bank limited for the first 3 years are increasing but in
the year 2008 the ratio is quite low.That indicates the firm has strong lines of cash available on
short notice. In year 2009 again the ratio is increased.
5.10 Evaluation of Operating Efficiency:

Net Working Capital:


Current Assets Current Liabilities
(Taka in Millions)
Year
2005
2006
2007
2008
2009

Current Assets
11464.31
30842.22
32241.85
30872.16
42110.00

Current Liabilities
309692.58
290140.09
335987.25
964931.92
406211.69

Net Working Capital


(298228.26)
(259297.86)
(303745.39)
(934059.75)
(364101.69)

Figure -5.14: Net Working Capital


Interpretation: Net Working Capital of Sonali bank Limited for the 5 years has shown negative
trend. In 2008 it was highest shortfall of net working capital. However in 2009 the bank has
improved its level of net working capital. But still net working capital shows negative. The bank

should take necessary steps to improve its net working capital level by turning the negative
position into positive.

5.11Interest Margin:

Interest Income Interest Paid


Year
2005
2006
2007
2008
2009

Interest Income
11968455635
15962873888
8962089341
13101861774
17683108223

Interest Paid
11413075053
15039410984
6625390799
13965929070
15800026939

Interest Margin
555380582
923462904
2336698542
(864067296)
1883081284

Figure -5.15: Interest Margin

Interpretation: For first 3 years, Sonali Bank Limiteds Interest margin exhibit increasing trend.
But in 2008 the margin became negative. However in 2009 the interest margin position had
improved. The bank may take necessary steps to improve further the interest margin.

5.12Cost of Deposit:
Interest Paid X 100

Average Deposit
Year
2005
2006
2007
2008
2009

Interest Paid
11413075053
15039410984
6625390799
13965929070
15800026939

Average Deposit
277079059813
302303013211
328997209441
364385970931
406151569403

Figure -5.16: Cost of deposit

Cost of Deposit (%)


4.11
4.97
2.01
3.83
3.89

Interpretation: Cost of deposit of Sonali Bank limited in 2006 was highest and in 2007 it was
lowest. Sonali Bank Limited should take necessary steps to mobilize low cost or no cost deposits
to keep the Cost of deposit at minimum.

5.13 Return on Credit:

Interest income

X 100

5.14Average Loans and Advances:

Year
2005
2006
2007
2008
2009

Interest Income
11968455635
15962873888
8962089341
13101861774
17683108223

Average Loans and Advances


227009620206
241029268443
206347592413
231166579465
254022504699

Return on credit (%)


5.27
6.62
4.34
5.67
6.96

Figure-1.17: Retern on Credit


Interpretation: Return on credit of Sonali Bank limited in 2009 was highest and in 2007 it was
lowest. Sonali Bank Limited should take necessary steps to mobilize high return on credit to
keep the return on credit at maximum.

5.15 Operating Profitability Ratios:


Return on Total Assets (ROA):
Net Profit before Tax

X 100

Total Assets
Year
2005
2006
2007
2008
2009

Net Profit After Tax


208038723
(36275634028)
2311114502
973580120
1536766608

Total Equity
6306200000
(28444370219)
21741728899
24417714137
30475358113

Return on Equity (%)


3.29
-127.53
10.62
3.98
0.50

Figure -5.18: Return on total assets

Interpretation: Return on Total assets of Sonali Bank Limited in 2006 was lowest and after
2006 the return on total assets were increasing. That shows Sonali Bank Limited tries to enhance
their net profit before tax generating from assets.

5.16 Return on Equity (ROE):


Net Profit after Tax

X 100

Total Equity
Year

Net Profit After Tax

Total Equity

Return on Equity

(%)
2005

208038723

6306200000

3.29

2006

(36275634028)

(28444370219)

-127.53

2007

2311114502

21741728899

10.62

2008

973580120

24417714137

3.98

2009

1536766608

30475358113

0.50

Figure -5.19: Return on Equity

Interpretation: Return on Equity of Sonali Bank Limited in 2006 was lowest and in 2007 the
return on was highest. Sonali Bank Limited should take necessary steps to enhance their net
profit after tax using equity.

Conlusion & Recomendation


Conclusion:
As a bank Sonali Bank Limited has to do a lot of things for the betterment of the country. The
Bank is strongly positioned in the market and with its core strengths it can match shareholders
expectations and thus raise their wealth in future through ethical banking and best pricing. Thus,
it has to take initiative so that it can fulfill the desire of the govt. as well as people. It will
enhance more public services and build up working teams to provide the best services to its
valuable customers. It must be run in organized way and discipline must be ensured in all sphere
of its performance. Efficient export team, import team and remittance team must be formed and
perform duties properly. More training, computerization, data collection, market analysis and
swiftness in servicing are essentially required. To do these the recommended suggestions can be
used. Although it is theoretical suggestions, it is not valueless. It has great impact on the banking
business and other sectors of the economy. For this, govt. help is essential and it is expected that
govt. will broaden its hand for implementing the recommendations for the welfare of the people
of Bangladesh.
Recommendation:
The Top management of Sonali Bank Limited should be more effective to the employee then
current

situation.

Because

they

should

take

care

the

branch

level

employees

benefits,opportunities etc. The bank has highly skilled employee in the branch level. But the
bank should be able to utilize these employees at appropriate way to take out the banks output.
The website design is need to improve. Therefore, the website should be changed and can put
more information about the bank. The existing design cannot capture the customers attention.
The cheques design is poor. The good looking cheque design can motivate the customer. The

human resource division can be more effective. Because this human resource department should
think about the employee benefit much. In the training institute, the training process should be
used latest technology to provide to the trainee. The bank should give training about the office
package, basic idea on computer and internet. In the branch level when employees could transfer
to another department during that time that employee is needed at least ten days training
according on the transfer position. The higher management should be more effective about the
employee, to take right strategy, right decision making.In the branch level employee is working
so many extra time, so management should provide some extra incentives to motivate the
employee.On-line banking is coming soon so the responsible employee should be trained
effectively. The training evaluation process and form is to be more modernized.Physical and
technological facilities should be increased in evaluating credit proposals. Infrastructure should
be modernized. The cost of fund needs to be minimized.The gap between employees and
customers will be reduced through arranging meetings.Total deposit of Sonali Bank Limited:

BIBLIOGRAPHY
"SONALI BANK LIMITED Balance Sheet". Sonali Bank Ltd.
http://www.sonalibank.com.bd/profile.php

"Sonali Bank corporate profile". Sonali Bank Ltd.


"Overview of the Bank". Sonali Bank Limited. 2005. Archived from the
original on 3 July 2007. Retrieved 14 July 2007. Sonali Bank Limited, the

largest & leading commercial bank of the country ...


"Corporatisation not a panacea for NCBs' problems". The Financial Express.
19 June 2007. Retrieved 14 July 2007. For example, Sonali Bank LImited, the

largest bank in the country ...


"Bangladeshi bank allowed back in Britain". BBC. 29 November 2001.
Retrieved 14 July 2007. Bangladesh's largest commercial bank, the Sonali

Bank ...
http://www.sonalibank.com.bd/overview.php

Official website

6.1 Major Findings:

We know that almost every bank has its own credit procedure. Each & every bank possesses a
standard credit procedure. As the purpose of my study is to make a comment on the credit
management of Sonali Bank Limited. I try my level best to collect data for the study and find out
the reality. Based on the data generated during my study period I will sum up my findings here
and I think this will help me to achieve my objectives.
The total deposit of Sonali Bank Limited has increased over the years. The growth rate of
total deposits has also increased over the year in 2010. But, in 2007 Growth Rate of
Deposit Decreased compared in 2008.
There is an decreasing trend in loan and advances of Sonali Bank Limited over the years.
However, the growth rate of loan and advances has fluctuated over the years. However, in
2010 it increased compared to the year in 2009.
SBL concentrated more Dhaka division to provide loan and advances in 2012.
SBL concentrated sector-wise Loans and advances over the year in Import, Export &
Industrial Credit.
Loan and advances in Agriculture/Rural credit, Micro credit and Agro-based Industrial
Credit are also less than of International trade in 2012.

6.2 Conclusion:
Credit management is becoming more and more important in todays competitive business
world. It is all the more important in the context of Bangladesh. The tools for improving
management of consumer credit have advanced considerably in recent years. Therefore, as a
responsible and reputed commercial bank, Sonali Bank has instituted a contemporary credit
management system. From the study, it is evident to vary sector and preferential treatments to

some big clients should be stopped. However, the bank is quite sincere in their approach to
managing the consumer credit though there are rooms for improvement. They have to be more
cautious in the record; they follow an in-depth procedure in assessing the credit by using the
credit risk grading techniques, which provides them a solid ground in the time of any settlement.
From the discussion in this report, it has become clear that credit management is a complex and
ongoing process and therefore financial institutions must take a serious approach in addressing
these issues. They have to be up to date in complying with all the required procedures and must
employ competent people who have the ability to deal with these complex matters. Utmost
importance should be given to environment and obviously for efficient and effective credit
management process.
Conclusion:
Sonali Bank Ltd. is much different in any terms. Its activities are vast and in cases unique to any
other bank. Its deposits and loans are huge compared to other banks. It finances government projects,
provides unique services to people in need, even in places it works as central bank. This Bank often
make decision for the welfare of general public despite risk of credit exposure. The bank has
established a sound credit risk management and credit risk mitigation policy. Compliance with Basel
II norms helps the Bank to improve their profitability through better credit risk management systems.
From the discussion in this report, it has become clear that credit risk management is a complex and
ongoing process and therefore Banks or any financial institutions must take a serious approach in
addressing these issues.
Resources :
1) annual report 2013
2) web: www.sonalibank.com.bd
Recommendation: The failure of commendable banks occurs mainly due to bad loans, which occurs
due to inefficient management of the loans and advances portfolio. Therefore any banks must be
extremely cautious about its lending portfolio and credit policy. In the light of the above findings,
following recommendations are proposed:

The credit sanction procedure should be made quicker since competition is very hard in today's

business world. People do not want to wait for three to four weeks on an average to get a loan which
is even protected by security.
Decision making process can be made more decentralized.
The bank should emphasize on reducing the classified and non-performing credits by concerted
efforts.
In the credit department, strict supervision is necessary to avoid loan defaulters. Bank official
should do regular visit to the projects.
Central monitoring system should be more active to maintain classified loan to a minimum level.
Filing is a very important component of proper documentation. It has to be dealt with
importance.
Salary scale should be increased to motivate extremely dissatisfied employees and to reduce
misconduct.
Vaults security should be increased.
To attract more clients should sought new marketing strategy.
An uninterrupted network system has to be ensured. It will save the officials from much hassle
and will save time.
Politically influenced Lending or project finance should be checked.
Results and Discussion:
The Results(findings) of this study are summarized below:
The credit risk management process of Sonali Bank Ltd. is quite commendable. Systematic and
timely monitoring and appropriate documentation are tried to be maintained.
Customer satisfaction level is quite good. Informal conversation with some customers reveals
that they approve the credit evaluation and management process of Sonali Bank Ltd.
Governments orders like account opening for 10 taka, etc. increases cost. SME loans for farmers
without collateral not only increases credit risk but also costly for banks But return on these services
are low.
Hall-Mark scam exposed major weakness in top management.
Filing procedure is not maintained in a definite and clear manner. It is difficult to locate the
documents in a chronological and sequential manner. A definite practice, though mentioned in the
credit policy is not always maintained by the credit officials.
The credit sanction and disbursement procedure is quite lengthy.