Académique Documents
Professionnel Documents
Culture Documents
2.2 Secondary
In addition to serve this purpose it tries to find out Operation overview of Standard Bank Limited, Narayangonj Branch. Major performance evaluation of Standard Bank Limited. Interrelated banking activities with acquired knowledge.
Introduction
ii
been conducted based on installment collection of a personal loan clients and dont include the vast number of corporate credits.
This report contains a case study for establishing a new loan recovery department to make the banking activity more smooth and efficient. No comparisons with other banks or similar department have been made.
3. Limitation
No comparisons have been made with other banks performance. Assumption used in the analysis is based on experience of the office already working in the department and may not reflect the actual scenario. Estimated data has been used for the study because of data limitation. Some informations are considered as confidential as a result the study has suffered for data limitation also. Another limitation of this report is Banks policy of not disclosing some data and information for obvious reason, which could be very much useful. As some of the fields of banking are still not covered by our courses, there was difficulty in understanding some activities.
Introduction
iii
observation by visiting different desks during internship period, official record of Standard Bank Limited, Narayangonj Branch.
5. Methodology
How close the issue under study can a researcher reach depends to a great extent, on how methodically she/he can approach the issue. Although necessity of using data and information has always been the prime determine of quality, accuracy and worthiness of a research project, in these days of abundant availability of data and information this necessity has only been acute, methodology is the pathfinder of working out good research paper.
I have selected tow types of sampling procedure: 1. Random sampling method. 2. Judge sampling method.
5.1 Random sampling method: This method is use for the collection primary data. Primary data are collected in two ways: By using question and By interviewing Data and information has been collected from the SAVP, FAVP and officer of SBL.
Introduction
iv
5.2Judge sampling method: This method is use for the collection secondary data
The source of information: Annual Report Journals and Publishing Website News papers and Prospectus.
6. Report Preview The report shows the major performance analysis of Credit Management System of Standard Bank Limited, Narayangonj Branch
At the first chapter one, described about the basics of the report which includes the origin of the report, objectives, scopes, Methodology & limitation of the report.
In chapter two, I include the overall company profile such as historical background of the company, corporate information, the efficient management policy. Besides this I also add the vision, mission and objectives of the bank. The branch network & organ gram are also attach with this chapter.
Chapter three & four of this report comprises the credit management activities of the Standard Bank Limited. I try to explain the different activities of Credit Department.
Chapter five is fully based on the analysis of previous data to find out the financial performance of the bank. To find out this I calculate both the quantitative data as well as quantitative data.
Chapter six is the conclusion part where I try to identify some problems which hamper the overall activities of the bank as well as bank growth. I also specify some suggestions to solve these problems.
Introduction
The Bank witnessed a considerable improvement in its overall business performance during the year 2006. It was incorporated as a public Limited Company on May 11, 1999 under the Companies Act, 1994 and the Bank achieved satisfactory from its commercial operation since June 03, 1999. Standard Bank limited has introduced several new products and expanded loans and credits to different sectors of our economy.
The authorized capital and paid up capital of the bank are Tk. 3000.00 million and Tk 1092.96 million respectively. The Bank received the certificate of incorporation no. C37864 (2164)/99 under the companies Act (Act-xvill) of 1994. It also received the certificate for commencement of business on the same date by the section 150(2) under company's Act. Apart from the Head Office in Dilkusha C/A, it started its first local branch in Dilkusha C/A simultaneously in order to provide all kinds of banking support to the clients. They opened their second branch in Khatungonj Branch in Chittagong. At present the bank has 58 branches across the country. It renders all types of commercial banking operations to its customers within the purview of the Bank Companies Act, 1991 and in line with the directives and policy guidelines laid down by Bangladesh Bank. Lion Mr. Akramuddin Ahmed, founder chairman who had a long dream of floating a commercial bank, which would contribute to the socio-economic development of our country. He had a long experience as a good banker. A group of highly qualified and
AN ANALYSIS OF CREDIT MANAGEMENT SYSTEM OF STANDARD BANK LIMITED
Introduction
vi
successful entrepreneurs joined their hands with the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent
entrepreneurship.
In its 12'h year of operation, 2011, Standard Bank has made substantial headway in terms of business growth, profitability and establishing its image as one of the leading private sector bank.
The sponsors of the bank are a renowned group of Industrialists and Businessmen with a proven track record. They represent reputed industrial and business houses of the country. Lion Mr. Kazi Akramuddin Ahmed is the present chairman of the bank.
The bank conducts all types of commercial banking operations. This core business of the Bank comprises of trade finance, term finance, and working capital finance a corporate finance. The Bank is also providing personal credit; services related to local and foreign remittances and several products related services. The scheme of the bank, which is designed to help the fixed income group in raising standard living is competitively priced and has been widely appreciated by the customers. The bank has achieved success in all sectors and end up with the highest ever-operating profit, which is 28% higher than that of the preceding year. The achievement has been possible because of the able leadership, dedicated and committed services provided by all levels of management and staff and above all the trust and confidence that the valued client had reposed in the bank. Now, in present year Standard Bank is the Better position.
2.1VISION
To be a modern Bank having the object of building a sound national economy and to contribute significantly to the Public Exchequer.
2.2 MISSION
To be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability.
Introduction
vii
The business of banking consists of borrowing and lending. As in other businesses operations must be based on capital, but banks employ comparatively little of their own capital in relation to the total volume of their transactions. The purpose of capital and reserve accounts is primarily to provide an ultimate cover against losses on loans and investments.
Introduction
viii
Hence there are readily insurance agents who are mostly there to assure the prospective customers as to how they can restore themselves should there be any losses. Furthermore deposit they have to gather within a given span of time. Now that, to some extent assures the constant inflow of cash. Most importantly, the contracts of the bank Manager, and the Senior Vice President mostly assure highly valued corporate clients to make deposits and in return the bank is benefited. It is mainly a familial management style that prevails in the corporate climate of Standard Bank, as rather than strictly being a bureaucratic organization.
This bank gives the employees the flexibility to open up their minds in cases of discrepancies and they are always been heard and looked after.
Another strategy being the fact that compared to other banks Standard Bank is comparatively new; hence; it is slowly emerging in the banking arena, but considering amount of time. It has taken to be at the current position is really remarkable, and it was only possible because of that fact that Standard Bank has its mission in line and does not go off track just to be highly competitive.
Altogether important fact worth mentioning remains that customer based of Standard Bank especially the corporate customers; who are highly valued and specially treated; the bank considers them to be their own assets and these individuals have concrete and well established business. So, hence it is of premium looking after the needs of these individuals.
Finally again being rapid innovation, which is the introduction of online banking services. ATM cards, etc. is something that the bank looks forward to introducing as soon as possible because of the current demand in the market place. Hence rapid innovation is definitely a key strategy of this bank.
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ix
To have a strong customer focus and to build relationship based on integrity, superior service and mutual benefit.
To work as a team to serve the best interests of the organization. To work for continuous business improvement, To value and respect people and make decisions based on merit. To provide recognition and reward on performance
Introduction
VICE CHAIRMAN
Mr.Ferdous Ali Khan
DIRECTORS
Mr. Kamal Mostafa Chowdhury Mr.Mohammad Nurul Islam Mr.Ashok Kumar Saha Mr.Ferozur Raman Mr.Harun Rashid Chowdhury Mr.Mohammad MonzurulAlam Mr.S A M Hossain Mr.Mohammad Abul Aziz Al-Haj Mohammad Samsul Alam Mr. Abul Ahad Mr.Zahedul Hoque Mr.Harul or Rashid Al-Haj Mohammad Yousuf Chowdhury Mr.Moshfeque Mamun Rizvi ICB represented dy the Managing Director Mr.Fayekuzzaman Mr.Shaikh Mesbauddin Mr.S.S. Nizamuddin Ahmed
MANAGING DIRECTOR
Mr. S.A. Farooqui
BOARD SECRETARY
Mr.A.F.M Nizamul Islam Chowdhury
Introduction
xi Dhaka-1000 Phone # 7175698, 7169134, 9560299, 9558375 Fax: 880-2-7176367, 7169078 E-mail: sblho@bangla.net Website: www.standardbankbd.com SWIFT: SDBLBDDH
Date of incorporate
Inauguration of first branch June 03. 1999 Chairman Vice Chairman Secretary Advisor Managing Director Number of Branch Total manpower Mr. Kazi Akramuddin Ahmed Mr.Ferdous Ali Khan A.F.M. Nizamul Islam Chowdhury Mr. Ziaul Hasan Mr. S.A. Farooqui 58 1600
3.1 ORGANOGRAM
In the line of policy formulated by the management under approval of Board of director proposal are forwarded by relationship Manager (RM) through Head of corporate at Head Office to Head of (GB) who in term will make a through scrutiny of the proposal in
terms of General Banking assessment for according approval/ decision to the proposal for sufficing the purpose a preferred organizational structure is to be developed under:
Board of Director Managing Director Executive Vice President Senior Vice President Vice President
Introduction
xii Senior Asst. Vice President Assistant Vice President First Assistant Vice President Senior Executive Officer Executive Officer Senior Officer Assistant Officer Officer
Introduction
xiii
3.5 BRANCHES
Standard Bank Limited operates their operation through 58 branches all over the country. The Branches are given below:
NO.
01 02 03 04 05 06 07 08 09 10
BRANCH NAME
PRINCIPLE BRANCH GULSHAN BRANCH IMAMGONJ BRANCH TOPKHANA ROAD BRANCH DHANMONDI BRANCH UTTARA MODEL TOWN BRANCH MUNSHIKHOLA BRANCH FOREIGN EXCHANGE BRANCH PANTHAPATH BRANCH GULSHAN-1 BRANCH
Introduction
xiv 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NARAYANGONJ BRANCH EKURIA(KERANIGONJ) BRANCH BANANI BRANCH DAKKHIN KHAN BRANCH MIRPUR BRANCH MATUIL BRANCH PRAGOTI SARANI BRANCH NAWABPUR BRANCH KAMARPARA BRANCH GREEN ROAD BRANCH RINGROAD BRANCH AGRABAD BRANCH KHATUNGONJ BRANCH JUBILEE ROAD BRANCH CDA AVENUE BRANCH CTG.EPZ BRANCH BAHADDARHAT BRANCH CHOWDHURYHAT BRANCH PAHARTALI BRANCH COXS BAZAR BRANCH SHADARGHAT BRANCH SHYLET BRANCH KHULNA BRANCH TAKERHAT BAZAR BRANCH RAJSHAHI BRANCH BENAPOL BRANCH JESSORE BRANCH GOPALGONJ BRANCH BRAHMANBARIA BRANCH BARISHAL BRANCH BOGRA BRANCH
Introduction
xv 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 KOTOWALIPARA BRANCH RANGPUR BRANCH BEANI BAZAR BRANCH MOULVI BAZAR BRANCH SHAFIPUR BRANCH KHUSTIA BRANCH MYMENSINGH BRANCH DINAJPUR BRANCH FARIDPUR BRANCH PATUAKHALI BRANCH BHAIRAB SME/KRISHI BRANCH SYEDPUR SME/KRISHI BRANCH GAZIPUR SME/KRISHI BRANCH BISHWNATH SME/KRISHI BRANCH GOLABAZAR SME/KRISHI BRANCH NANGLEMORA SME/KRISHI BRANCH SAVAR SME/KRISHI BRANCH
Introduction
xvi
As a scheduled commercial bank Standard Bank Limited undertakes financial Intermediation for the deployment of its funds keeping in mind the following objectives:
Profit Generation
Risk Minimization
Profit motivation" is very important for viable operation and the growth of the Bank. But it would also respond adequately to the socio-economic objectives formulated by the Government from time to time for accelerating the pace of economic development of the country. The objective of the credit policy of the Bank is to build up a balanced portfolio mix. The focus on an effective and responsive financial intermediation will thus vest on the one hand on channeling funds to a set of clientele having proven track record and on the other hand on socially and economically desirable activities for which finance is sought. The
credit handling executives of the Bank will select the investment options through skillful and prudent evaluation of feasibility of the proposed ventures. The entrepreneurs in their turn would be expected to provide or hire managerial skills, technology for production, marketing and servicing and could thereby diminish the risk of investment. The Bank will put reliance on market forces and provide increased inducement to savers to mobilize savings and hold fast to profitability potential to allocate funds to the users of such sectors of trade, commerce, and industries as may be consistent with the socio-economic objectives of
Introduction
xvii the nation. The free market economic policy of the Government of Bangladesh will indeed facilitate healthier and efficient lending activities of the Bank in line with WTO principles of globalization from January 2005.
Terms of lending (liquidity) are determined based on the following factors: Deposit mix The volatility and seasonal fluctuation of the deposit base The amount of purchased fund The composition of investment portfolio Liquidity of other bank assets.
The Bank will follow: Principle of sound lending Adopt industry best practices with regard to single party exposure; sectoral exposure; adequate loan loss provisioning; purpose of lending. Comply with legal requirements of the country.
Introduction
xviii
Meet regulatory requirement of Bangladesh Bank. Maintain policy of transparency and accountability. Ensure 100% transparency in loan sanction adjudging social, economical & ethical aspect4o add value to the GDP of the country specially emphasizing on earning Foreign Exchange & creation of employment opportunities. Keep in place sound loan monitoring and supervision including loan risk grading and early alert system.
The Bank will be particularly active in managing the core risks relating to: Asset and liability management (ALM). Credit risk management (CRM). Management of foreign exchange transactions. Ensuring internal control and compliance and Deterring illegal financial transactions (money laundering). In this regard the Bank will develop its own manuals and guidelines in line with Bangladesh Bank Guidelines and instructions issued from time to time and also in line with follow the industry best practice.
Introduction
xix
Industries (Small Medium and Large) Agriculture and agro based Ventures Consumer Financing Real Estate and Civil Construction Work order finance Others
Lending activities of the Bank in this segment of trade will be carried out on the basis of bank-client relationship built up through interaction and past track record. The Bank would continue its financial involvement in this segment following similar policies as in the past and the policies being pursued by competing banks both in the public and private sectors.
3.2 INDUSTRIES
The domain of industrial financing would basically comprise: Capital financing in the form of term loans. Working capital financing. Financing of small and cottage industries.
Introduction
xx
The term loan financing for establishment of new industries or for BMR&E of existing industries is a specialized banking function. Specialized financing institutions of the country tuned for the purpose have been performing this development function over the last few decades. Nationalized commercial banks (NCBs) are also playing a significant role in financing in this sector. Standard Bank policy would be to adopt a selective approach to term loan financing to small-scale industries and export oriented or import substitute industries, which enjoy high degree of national economic priority. The Bank, for financing in this sector, would prefer syndication or consortium arrangement with other banks to minimize risks and to maintain a balanced portfolio. The core lending activities of Standard Bank shall be the working capital financing to large and medium scale industries as well as to small-scale industries. While track record of operational performance of the industries, creditworthiness of the entrepreneur and reasonable security coverage (mainly in the form of readily marketable inventories and covered by asset/collateral) shall form the basis of lending policies. The proposals pertaining to working capital financing of newly set up industries will also be considered on a careful assessment of viability, cash flow prospects, and entrepreneurial competence.
The working capital financing to industrial undertakings, subject to their conforming to basic norms of financing, may be prioritized with emphasis on the export oriented ventures, competitive import substitution industries, and finally on the labor intensity of the industry and industries operating in the command area of the Bank's branches. Readymade garment industries and industries having backward lir.lkages with the garment industries and auxiliary goods manufacturing industries are cases in point.
The industries dependent on imported raw materials, such as edible oil refining industries, food, chemical and allied industries may also be patronized, in the form of working capital finance, subject, however, to their conforming to the basic norm of Standard Bank financing. Likewise the engineering industries like iron and steel foundries, fabrication of ferrous and non-ferrous metal industries, electric goods and electronic goods manufacturing industries may as well receive similar attention in respect of working capital financing.
Introduction
xxi
Development of small industries and rural industries enjoys a high priority of the Government as well as the international donors. The set of rationale, which can arguably sustain such patronage, are:
Small and rural industries promote employment generation. Small and rural industries stimulate more regional dispersal and thus. Promote a greater quality in incomes and opportunity distribution. Small and rural industries draw out latent reserves, scarce
resources, especially entrepreneurship. The Bank would, therefore, provide for budgetary allocations to finance small-scale industries, selectively providing capital finance and adequately lending working capital finance.
Introduction
xxii
Construction equipment.
Household appliances
Furniture and fixture Air Conditioner/Other electrical & electronic appliances. Fax Machine and Cellular Phone. Motor Cycle/Car/Micro Bus.
Other Equipments
Real Estate and Civil Construction:
The global performance of this sector both in terms of business and recovery rate has been by and large unsatisfactory. This is evident from the experiences of countries such as Japan and the USA where' many financial institutions have either faced closure or been severely affected at their very foundations. The Bank's policy should be to carefully weigh any investment in this sector only on a selective basis.
Introduction
xxiii
Introduction
xxiv
The loan interest rates charged by the Bank will depend on several factors which include the following:
The Bank will not necessarily have the lowest loan interest rates. Under priced by the competition some loan business may be lost. This is a natural consequence of a sound pricing policy and should be recognized and accepted by Bank's loan officers.
Once a customer is accepted for doing business, the Bank would work with him or her in both good and bad times. The Bank cannot be arbitrary in decisions. The Bank would welcome all its commercial loan customers to know that as long as they do a good job of managing business and repay the Bank's loans, they can depend on this Bank to support their legitimate credit needs' The Bank seeks a reputation of being a sound, logical, dependable, and friendly organization for commercial businesses to bank permanently. Certain medium-sized commercial businesses concerned that their next loan request will be disapproved. The longer the customer banks with Standard Bank and the better the Bank will serve him or her, the less likely that customer is lo change banks over a half percent of interest on a loan.
Introduction
xxv
Before a loan is priced or approved, thorough credit investigations and risk analyses are necessary to peremptory Bank's originating bad loans.
The Bank's loans are priced to give the stockholders an adequate return on their investment The Bank does not expect to have the lowest loan rates in the community.
The role of risk in loan pricing is as follows: If the risk is unacceptable, does not make the loan. If the risk is acceptable, make the loan and price it to give Bank's stockholders their return.
Non-accrual loans and loan losses are to be avoided as much as possible. When a loan starts going bad, the loan executives would do everything reasonably possible to strengthen it so that the Bank can recover its principal and collect its interest. Administrative costs must be recovered. Loan administration costs do not decrease proportionately as the size of the loan decreases; small loans should be priced higher than large loans. Unsecured loans cost more to administer than secured loans and, thus should be priced higher. The Bank's loan interest rates are set in the belief that the customer will perform as agreed. If this assumption proves wrong, the rate will be increased to compensate for lack of performance. This pricing policy is for the purpose of eliminating "evergreen" loans and lines of credit.
The Bank's loan pricing will be calculated in line with the following basic formula: Loan Yield = (A) Cost of Funds + (B) Admin. Cost + (C) Loan Loss Reserve + (D) Profit
Introduction
xxvi
The Cost of Funds Used in the Loan Pricing The marginal cost of funds may be used while working with Bank's loan pricing model. An appropriate cost of funds factor is the 90-day rates. This rate is approximately what it costs the Bank to fund a loan. If the funds are purchased for the loan, this is what they cost. If the funds are already on hand, then the Bank must forego an opportunity to buy a 90-day FO from a correspondent bank.
Introduction
xxvii
It is changeable from time to time under approval of the Board to adapt with demanding circumstance
NO 01 02
2011 50%
Small Industry & various Sectors in Finance 01% under Government & BB.
03 04 05 06 07 08 Total
Real State and civil construction. Agro Based Financing Lease Financing Consumer Financing Working Capital Financing Industries
5. MONITORING OF CREDIT
The control of credit operations fall into two parts: Monitoring and review of all accounts. Monitoring of delinquent accounts.
In case of delinquent accounts, Bangladesh Bank's "Procedures of loan classification and provisioning" is to be strictly complied with by SBL.
Introduction
xxviii
The board will review the credit policy compliance from time to time and further guidance will be provided as may be necessary. On a periodic basis the head of the Bank's Credit Division will put up necessary compliance Memos to the Board of Directors in this regard.
In addition the following risks are properly addressed: Borrowers analysis in terms of its ownership structure, management team & group affiliate any companies.
Industry analysis in terms of its key risk factors namely competitions, procurement of raw materials, marketability of the products, mode of sale & technological stability.
Historical financial analysis in terms of minimum 3 (three) years financial statement duly identifying its sustainability earning, cash flow, leverage and profitability.
Introduction
xxix
Projected financial performance in terms of borrowers future financial performance with projection of its cash flow to service debt- repayment when the loan is term loan with tenor more than 01 ( one ) year.
Account conduct in terms of borrowers performance to meet repayment obligation (trade payments, cheque, interest and principles payment) to be assessed.
Adherence to lending guide lines in terms of compliance to the policy guidelines approved by the board.
Mitigating factors in terms of identifying possible risk factors namely- volatility, sustainability, high debt loan (leverage/ gearing) stoking, rapid growth, new business line expansion and lake of transparency.
Loan structure in terms of amount, tenor, rate of interest and other covenants.
Security in terms of upgrading valuation of collaterals, adequacy and extend of insurance coverage to be assessed.
2. RISK GRADING
Risk grading being a key management of a bank quality it is essential that all facility should be assigned with a risk grade to measure the status of loan extended to borrower. The risk grading is depicted as under on the basis of weighted average distributed on criteria of segments of borrowers by Bangladesh bank:
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xxx
Industry/Factory Date of Financials Completed by Approved by Number 01 Grade Superior Short SUP Score Fully cash secured, secured by government/International Guarantee. 02 03 04 Good Acceptable Marginal/Watch List 05 06 07 08 Special Mention Substandard Doubtful Bad & Loss SM SS DF BL 55-64 45-54 35-44 <35 GD ACCPT MG/WT 85+ 75-84 65-74 Bank Risk Grading ACCPT
Table: 3
Grade 01
Definition Credit facilities, which are fully secured i.e. fully cash covered. Facilities are fully covered by government guarantee and fully covered by the guarantee of a top tier international bank.
Good-Satisfactory Risk
02
The repayment capacity of the borrower is strong. The borrower should have excellent liquidity and low leverage. The company should demonstrate
consistently strong earnings and cash flow and have an unblemished track record. Very good management
Introduction
xxxi skill & expertise. All security documentation should be in place, aggregate score of 95 or greater based on the Risk Grade Score Sheet.
Acceptable Risk
Fair 03
Adequate financial condition though may but be able to sustain any major and continued setbacks. These borrowers are not as strong as grade 2 borrowers, but should still demonstrate consistence earning, cash flow and have a track record. A borrower should not be grade better 3 if realistic audited financial statement is not received. These assets are would normally be secured by acceptable collateral (1st charge over stocks/ debtors/ equipment/ property). Borrower should have adequate liquidity, cash flow and earnings. An aggregate score of 75-94 based on the Risk Grade Score Sheet.
Marginal-Watch List
04
Weaker business credit & early warning signals of emerging business credit detected. The borrower incurs a loss. Loan repayments routinely fall past due. Account conduct is very poor. Aggregate score of 65-74 based on Risk Grade Score Sheet.
Special Mention
05
Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted (consecutive losses, negative net worth, excessive leverage). An aggregate score of 55-65 on the Risk Grade Score Sheet.
Substandard
06
Financial condition is weak and capacity to repay is in doubt. An aggregate score of 45-54 based on the Risk Grade Score Sheet.
07
Taken in suspense (non-accrual). Loan loss provision must be raised against the estimated unrealizable amount of facilities, The adequacy of the provision must be reviewed at least quarterly on all non-
Introduction
xxxii performing loans and the bank should pursue legal options to enforce security to obtain repayment or negotiate an appropriate loan rescheduling. In all cases, the requirements of Bangladesh Bank CIB report, loan rescheduling and provision must be followed. An aggregate score of 35- 44 based on the Risk Grade Score Sheet.
Loss (non-performing) 08
Asset graded 8 are long outstanding with no progress in obtaining repayment (in excess of 180 days past due) or in the late stages of wind up/ liquidation. The prospect of recovery is poor and legal options have been pursued. The proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a Bankable asset is not warranted and the anticipated loss should have been provided for this classification reflects that it is not practical of desirable to defer writing off this basically worthless asset even though partial recovery may be it affected in the future. Bangladesh Bank guidelines for timely write off a bad loan must be adhered to. An aggregate score of 35 or less based on the Risk Grade Score Sheet.
Adjudging the score rate early alert measures need to be taken by RM to forward to CRM to effect down grade of any loan case for monitoring under close watch.
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xxxiii
within the credit department of a branch. Credit applications should be recommended for approval by the RM team (I.e. Relationship Officer & Relationship Manager) and the recommendation of branch manager is required to onward recommendation to credit risk management (CRM) unit of credit department at head office for approval of the credit committee/ Board. Application to be forwarded by Branch Manager to head office for approve head of CRM advises the decision as per delegated authority to concern branch. In case of head of credit at head office does not have delegate power the proposal to the sent to credit committee for approval / decline. If the proposal is beyond the business discretionary power of the Managing Director of the Bank, it is to be placed before the board for approval. The credit committee will support the proposal for onward submission of the same for the boards approval head of operations and Managing Director of the bank sent present the proposal to the board. The Company Secretary and Managing Director advices the decision of the board to Head Office Operations / head of Credit. Regardless of the limit, CRM unit advices the decision (approval/decline) of the Credit Committee/ Board to the recommending branches with a copy of the same to the Credit Administration Unit.
Introduction
xxxiv Manager
Credit Committee
Board of Directors
4. APPROVAL AUTHORITY
Managing Director has been delegated business discretionary power as per schedule appended below, but he will ensure following norms while exercising the power: 1. Banks Credit policy as well as lending criteria are satisfied.
2. Credit norms, credit restrictions and other regulatory requirements are complied with.
4. Total exposures under different types of facilities are to be considered while exercising discretionary powers. The amount of ceiling is applicable under single obligor basis.
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xxxv
In this connection he will ensure proper documentation before disbursement of any credit facility and keep constant watch on the performance of loan accounts. If a borrower is in the doubtful category or there is exists signals indicating that the case may be moving into this category, timely remedial or precautionary action should be taken.
Business volume not covered under this discretion powering who referred in FC/board under recommendation of MCC for decision approval. This delegation of power shall come into effect from 31st March, 2005.
Description of Business
of
Remarks
25
N/A
15
25 Finance/ 20
or 30
Collateral security
apartment
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xxxvi
Finance against Govt. and 25 semi govt. supply order/ work order Loans against pledge of WL
Purchase of inland bills 30 against local, back to back L/Cs with tenor30 days to 180days Purchase of Government 25 cheques pay order draft issued on Schedule Banks LTR 25
ECC
(export
Cash 25
N/A
Credit)covered by lien on confirmed export L/C Back to Back L/C for 50 garments including factories bill only N/A irrevocable
amount
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xxxvii
Oversight of the banks credit policy. Oversight of the banks assets quality. Directly manage all substandard, doubtful & bad loss accounts to minimize recovery and ensure that appropriate and timely loan loss provision have been made. To provide advice / assistance regarding all credit matters to line management/ RMs. To ensure that lending executives have adequate experience and/or training in order to carry out job duties effectively.
The Standard Bank has limited shall introduce incentive programs to encourage recovery units account Manager to bring down the Non performing loans. The table below shows indicative incentives for RUAM.
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xxxviii
4.2CREDIT ADMINISTRATION
Credit administration shall ensure that proper documentation and approval are in place prior to the disbursement of loan facilities and for this reason it is essential that function of credit administration be strictly segregated from relationship management/ marketing for transparent exposition.
To ensure that all security documentation complies wit the terms of approval and is enforceable. To monitor insurance coverage with a view to ensure appropriate coverage is in place over assets pledged as collateral, and properly assigned to the Bank. To control loan disbursements only after all learns and conditions of approval have been meeting, and all security documentation is in place. Past due principal or interest payments, past due trade bills, account excesses and breach of loan covenants and any covenant breaches or exceptions are referred to CRM and the concerned. Timely corrective action is taken of address findings of any internal, external or regulatory inspection/ audit. Ensure accurate & timely submission of returns to Bangladesh bank.
4.3 DISBURSEMENT
Security documents are prepared in accordance with approval terms and are legally enforceable. Standard loan facility documentation that has been reviewed by legal counsel should be used in all cases. Exceptions should be referred to legal counsel for advice based authorization from an appropriate executive in CRMK.
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xxxix
Disbursement under loan facilities are only be made when all security documentation is in place. CIB report should be reflect/ include the name of all the lenders with facility, limit & outstanding. All formalities regarding large loans & loans to directors should be guided by Bangladesh Bank circulars & related section of banking companies Act. All credit approval terms have been met which banks may wish to use control disbursement.
Bangladesh Bank circulars/ regulations are maintained centrally, and advised to all relevant departments to ensure compliance.
All third party service providers (valuers, lawyers, insurers, CPAs etc) are approved and performance reviewed on an annual basis. Banks are referred to Bangladesh Bank circular outlining approved external audit firms that are acceptable.
5. CREDIT MONITORING
AN ANALYSIS OF CREDIT MANAGEMENT SYSTEM OF STANDARD BANK LIMITED
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xl
To minimizing credit losses, monitoring procedures and system should be in place that provides an early indication about the financial health of a borrower and for that sake following measures to be taken to have an idea on the status of loan.
Past due principal or interest payment, past due trade bills excesses allowed in the account and breaches of loan covenants are reviewed.
Loan terms and conditions are monitored, financial statements are received on regular basis and any covenants breaches or exceptions are referred to CRM and RM for timely follow up.
Timely corrective action is taken to address finding of any internal, external or regulator inspection/ audit.
As Early Alert Account is one that has risk or potential weaknesses of the material nature requiring monitoring, supervision or close attention by management.If those weaknesses are left uncorrected, they may result in deterioration of the repayment prospects for the asset or in the Banks credit position at some future date with the likely prospect of being downgraded within the next twelve months.
Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit responsibilities off all relationship Mangers and must be undertaken on an account basis. An Early Alert Report should be completed by the RM and sent to the approving authority in CRM for any account that is showing signs of deterioration within
Introduction
xli
seven days from the identification of weaknesses. The risk grade should update as soon as possible and no delay should be taken in referring problem accounts to the CRM Unit for assistance in recovery.
Despite a prudent credit approval process, loans may still become troubled. Therefore, it is essential that early identification and prompt reporting of deteriorating credit signs be done to ensure- swift action to protect the Banks interest.
Moreover, regular contact with customer will enhance the likelihood of developing strategies mutually acceptable to both the customer and the Bank. An amount may be classified as a regular Account from Early Alert Account status when the symptom, or symptoms, causing the Early Alert classification have been regularized or no longer exist. The concurrence of the RM approval authority is required for conversion from Early Alert Account status to regular account status.
Recovery unit shall primarily look after following actions Determine account action plan/ recovery strategy.
Pursue all options to maximize recovery, including placing customers into receivership or liquidation as appropriate.
Ensure adequate and timely loan loss provisions are made based on actual and expected losses. Regular review of grade 6 or worse loan portfolio.
Introduction
xlii
Recovery Units should ensure that the following are carried out when an account is classified as sub standard on worse:
Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or advances should be restricted.
CIB reporting is updated according to Bangladesh Bank guidelines and the borrowers Risk grade is changed as appropriate.
Introduction
xliii
Loan loss provisions are taken based on Force Sale Value (FSV).
Loans are only rescheduled in conjunction with the large loan rescheduling guidelines of Bangladesh Bank. Any rescheduling should be based on projected future cash flows, and should be strictly monitored.
Introduction
xliv
grade 7. Where the customer is not cooperative, no value should be assigned to the operating cash flow in determining Force Sale Value. Force Sale Value and provisioning levels should be updated as and when new information is obtained, but as a minimum, on a quarterly basis in the CLR.
1. PERFORMANCE ANALYSIS
The main object of a bank when it sanction loan to its clients, share the risk of the business or any other economic activities for which the client takes the loan. It is very much important for a bank to identify profitable business plan of clients. At the same time they are concern about the risk of the business. Credit risk grading system helps them to take decision to invest and sanction loan against the client's proposal.
In this chapter of the report, real life example of credit granting system and its implementation are shown. Here, all the data those are listed are original. These data are collected from client's annual report. At the same the bank is bounded to its customer to reserve the information of clients. This information is also confidential. For that reason the identity of the clients are hidden here & they are introduce here as X Group & Y Group.
Based on CRG report credit granting decision are different for new client & existing client. In case of new client the CRG score must be over 75. But for the existing customer it is considerable depends on their previous performance with the bank. In this case CRG score over 55 is considerable. Here X Group is new client to Standard Bank ltd. And Y Group is existing customer to the bank.
Introduction
xlv
Financial risk analysis: Risk that counterparties will fail to meet obligation due to
financial distress. This typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor liquidity, low responsibility & insufficient cash flow.
Management risk analysis: Risk that counterparties may default as a result of poor
managerial ability including experience of the management, its succession plan and team work.
Security risk analysis: Risk that the bank might be exposed due to poor quality or
strength of the security in case of default. This may entail strength of security & collateral, location of collateral and support.
Relationship risk analysis: These risk areas cover evaluation of limits utilization,
account performance, conditions by the borrower and deposit relationship.
2.1 CRG REPORT OF TWO COMPANIES Table 7: Risk grading score(X group)
Borrower:
Fashion
Export
Aggregate Score:83
Introduction
xlvi Ltd.
Branch Manager
Number 01 Superior
Grade SUP
government/International Guarantee. 02 03 04 Good Acceptable Marginal/Watch List 05 06 07 08 Special Mention Substandard Doubtful Bad & Loss SM SS DF BL 55-64 45-54 35-44 <35 GD ACCPT MG/WT 85+ 75-84 65-74
Bank
Criteria Weight
Parameter
Score
Actual
Score
Parameter Obtain ed
Debt Equity Ratio (x) 0.26x to 0.35x Times Total 0.36x to 0.50x
Introduction
Net Worth.
All calculation should 2.01x to 2.50x be based on annual 2.51x to 2.75x financial of the statements More than 2.75x borrower
(audited preferred).
2. Liquidity: (15%)
15 14 13 12 11 10 8 7 0 15 14 13 12 10 9 7 0
2.18
13
Current Ratio (x) 2.50x to 2.74x Times Current Assets 2.00x to 2.49x to Current Liabilities 1.50x to 1.99x 1.10x to 1.49x 0.90x to 1.09x 0.80x to 0.89x 0.70x to 0.79x Less than 0.70x 3. (15%) Operating Margin (operating profit/sales) x 100 Profitability: Grater than 25% 20% to 24% Profit 15% to19% (%) 10% to 14% 7% to 9% 4% to 6% 1% to 3% Less than 1% 4. Coverage: (15%)
12.36%
12
Interest
Coverage
Ratio (x) Times Earning before More than 2.00x More than 1.51x Less than 2.00x More then 1.25x Less than 1.50x 5 4 3 12.57 5
Introduction
xlviii More than 1.00x Less than 1.24x Less than 1.00x 2 1 0
50
42
Criteria
Weight
Parameter
Score
Actual Parameter
Sco-re Obtain ed
1.Size of Business(Sales in >60.00 BDT Crore) 30.00 59.99 10.00 29.99 The size of the borrowers 5.00 9.99 business measured by the most 2.50 4.99 recent years total sales. <2.50
5 4 3 2 1 0
53.88 core
> 10 Years the > 5 10 Years the 2 5 years <2 Years Favorable
3 2 1 0 3 2 1 0
> 10 Years
borrower
engaged
Stable
market share and economic Cause for Concern factors. 4.Industry Growth Strong (10%+) Good (>5% - 10%)
3 2
Good
Introduction
5.Market Competition
2 1 0
Moderately competitive
6.Entry/Exit Barriers
2 1 0
Average
Total Business/Industry
Score-
18
14
Criteria
Weight
Parameter
Score
Actual Parameter
Sco-re Obtain ed
The quality of management the related line of based on the aggregate number business. of years that the Senior
10 years
Management Team has been in 5-10 years in the the industry. related business. line of 3
1-5
years
in line
the of 1
related business.
Introduction
in 0 3 Very Good 3
Moderate
Poor
0 12 12
Criteria
Weight
Parameter
Score
Actual Parameter
10% Fully pledged 4 Registered Hypothecati on charge Pari Registered 3 (1st /1st passu 3
Charge)
Introduction
li Hypothecation (1st charge /1st Pari passu Charge) 2nd charge/Inferior charge Simple hypothecation/Negative lien on assets No security 1 2
(Property Location)
Registered mortgage on Pourashava/Semi-Urban Area property. Equitable Mortgage on No property but Plant and Machinery as
3. Support (Guarantee)
Personal Guarantee with high net worth or Strong Corporate Guarantee Personal Guarantee or
net worth
Introduction
10
Criteria
Weight Parameter
Score
Actual Parameter
Sc ore Ob tai ne d
10% More than 3 years accounts with faultless record. 5 More years Accounts with Less than 3 years 4 faultless record than 5
payments.
Introduction
liii of Limit More than 60% 40%-60% Less than 40% 2 1 0 2 Non1 0 1 Personal accounts the business Sponsors/Pri nciples are of key 1 Full Compliance 2 More 60% than 2
2.
Utilization
(actual/projection)
3.Compliance Covenants/Conditions
4.Personal Deposits
10 100
10 81
Introduction
Borrower:
Branch Manager
Number 01
Grade Superior
Short SUP
02 03 04
GD ACCPT
85+ 75-84
MG/WT 65-74
05 06 07 08
SM SS DF BL
Criteria Weight
Parameter
Score
Actual
Score
Parameter Obtain ed
Debt Equity Ratio (x) 0.26x to 0.35x Times Total 0.36x to 0.50x
Introduction
lv 12 11 10 8 7 0
Liability to Tangible 0.51x to 0.75x Net Worth. 0.76x to 0.1.25x 1.26x to 2.00x All calculation should 2.01x to 2.50x be based on annual 2.51x to 2.75x financial of the statements More than 2.75x borrower
(audited preferred).
2. Liquidity: (15%)
15 14 13 12 11 10 8 7 0 15 14 13 12 10 9 7 0
1.71
12
Current Ratio (x) 2.50x to 2.74x Times Current Assets 2.00x to 2.49x to Current Liabilities 1.50x to 1.99x 1.10x to 1.49x 0.90x to 1.09x 0.80x to 0.89x 0.70x to 0.79x Less than 0.70x 3. (15%) Operating Margin (operating profit/sales) x 100 Profitability: Grater than 25% 20% to 24% Profit 15% to19% (%) 10% to 14% 7% to 9% 4% to 6% 1% to 3% Less than 1% 4. Coverage: (15%)
11.50%
12
Interest
Coverage
Ratio (x) Times Earning before More than 2.00x More than 1.51x Less than 2.00x 5 4 7.36 5
Introduction
lvi More then 1.25x Less than 1.50x More than 1.00x Less than 1.24x Less than 1.00x 3 2 1 0
Interest on debt
50
37
Criteria
Weight
Parameter
Score
Actual Parameter
1.Size of Business(Sales in BDT >60.00 Crore) The recent size of the 30.00 59.99 10.00 29.99 borrowers 5.00 9.99 sales. <2.50 business measured by the most 2.50 4.99 years total
5 4 3 2 1 0
8.20 core
3 2 1 0 3 2 1 0
> 10 Years
borrower engaged in the primary 2 5 years line of business 3.Business Outlook <2 Years Favorable
Stable
Critical assessment of medium Stable term market factors. 4.Industry Growth Strong (10%+) prospects share of and industry, Slightly Uncertain economic Cause for Concern
Good
Introduction
5.Market Competition
2 1 0
Highly competitiv e
6.Entry/Exit Barriers
2 1 0
Average
18
11
Criteria
Weight Parameter
Score
Actual Parameter
Score Obtain ed
The quality of management the related line of based on the aggregate number business. of years that the Senior
Management Team has been in 5-10 years in the the industry. related business. line of 3
1-5
years
in line
the of 1
related business.
Introduction
in 0 3 Very Good 3
Moderate
Poor
0 12 7
Criteria
Weight Parameter
Score
Actual Parameter
10% Fully pledged 4 Registered Hypothecati on charge Pari Registered 3 (1st /1st passu 3
Charge)
Introduction
charge /1st Pari passu Charge) 2nd charge Simple hypothecation/Negative lien on assets No security 0 1 charge/Inferior 2
Registered mortgage on Pourashava/Semi-Urban Area property. Equitable Mortgage on No property but Plant and Machinery as
3. Support (Guarantee)
No support/gua rantee
Introduction
10
Criteria
Weight Parameter
Score
Actual Parameter
Sc ore Ob tai ne d
Less
than
years
payments.
Introduction
lxi account.
2.
Utilization
of
2 1 0 2 Non1 0 1 .
(actual/projection)
3.Compliance Covenants/Conditions
4.Personal Deposits
depository
10 100
9 70
Here the proposal of X Group must be permitted. Because under banks policy the proposal which achieve more than 75 in CRG analysis must be approved. The CRG score of Y Group is 70. It is under consideration margin. But they are existing client and their past record with the bank is encouraged able. So their proposal is also approved.
Introduction
lxii
Past due principal or interest payment allowed in the account and the clients are alerted about it by banks. Loan terms and conditions are monitored. The credit officer monitor that the client breaks any terms and condition. Financial statements are received on regular basis that help to realize the performance and growth of the clients business. Timely corrective action is taken to address findings of my internal, external or regulator inspection/ audit. Over all of these, bank believes that personal communication corresponding relation is the best way to recover the loan. Credit officers are very much alert about it and they communicate with borrowers time to time by telephone or by letter. Even some time they went to borrowers office to know about the condition of his business and information him about his loan condition.
The recovery rate of X & Y group is good. They paid their entire installment in time. Even Y group already completed its entire installment in last year October. They have no over dew payment. As a new company X group some time failed to pay installment in time. But they add the over drew payment with their next payment time with over dew charges.
Introduction
lxiii
In recent Years, The banking business of Standard Bank Limited is developing at a faster rate. Although the banking business loading day by day there are also some problems in Narayangonj Branch: There is no efficient Management Information System. According to some clients opinion introducer is one of the problems to open an account. If a person who is new of the city wants to open account, it is a problem for him/her to arrange an introducer of SB or CD accounts holder. Modern technical equipment such as computer is not sufficient in foreign exchange department. As a result the exchange process makes delay and it is also complicated. There is no customer complaints desk for this reason it is sometimes occurs as an irritate matter. There is lack of training program for the SBL employees. Internal conflict within the employees, which is not good sign for development of SBL. SBL employees are not perfectly trained in e-banking. Sometime problems arise due to the system failure and a long queue is found during the system failure. System failure gives arise to a longer time in providing Services. SBL Bank does not have VISA card, ATM card Facilities for their clients.
SUGGESTIONS
AN ANALYSIS OF CREDIT MANAGEMENT SYSTEM OF STANDARD BANK LIMITED
Introduction
lxiv
It has focused on enhancing the long-term sustainability of the bank, building value for the shareholders, employees and the wider community. Its activities are driven by ethical business practices and a sense of responsibilities to all stakeholders. As per earliest observation some suggestions for the improvement of the situation in Narayangonj Branch are given below: To arrange more employee for better allocation of work. Banking is a service oriented marketing. It business profit depends on its service quality. That why the authority always should be aware about their service quality. Standard Bank Limited should give more attention to creative advertisements to create more attraction among their customer, which is collect, more deposit and increase investment scope. Training program should be taken more seriously because some employees are dont understand some programs but they are already trained those programs. In addition, with the present services they should include more services; e.g. ebanking, 24-hours customers. The bank should introduce VISA card, ATM card facilities to provide better services to the customers. Need to extend Branch Network and more new branch to be opened in new areas and other Cities and Towns of Bangladesh to reach out the Potential Customers. Sufficient computer and equipment should be provided to do the work in a specific way. .
Introduction
lxv
CONCLUSION
From the practical implementation of customer dealing procedure during the whole period of practical orientation in Standard Bank Limited, I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking scholar. Performance of Standard Bank Limited, during the last two years has proved that with strong desire and will power one achieve whatever target he may have. Almost all the leading banks in our country have various extra facilities in offer for the customers in comparison with Standard Bank Limited, but the bank has succeeded in achieving more customer than many other competitors. This has been Possible only because of strong customer relation and excellent customer service.
Standard Bank Limited deals with Customers of all classes, ages, etc. The Bank provides maximum Services with minimum time. The Banks integrated Technical Services make the Customers life easier. Day by day, SBL is increasing its Services by adding different Banking Software. As a result the Bank is now capable to give the Services of International Standards to its Potential Customers. These Services make Standard Bank Limited unique in the Banking Business in the Private Sector of Bangladesh.
It was great pleaser for me to do my internship program in esteemed organization like SBL. I think it provides me a wide range of scope to observe the operation of bank. Overall, the bank must make appositive attempt to be more outward looking in there goals and aware of what is happening. I hope, in spite of my all limitations, this experience of sharing works with such working environment will help me a lot in professional life.
Introduction
lxvi
SBL
BI
Banking Industry
DD
Demand Draft
TT
Telegraphic Transfer
SND
MFDR
LTR
ATM
SOD
Secured Overdraft
KYC
TIN
CIB
SME
L/C
Letter of Credit
Introduction
lxvii Overdraft
OD
IBC
OBC
LBC
BIBLIOGRAPHY
http://bangladesh.search.combd/HT/_T0234.htm Several Booklets from Standard Bank Limited. Several Newsletter Standard Bank Limited. Annual Report of SBL 2008 Annual Report of SBL 2009 Annual Report of SBL 2010